This continues a series of columns from practitioners I respect. The category "Real Deal" describes them well.
This time it is Bruce Richardson who joined Salesforce in 2011 as the Chief Enterprise Strategist. He may be best known for his coverage of the enterprise applications market during his 20-year tenure as Chief Research Officer at AMR Research (now part of Gartner).
In his new opus SAP Nation, Vinnie Mirchandani makes a compelling argument that SAP’s reliance/overt dependence on system integrators and partners has resulted in deep estrangement from customers. After SAP sold the licenses, it let a host of third parties assume responsibility for new implementations, instance consolidations, ongoing support, and upgrades. This created an irreparable chasm between buyer and seller.
In following the accolades and comments around the new book, some readers have asked whether other vendors are also at risk of losing touch with their customers. Some have even questioned whether Salesforce and other cloud leaders may be destined for that same fate.
While it would be fun to offer a personal spin on SAP’s past, present, and future, Vinnie has already done that with his book. Instead, let’s look at five reasons why Salesforce is different, and why it’s not destined to slip down the worm-hole.
1. No painful technology transition. The current ERP leaders took advantage of the last major tech shift in the early 90s by being the first to offer client-server apps that worked across different hardware platforms and databases. Seemingly overnight they crushed the mainframe and minicomputer vendors who failed to move fast enough to “open systems.”
Fast-forward to today and there is a similar technology shift. The ERP vendors are now in the same deathtrap as their mainframe/mini brethren. They can’t move fast enough to meet the demand for cloud solutions. Ten to fifteen years ago, they were the beneficiaries of customer demand for a single, integrated solution that spanned the whole enterprise. Now, they are trying to distract buyers with a crazed story about a hybrid architecture of on-premise software, private clouds, and Franken-app acquisitions.
Contrast that with Salesforce. When the company was founded in 1999, one of the primary design goals was to build a public, multi-tenant cloud. This commitment continues to drive out cost and inefficiencies, and makes it easier to secure.
2. Creating a unique user experience. Salesforce was the first to make using enterprise software as intuitive as ordering a book from Amazon. This ease-of-use was extended to the payment model. While subscriptions are standard today, it was a departure from how almost all enterprise software was sold at the time. It wasn’t that long ago that first time buyers were pushed to buy more software than they needed (resulting in extensive shelfware), forced to pay an annual maintenance tax of up to 22% of the software license cost, and later subject to costly upgrades every 18-36 months regardless of whether they needed any of the new features.
3. Open up the platform: ERP vendors were never good at partnering, preferring to create their own applications regardless of whether they had domain expertise. The rare exception was the “purple squirrel,” an ISV that provided a unique piece of code for a small, niche market. Salesforce took the opposite approach. The company created a “customer success platform” with shared platform services and open APIs, and allowed any and all third parties to build on top of it, including ERP vendors. Today, the Salesforce AppExchange includes more than 2,700 partner apps (nearly 3 million installations). The overall ecosystem numbers more than 1.8 million independent developers. Customers have embraced the open platform, too, creating more than half a million custom apps. Many are building new cloud apps that had been running on their on-premise ERP system.
4. Actively invest in future tech stars: Over the last five years, Salesforce has helped fund more than 100 new ventures. If you saw the recent interview with John Somorjai, SVP, Corporate Development and Strategy, the company is looking at new opportunities in machine learning and intelligence, wearables, industry-specific applications, and mobile. Salesforce’s “mobile-first” development strategy was the catalyst behind the formation of its Salesforce1 fund last fall. The company has seeded it with $100M.
5. Stay laser focused on customer satisfaction and retention: Renewal rates/attrition and customer satisfaction metrics are closely tracked at Salesforce. In a recent survey conducted by a third party research firm, 98% of customers said they will continue to use Salesforce in the future. To drive up retention, Salesforce has long offered its “Customers For Life” program whereby buyers had access to resources to make sure that they were getting the most out of their Salesforce investments. This was a first in the industry, and became an incredible success for both customers and the company.
Here is a summary of the lessons learned over the last 15 years:
· When technology is in flux, you need to make the right bet on the future. Being late to a tech shift can be fatal.
· Create a unique user experience based on ease of use and management.
· Offer an open platform. This attracted thousands of partners who helped build out the product suite and increase sales and marketing coverage.
· Continue to invest in new ideas, technologies, and people.
· Create and retain happy customers. This simple strategy and subscription model gives Salesforce executives a clear view into the future. As a result, the company has issued FY16 guidance of $6.45B to $6.5B in revenues.