The Economist on Salesforce.com

This blog was originally posted on 6/19/2004, just around the salesforce.com IPO.
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Economist.com | Salesforce.com

Salesforce.com gets it! Their new IPO stock is going to be worth the buy. They clearly have the most forward thinking execution of the ASP business model.

A fair question may be to check how big their addressable market is, and how fast can they grow. After all, how big a space can 'web-hosted SFA for small and midsized companies' be? Its what they're best known for, and that space may not have enough room for a company with their ambition and potential. They've proven leadership in serving this market segment with the ASP delivery model. They started fresh, with no baggage of a legacy product license based business model. Siebel has too much baggage to actively disrupt their license revenue streams. But salesforce.com's future growth really depends on how the scope of the adressable market is defined, and the product vision & execution to serve the larger scope.

Expansion into global markets (which they're actively doing anyway) probably expands the addressable market 3X or 4X. Point awarded. The Enterprise segment could possibly give another 3X or 4X, but neither the product, nor the ASP model, nor the market are ready for each other yet in any big way. CRM as a utility in the enterprise will be a slow evolution. And there are incumbents like SAP, Peoplesoft and Siebel entrenched in there as well with enough time to work out their ASP offerings. So no points there. A growth strategy oriented along industry verticals is nice to have, but not the most attractive growth bet for a company that has the drive to pull off a horizontal play.

But now watch where this company is going with its app dev toolkit for customization and integration, Sforce. Its truly promising. May sound a bit far-fetched right now, but Sforce contains the seeds of morphing saleforce.com into an application platform player in the web services arena. Its still a childlike newbie in the big-platform-boy's camp (read Microsoft, IBM). But if they play Sforce right, they'll be the first to distinguish themselves in building a business model around providing consumable web services to businesses. As a side effect, Sforce raises significant barriers for plain vanilla ASP followers. More importantly, it also adds the tech community as an independent customer segment for the company, in addition to the salesforce.com user communities for whom the current value proposition is fairly attractive in any case. Playing BOTH these segments is the key to a platform play. Its the edge that makes an app provider a serious alternative within a more sophisticated customer segment - the ones who are used to thinking about business & technology together, as part of a coherent strategy, not one without the other.

Part of the journey for salesforce.com is going to include getting away from the confines of a CRM and salesforce branding. The current mid-market position is actually a good place to grow up unfettered for a while. Big boys usually face struggles in serving this market well, and bungle up a lot even when they try to. A big part will have to be continued innovation in applying Service Oriented Architectures, offering consumable, customizable business objects and processes. Part will have to include broadening the scope of such processes and objects available. Part will have to involve being on top of the web services business model - high granularity in provisioning, pricing, usage metering and billing for consumed web services. Part ofcourse will have to include attracting a large tech and consulting community. Right now some members in that community are just about beginning to notice them.

But everything this company is already doing in each of the above areas shows a story unfolding that's visionary and being executed well. They have what it takes to be worth your money.