Thinking about cloud based productivity tools, it seems that there is a lot of perception issues that I’d like to help clear up. The recent IPO of Jive and the incredible mis-perceptions of accounting over at Salesforce.com are certainly shading my view of the space (that and my short position in Salesforce.com). Similarly I won’t be shy to admit that the ownership of Microsoft stock and the financial compensation I get from Microsoft are also shading my view. Despite those factors I am looking the industry as a whole here and not a particular firm or a specific aspect of competition. I see a lot of great non-Microsoft products and I see a lot of reasons why there is a bull story in Salesforce.com
The generally accepted model of the industry sounds something like this… There are a number of firms – Salesforce.com, Jive, Oracle, Lithium, SAP, IBM, Microsoft, & Zoho. All of which are trying to be in the market that Salesforce.com created – the enterprise cloud market. Out of all these firms – SAP, Oracle, IBM, & Microsoft are trying to catch up and Salesforce.com is working on innovating beyond the initial enterprise cloud market that they created. This market is growing so much that the old stodgy firms like Oracle are buying lackluster companies to catch up and new entrants are having a go at entering the industry because of the tremendous growth there.
This seems like a fair model for what the industry looks like… at least until you peel back the covers a little. When you start thinking about the different firms and really categorizing them you come up with a different model, one where the competition between the different firms happens on a number of different levels.
|Integrate with existing platforms||Full suite||Cloud First||Also offers Cloud App Platform||Rich Toolset||Price||Profitable?|
Obviously there are a lot of differences amongst all of the firms and the picture isn’t as one-sided as one might think. For example Zoho offers nearly the same feature set as Salesforce.com but at a price point that is drastically lower (What would cost $65+ at Salesforce.com is only $25 max at Zoho).
If we look at just the firms that integrate with existing platforms which would be those firms that integrate their relationship software existing solutions that they are already putting in the hands of their customers (e.g. Outlook, Web Portal, etc.), there are several firms that are offering tighter and tighter integration. In comparison to the firms that do not have this level of integration, it is pretty easy to see how if a business manager spends all their time in a particular web portal already or in a client like Outlook, the adoption of those tools will be easier than if the tools are in a separate location. Thinking about Facebook, YouTube, and Twitter – the premium of consumer social tools – this concept is easy to understand. We like to have our status updates, location check-ins, running stats, and photos integrated across the usual interfaces (namely a portal of our choosing & our cell phone). We don’t have separate portals for our photos any longer – they are all on Facebook now. We don’t really go watch online videos that aren’t sourced from YouTube – ok, maybe occasionally – but usually we end up on the YouTube site or YouTube videos posted on Facebook. The point is that when the tools integrate with us in the interfaces that we are already using, we are more prone to use them. This is why the firms above that can do this have some level of competitive advantage over the firms that can’t (sorry Zoho).
If we examine the matrix above at another level, for example those that also offer an application cloud we gain insight on an entirely different level. Amazon, Google, Microsoft, and Salesforce.com are all building cloud based application infrastructures. Not that they are the only ones that compete in that space (which makes this an interesting pivot to compare everyone on), but they compete in that space and they compete in the cloud based productivity space. This is interesting because Salesforce.com has purchased a lot of good branding in the space with Heroku… but Heroku isn’t a major part of their business yet. Looking at the main competition – AWS – we see a continued level of innovation and penetration into the space. Of course Google and Microsoft are quickly picking up the tail end of this space and I am personally seeing the growth of Azure in the enterprise space. I honestly can’t see a world where AWS and Azure aren’t the two top firms here in the near future.
We could get into the others, but I think you see how to view each of these categories. The broader picture that I am attempting to write about is not the specific details on this matrix but where these firms sit in the industry together. Is Salesforce.com the only cloud player that offers CRM & other productivity tools? Absolutely not. Are their CRM customers likely to also be Heroku customers? Probably not. Are customers likely to cut their teeth on the lower cost or more vocal brands and later move to the more integrated brands? They usually do (look at the past competitions that Oracle & IBM have been involved with).
Thinking about that short position of mine in CRM, I could outline the accounting signs that point to the problems that are happening there, but I think that has already been performed well and has been validated by the analyst community. I could discuss the difficulty with their sales and how their new accounting changes attempt to hide those difficulties – again this has already been done. I would like to add to this growing base of knowledge that inside of the cloud industry (where I earn a salary), there is a lot of momentum from a lot of different angles. The large deals that Salesforce.com is claiming validates their leadership position are nowhere near the reach of their competitors. As Zoho eats up the very long tail of CRM offerings that Salesforce.com grew up on, IBM, Oracle, SAP, & Microsoft continuously offer improved services to the smaller number of large customers. With these pressures Salesforce.com is pushing outwards into areas where other competitors are standing by – Amazon is waiting in the application space, Saba is waiting in the learning space, Atlassian is waiting in the blog/wiki space, and all of these spaces where there is an existing leader have Microsoft, IBM, & Oracle on the heals of establishing significant customer bases. This means that top line prices of these services will necessarily decrease, the associated margins will necessarily decrease, and the only firms that will survive here will be those that can operate efficiently. Looking at Salesforce.com’s strategy, they do not appear to be doing anything to operate efficiently, they are acting like a growth company in an industry that is starting it’s saturation process. Yes there are still customer’s to be won, but the sheer number of firms in the space who bounded over the barriers to entry are starting to saturate the market and it is this reason that there is so much controversy around Salesforce.com’s accounting practices and associated stock sales from executives (remember the research shows that insider transactions are a 1-2yr indicator). No one has come out and said it, but the cloud productivity industry is full enough that the winners will be the most efficient – not the fastest as was the case a couple years ago when this was still a growth industry. I am not saying that the cloud industry has no growth left in it – I am saying that the cloud productivity industry has attracted enough firms that are well proven that it is no longer a growth industry.
Thinking about that long position of mine in Microsoft, I think it is obvious that they have a long hard road of being the most efficient. This is easy when looking at their task in comparison to Oracle who has traditionally been a high brand/high margin player. Not as much so when looking at their task in comparison to IBM or Google who are very good at being efficient or being very willing to “invest” a lot of money until they get something right.