Could SPM Be a Contender?

What a week. Xactly bought Centive, Salesforce.com introduced the Service Cloud, and the gridlock in Washington looks the same as ever but with new players.

If you parse the Xactly-Centive deal, you might be tempted to say, "So what?" After all, the deal was a stock swap, and the strike prices of the respective companies' stocks were not disclosed. I have watched both companies, as well as Callidus and Makana, try to breathe life into the sales performance management (SPM) market for several years, and I have some observations.

First, it's a decent market, but I can't see it being as big as the US$8.2 billion by 2010 described in the Xactly press release. Maybe I don't follow all this closely enough, but a quick back-of-the-envelope calculation tells me a few things.

The Locomotive

Callidus is a public company, and according to its Web site, the company had revenues of $100.9 million as of January 2008. Time for a refresh, guys, but close enough for our purposes. Callidus happens to be the gorilla in the corner, and if the SPM industry is going to hit the billions any time soon, I would expect Callidus to be the locomotive of the train.

Callidus is also converting from on-premise to on-demand, which means a lot of its revenues are still generated the old fashioned way -- in big dollops, not monthly trickles. What might Salesforce.com be generating if it took its revenues the old-fashioned way rather than by the morphine drip?

Salesforce is a billion-ish dollar company, and I doubt the whole SaaS sector is doing 3 billion. I could be wrong, because although I am an analyst, I worry more about whether something works and adds value to businesses than how much money an industry makes. It's just one of my little quirks.

Time and Effort

Revenues aside (which is hard to do, but let's try), SPM could be an important new market if companies like Xactly and Callidus branch into other related areas, but that will take time and effort -- and longer than two years, even in a good economy. Even if the market eventually reaches the lofty $8 billion plateau, you can expect a dog that big will attract a lot of fleas. Big dogs can enter the market whenever they want, too, so no one vendor should feel it is in a safe haven.

So, who were the big winners in the buyout? I will bet it was the investors in Centive. They've been at it since about 1998, and something like $96 million went into the company's several incarnations. My bet is Centive's soon-to-be ex-executives are very happy with that decision.

I am thinking I've seen this movie before. Companies swap stock and merge to gain size and competitive advantage -- bigger companies with better products. At some point, though, you need to make money. This time, it's different, not because the bubble won't burst -- there is no bubble -- but because of the economy.

There is no IPO market, currently, and many companies are finding that they can't borrow to stay afloat. The name of the game is make profits or go home, because as nice as a stock swap might be, it is highly unlikely that every company in need of a liquidity event will be able to find another company with deeper pockets and a desire to merge. Again, I think the folks at Centive are feeling pretty good right now. Like the pilot who landed in the Hudson River the other day, it was a soft landing, and everyone got to raft away from it.

Salesforce's Moves

I like what Salesforce did in introducing the Service Cloud, though I believe the right term ought to be "Support Cloud," since the company is leveraging social networks and community concepts to deliver support. Service still requires dealing with the vendor for things like warranty issues, payments and the like. Social networking won't help with that ... or will it?

Naming aside, though, leveraging a sophisticated community to provide support is logical and, I predict, timely. We are entering an era when we will all need to lean on each other to get some of our needs met, and Salesforce's multidimensional network infrastructure is adaptable to a lot of different community needs. For those reasons, I think the Service Cloud is one of those right-product/right-time things.

I suppose Salesforce is right now working on making this new offering more suitable to true service needs, especially because I think it sees an opening in government. Its experience powering the constituent feedback mechanism at President Obama's Change.gov will only serve to whet appetites on both sides of the transaction.

Speaking of government, I wish we could somehow send a cohort of laid-off technology minds to Washington to fix things. I don't usually get political here, and I won't delve too deeply, but it is striking how the sides have taken up their old chants like players in a bad, low-calorie beer commercial. That doesn't look like what the voters had in mind. I bet the cohort could deliver a couple of new dashboards and some new metrics before lunch and recovery by end of the week, but I digress.