CRM

INSIGHTS

Salesforce, Google and the Low-Cost Zeitgeist

Salesforce’s announcement that it would partner with Google to integrate and deliver Google Applications said more about the software industry today than it said about either company or even about the propensity of software makers to deliver Software as a Service.

The software industry, like many others before it, has always had a tendency toward bigness, though each time the dominant companies of an age reached dominance, market forces changed the rules and we were back to the beginning, more or less.

You can tell a lot about a civilization by what dominates the business-economic discussion, and you need not go all the way back to the stone age. In relatively recent eras there has been an industrial age, an automotive age, an electronics age and, as Dustin Hoffman’s character discovered in “The Graduate,” even an age of plastics. Each age was made up of industries like big railroad, big steel, big automotive or big petrochemical companies.

As each age passed, you could watch the companies that made them passing — even now we can watch as big oil liquidates itself. It is a little-remarked fact that for much of this young decade, big oil has used its tremendous profits not to look for new sources of petroleum or to invest in new refining capacity or new fuels — that’s what government handouts are for, after all — but to buy up its stock. Exxon Mobil, for example, made a shade under US$40 billion in 2006 and spent three quarters of that buying up its stock. Even at that prodigious rate, it will take many years to complete a buyback, and Exxon is not alone.

Salesforce and Google Arm in Arm

The software industry is somewhat similar in its latest incarnation of delivering its wares as services rather than products. The SaaS movement has caused a disinflation of software’s true costs, which has accompanied a financial zeitgeist that promotes all things low cost and efficient, which rewards consolidation and bigness.

So what to make of the Google-Salesforce chumminess on exhibit at the Four Seasons Hotel last Monday? CEOs Eric Schmidt of Google and Marc Benioff of Salesforce focused attention not only on their similar technology architectures but also on their corporate cultures and even their philanthropy models.

The ostensible purpose of the event was to showcase a teaming up of on-demand applications that would enhance the productivity of front-office workers who could now use all of their essential office software from the cloud rather than using installed versions from Microsoft or whoever else is still in that game.

Dowager or Dominator?

It could not have been great news for Microsoft, the dominant force in the current (last?) software era, which still gets a significant portion of its revenue from selling boxes full of manuals and CDs that contain software for installation. True enough, Microsoft is certainly still in the game with products from its Microsoft Live product line that do some of the same things that the Salesforce-Google alliance does.

I say “some” here not to qualify Microsoft out of any front office discussion. The Redmond company has much more experience in office productivity applications than Google and, many people say, a richer product set. But at some fundamental level, Microsoft is looking more and more like a dowager than a dominator, more like General Motors than Toyota, more like a company focused more on finance than on product. Much the same can be said of Oracle, which looks more dysfunctional by the day.

Where to Next?

Into that milieu, Salesforce-Google launched their partnership, and an observer may be compelled to ask, where to next? The above-mentioned zeitgeist, if it were animate rather than simply a metaphor, will approve of this partnering to the point that it will expect more, a deeper partnership and, I think, eventually an acquisition. How would Marc Benioff run Google? (LOL!)

The shared cultures and philanthropy will become one, and bigness will arrive for SaaS, just as it did for mainframe computing or client-server. However, just as nature abhors a vacuum, the software industry seems to abhor bigness, and I wonder if the arrival of bigness (again) is simply equivalent to a TV series jumping the shark.

Financial matters are what could be different this time. Previous changes-of-the-guard have always resulted in economies being achieved — mini-computers were less costly than mainframes, browser-based and on-demand applications less expensive to own and operate than client-server. However, there has always been enough cash in a transaction to make it worthwhile for entrepreneurs to innovate. One wonders, even in light of emerging platform technology, if the same will hold true this time.

There is no doubt that platforms make it easy and cheap to build software products, but will new software vendors be still able to build companies to market and sell their products absent the margins the industry has traditionally provided?


Denis Pombriant is the managing principal of the Beagle Research Group, a CRM market research firm and consultancy. Pombriant’s research concentrates on evolving product ideas and emerging companies in the sales, marketing and call center disciplines. His research is freely distributed through a blog and Web site. He is working on a book and can be reached at [email protected].


Leave a Comment

Please sign in to post or reply to a comment. New users create a free account.

CRM Buyer Channels