Will Salesforce.com’s Apex Strategy Succeed?

Salesforce.com on Tuesday announced it has acquired content management software vendor Koral. At a luncheon served up at the Four Seasons Hotel in San Francisco, CEO Marc Benioff said that document management is a core element of the company’s platform strategy. That strategy has been rolling out in bits and pieces since the company announced its Apex platform last year.

However, it should not come as any surprise to savvy market observers that things like document management would comprise part of the company’s approach to the market.

For many people, trying to figure out what Salesforce.com is about can be like the blind men touching an elephant trying to figure out what it is.

Salesforce.com has a CRM business that is currently bringing in most of its revenue, a platform business that is just getting started but which shows real promise, and a bulk services business essentially selling undifferentiated seats that partner applications have tuned to specific uses.

There might be other business plans but those are the ones that are most apparent to me. If you think about it from a Darwinian perspective, though, Salesforce.com’s actions make perfect sense because it is acting in a highly adaptable fashion.

The Microsoft Legacy

As you know, evolution selects the best designs from all those available and lets them replicate. The trouble is that one never knows what the future holds, and so no one can say for certain which designs will be selected. That’s where variation comes in to play.

In life, variation means expressing life in many different forms or species with many alternatives within each type. The business equivalent of a species is a business plan and Salesforce.com is investing in several business plans simultaneously.

Salesforce.com is not inventing anything here. As far as I can tell, the all-time champion in generating and pursuing multiple business plans simultaneously might be Microsoft. Back in the 1990s, when Microsoft was generating revenues just north of US$300 million — a little smaller than Salesforce.com is today — Microsoft invested in eight different business plans.

Microsoft wanted to be the leader in graphical operating systems but Windows 1.0 and 2.0 were disappointments. The company also had to contend with the fact that IBM was introducing a new computer, the PS/2, which it wanted a new multitasking operating system for, which became OS/2. There was also serious competition from Unix and its champions, as well as competition for desktop applications on the PC and the Mac. There were other challenges, too, but these are the most germane.

In retrospect, we might like to think that Microsoft simply made a big bet and won with Windows and Office, but at the time it was not a sure thing.

Rather than making a big bet, Microsoft made many relatively small bets. It worked with IBM on OS/2, co-opting a potential competitor and then taking what it learned to Windows.

It also continued its strategy of building Office applications and continued building them for the Mac, as well. At one point, it was the largest software developer working on that platform.

Microsoft also continued investing in Windows and hit pay dirt with Version 3.0, which rescued its MS-DOS business. In addition, Windows was a major reason for the continued success of Office.

Today, Microsoft still has a lot of irons in the fire from software to home entertainment to games and much more — it continues to feed each one, looking for the next big hit. In a way, it is no different than a venture capitalist nurturing a portfolio of companies or, for that matter, Salesforce.com feeding several related businesses.

As with Microsoft and Windows, I think Salesforce.com knows that the success of the platform is partly dependent on the success of the individual applications that run on it. For that reason it is working hard to ensure that the Apex platform offers as many ways to build applications as possible. It is also working hard to breathe life into the idea that all applications developed on the platform do not necessarily have to relate to CRM per se.

Corralling Koral

The Koral acquisition will anchor a new Salesforce.com offering, Salesforce ContentExchange, a Web 2.0 service for managing corporate content.

In the scheme of things, acquiring Koral is an important addition to the company’s platform technology because it gives Salesforce.com, its users and partners the ability to capture, index, manipulate and use unstructured data, including documents. It also gives developers wider latitude in the kind of applications they build.

There is a large swath of application types that require more than relational data in key verticals — including finance, healthcare, technology and media, to name a few — where document management, not just data management, are baseline requirements.

With one key acquisition, Salesforce.com has significantly increased the number and kind of applications that can be built with its platform technology and, in so doing, it has increased the potential developer and partner community as well.

Will this strategy succeed? Hard to say, but it certainly increases the variability of potential offerings and in so doing increases the chance that something in the portfolio will make it big.

As a business proposition it doesn’t get much better than that.