Reality Check | Ephraim Schwartz » SaaS favors Google over Salesforce

April 08, 2008 | Comments: (0)

SaaS favors Google over Salesforce

TAGS: Google, IT strategy, Outsourcing, SaaS, Web 2.0

To say that strategy and technology are finally becoming interlinked in business is pure BS.

It has always been thus.

I'm certain that when the first cash-register salesman convinced the first general-store owner to buy a cash register, the sale went through because he was able to convince the owner that this new technology would improve the general store's bottom line.

SaaS as strategy
Even when companies bought and failed to successfully deploy technologies for technology sake in the late '80s and early '90s, you'd have to say they were well-intentioned. By that I mean, no company decided to spend $100 million on SAP R3 because it was cool technology. Some cash-register salesfolks reincarnated as SAP sales representatives convinced them it would, eventually, improve the bottom line.

There is a difference today, however, as Web 2.0 and SaaS (software as a service) are emerging to create technologies that perfectly serve businesses virtualization as a business strategy.

According to Ben Pring, vice president at Gartner Research, virtualization is just a synonym for the ongoing trend to outsource more and more processes.

Call it what you will, Web 2.0 or SaaS, coupled with outsourcing is a match made in heaven.

"First companies bought SAP instead of using home-grown ERP; then they used companies like EDS to handle customer support; now SaaS is just another version of this story," Pring says, who will elaborate on these points at the Gartner Symposium/ITxpo in Las Vegas this week.

I suppose this is all about that old chestnut, "Focus on your core competence and let somebody else do the rest."

But what Pring predicts will happen next really caught me off guard. He believes that a company such as Salesforce.com can grow linearly during the next three to four years but that there will be no exponential, sudden leap in the number of customers it serves. And if it did happen, Salesforce.com couldn't handle it anyway.

Enter a company like Google.

"Google is prepared for the exponential. They built out the architecture and the infrastructure to manage that kind of growth," Pring says. Whereas Salesforce celebrated its 1 millionth user a couple of months ago, it is estimated that Gmail serves well over 5 million users.

What's more, as I mentioned in "A step closer to the integrated cloud," Google is looking to acquire ISVs from the CRM, ERP, and BI markets. By combining those offerings with front-end productivity applications, Google could create a service that, over time, will be hard to beat -- a back-end, front-end suite that Pring believes businesses will more readily buy than anything Salesforce develops via its AppExchange partnership model.

Google: Point SaaS solution killer
Google certainly has the cash to acquire ISVs to round out a complete application suite. Perhaps we are witnessing the oncoming death of point SaaS solutions in favor of those who can offer complete solutions and back it up with infrastructure that the enterprise respects. If this is the case, Google’s brand, positioning, and perception of reliability -- real or imagined -- means that Google will soon pose a significant commercial threat to all traditional ISVs.

In this, Google represents the changing of the guard, one that heralds a new wave of upstarts who know how to exploit the Internet. As I said up top, strategy and technology are and always have been interconnected. But companies like Google understand better than most how to leverage the emerging Web 2.0 technology in order to give companies a competitive edge.

Yes, Salesforce opened the door. But it may be Google and its kin who will be the ones to boldly step through.

In the short term, Pring advises enterprises to review their application portfolios to ascertain where SaaS can deliver advantages and then go about making the best use of it. But remember, there are not that many areas where SaaS is part of the equation today. CRM, HR -- but beyond that, there is not a lot out there, yet.

For the long term, Pring suggests keeping your eyes on the SaaS and Web 2.0 vendors but also watch how the old-guard likes of Oracle, SAP, and Microsoft respond.

My advice? Outsourcing, in all of its forms, sounds good in theory, but as outsourcing initiatives have proved over time, it takes solid analytical thinking to understand where it makes sense and where it doesn't.

Posted by Ephraim Schwartz on April 8, 2008 03:00 AM

RATE THIS ARTICLE: