Today was CloudForce in London – SalesForce.com’s big event, which is touring the world, and touted as “your chance to get the insight you need to take advantage of cloud computing and salesforce.com applications in 2009.” And that’s probably where the problem starts. There wasn’t much cloud on show, at least not cloud computing as I understand it.

They had me in the palm of their hand. I was waiting to be wowed. Marc Benioff, Salesforce.com’s highly energetic Chairman and CEO took to the stage and had at it like a fervent preacher, although one who’d slightly forgotten his gospel, having to glance down at his autocue as he stumbled over customer and competitor names, but that didn’t dim his obvious passion for what SaleForce.com had to offer. SalesForce.com has done a great job of selling to sales people. It is an excellent pipeline management tool for sales managers, and dashboard provider for exec teams, and I’ve used it successfully from both of those angles in the past.

However, during the day, salesforce was promoted as a customer service management tool, a financial data management tool, a content management tool and a social media monitoring tool. That’s a big stretch from where they started. Add to that, a firm claim on the cloud space. Benioff said that they had been “talking cloud” for ten years.

Salesforce.com is certainly evolving from a SaaS-based CRM provider, where it has done well, to a PaaS (platform as a service) provider. That puts it on a direct collision course with the likes of Amazon and Microsoft’s emerging Azure platform, as well as Google’s very own App engine. Those are big players, one’s that know their apples and pears.

During the morning Benioff made a big play about their ‘live demos’ and that’s where the wheels came off for me. Not in the demos themselves, they were super slick and flawless, almost too good to believe. And indeed they were. Orange was touted as a major customer, with 10,000 Orange customers claimed to be using SalesForce.com’s Facebook monitoring application. The problem was, the orange customer service twitter account used in the ‘live demo’ was a fake, as Redmonk’s James Governer discovered after tweeting about it (tweets in reverse chronological order):

And digging into the account they used as the example customer, well, that was a fake too, as you can see from their stream:

2 updates, 4 followers. In fact there’s a veritable ecosystem of fake accounts around ddbenson. Now, I have nothing against demos with dummy accounts. I’ve done the occasional one myself. Sometimes needs must, and they are important to protect people’s privacy, but when you do them, call them as such. Both James and I had asked our Twitter followers if they had any experience of interacting with Orange customer services via twitter. That’s a good few thousand people between the two of us. The answer? Nothing. Not a sausage. And why would there be? If Facebook asked you to install a SalesForce.com app into your profile would you? No, you probably wouldn’t. I even trawled Facebook trying to find this mystery app, but couldn’t see anything with more than 40 users. I’m clearly missing something here, since the Facebook integration was heavily promoted during the day.

There was much talk of how great SalesForce.com is, what wonderful things they do and their commitment to ‘the social contract’ (and their 1:1:1 model) and heavy claims for their social media credentials. A fair few people left during the keynote session, some tweeting their departure, and there was a general shuffling of feet around me as the pitch went on.

The sales pitch just didn’t seem to be connecting with those around me. Sure, the bloggers and journalists were comfortable at their big desks, with coffee and Ethernet connections, but talking to the customers and potential new SalesForce.com users in the pews, there seemed to be a general disquiet. “How am I going to use this for my support organisation?” asked one attendee, “the maintenance windows don’t allow me to run 24/7″. And indeed, while SalesForce.com proclaims >99.9% (the same uptime as this web hosting provider), that doesn’t include the scheduled maintenance windows, when they do their software upgrades. That’s the “No software” company’s software upgrades.

They are certainly transparent about system availability, with a real-time view of their operations, although that is fairly standard for a large service provider these days.

no software dude hugs me at cloudforce 09 on 12seconds.tv

Now, maybe I’m just smarting because I didn’t get hugged by the no software guy, but maybe that was because he was keeping his distance. I wanted to ask about the software the sales team had to run on their Blackberries to use SalesForce.com. I wanted to ask about the iPhone software from SalesForce.com. I wanted to know if they were going to support the Nokia platform that I happen to like, and what their plans were for Windows Mobile. Lots of software to ask about.

Anyway, you can watch the whole keynote - the SalesForce.com team got the content up quickly. I’ll write more about the new features just as soon as I have checked them out.

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The post pivots around an interview with Harry Debes of Lawson Software. He predicts that SaaS will go nowhere, putting it in a bucket with ‘service bureaux’ and ‘application service providers’: 

“SaaS is not God’s gift to the software industry or customer community. The hype is based on one company in the software industry having modest success. Salesforce.com just has average to below-average profitability… …One day Salesforce.com will not deliver its growth projections, and its stock price will tumble in a big hurry. Then, the rest of the [SaaS] industry will collapse.

Salesforce.com’s Q2 Fiscal 2009 Financial Results (PDF) put them at $263 Million in revenues and GAAP EPS of $0.08. They were guiding at >$1Billion for FY09 revenues. Lawson’s Q4 2008 revenues were $233 million, so this is big boys talking big talk. Debes again:

“People are stupid. History has shown it repeats itself, and people make the same mistakes.”

Selling services and selling products are fundamentally different. Yes, the big software houses sell services to back up their product offerings, but that is very different than being a services-lead business. Customers expect different things, which makes it very hard to transition from one to the other. Few businesses have done it successfully.

If you are looking to SaaS, you want to choose a supplier that has a good attitude towards data portability and security and an exemplary ability to manage and run data centers to strict SLAs. Either that or back-off to someone who has, and then have robust processes between the customer and that third party. That’s a very different set of attributes than you’d be looking for in an on-premise software vendor.

With the SaaS market growing so rapidly, that’s going to result in green eyes over in the on-premise software camp. Vendors can’t run build out SaaS on a product business model. The economics are different, and are currently changing rapidly. Back to Debes again:

“all your costs are up front and your revenue is over a five-year period, the more you sell, the more you lose… …You don’t break even till the four-and-a-half-year mark, but here’s a bigger problem: there’s no guarantee that that customer is still going to be yours in four years’ time”

The last part is exactly why businesses should be looking at SaaS – more leverage over the vendors. Yes, that’s bad news if you are a vendor, but only if you are afraid to play in a more competitive field. As to the economics, the SaaS vendors now have the opportunity to back the up front costs off to a Cloud service. These days, if a service is loosing more the more it sells, it’s time to take the product manager outside for a quiet word. There really is no excuse.

What we have is a win-win for the user and the application provider. The service bureaux was a rather wonderful thing, I’m just about old enough to remember them. They had a long and profitable life, and let businesses get on with their business. New applications could be turned up rapidly, and you had the benefit of their scale and buying power.

The ASPs got killed in the aftermath of the dot com bust, essentially collateral damage. So I’d say Debes is wrong, dead wrong. Far from off-premise software being a blip, I’d argue the exact opposite – our love affair with the PC and on-premise software is the blip. SaaS and Cloud Computing are simply the industry reverting to sanity.

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