Global CIO: Surge Pushes SaaS Into Mainstream - InformationWeek
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07:27 PM
Bob Evans
Bob Evans

Global CIO: Surge Pushes SaaS Into Mainstream

With sustained revenue growth and growing acceptance among larger customers, the SaaS community--led by moved confidently out of the margins and into the mainstream.

So: "one of the largest-ever shifts in technology." If that's a fad, it's a darned good one.

Salesforce is winning customers around the globe, and it's winning them in competition against Microsoft and against Oracle and against SAP. And each time it wins a new account, or expands its penetration inside an existing account, it not only improves its own financial performance but knocks down another set of doubts about the viability of the SaaS model.

Again, I doubt Salesforce wants such a mantle, particularly in these challenging economic times. But life doesn't always deal us the hand we'd like, and ultimately we have to play the cards we've got. And Salesforce has a big card every single hand that says, "Keep proving SaaS is not a fad."

Perhaps the ultimate proof of Salesforce's impact resides at Oracle, where for each of the past three quarters, Oracle executives including and sometimes particularly Larry Ellison have very pointedly highlighted wins against Salesforce. In addition, Ellison even recently said that his company is into cloud computing "a little bit."

For Ellison, an astonishing admission.

For Salesforce, the ultimate compliment.

For SaaS, hugely credible legitimacy.

It's not a fad.

Longer term, as good as the CRM market has been to Salesforce, it won't sustain significant growth for much longer as Salesforce itself becomes a larger and larger company—it expects revenue this year to reach $1.27 billion. As my razor-sharp colleague Mary Hayes wrote recently in her analysis of Salesforce's blockbuster earnings report:

Still, Benioff realizes that for to continue on its rapid growth rate, it needs to keep moving beyond the CRM area. is making some progress. The company's "Service Cloud," which includes services for call centers and self-service Web portals, and its "Custom Cloud," for developing and running custom applications, represented more than 25% of new business wins, Benioff said. He did not provide details on how much they are contributing to revenues. Not all of those Custom Cloud applications fall into the general CRM area. For example, Benioff said, Crescent Health Care has developed seven custom applications that run on Salesforce systems (called the cloud computing platform) to monitor patient care, including intake and pharmacy needs.

To be sure, Salesforce and Benioff have had a lot of help lately as a range of high-growth mid-market SaaS providers are continuing to win customers across a broad range of industries and are increasingly beating giants such as SAP, Oracle, and Microsoft for significant customer engagements at large companies. Consider these recent big-customer achievements by some other key SaaS players:

*A year ago, SaaS newcomer Workday signed global contract-manufacturer Flextronics to a 200,000-seat license for HR applications. And earlier this year, Workday accepted a $75 million venture-capital infusion to help fuel product development, fund expansion around the world, and prove to prospects that other deep-pocketed investors besides co-founders Dave Duffield and Aneel Bhusri believe in the company's approach and philosophies. The company's also had significant global wins with Chiquita Brands, Sony, and others, and is rapidly gearing up to expand its product offerings into financials.

*A few months ago, SuccessFactors won a stunning victory by snatching away from SAP longtime customer and strategic partner Siemens for a 420,000-seat global license for HR applications. Siemens, one of the largest companies in the world, not only uses SAP applications around the world but also sells and supports SAP products in a few key vertical markets. Yet the Siemens board of directors—yes, the purchase decision was escalated all the way up to the Siemens board—ultimately decided that this upstart company with this unorthodox but compelling SaaS business model would do a better job. Wedbush Morgan analyst Michael Nemeroff, saying SuccessFactors is becoming an "outperformer" in the SaaS market, said he expects the company to "deliver industry-leading organic growth rates and increase market share during the economic downturn." Looking ahead to next year, he predicts SuccessFactors will increase revenue by 20% to $179.1 million.

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