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Who will disrupt Salesforce

Jiri Kram
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קלה
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Jan 14, 2017
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להרשמה לניוזלטר

Who will disrupt Salesforce?

My recent experience with trying to achieve developer led innovation in the Salesforce ecosystem allowed me to reflect on my 11 years of experience with this platform. 

Intro

My journey to the cloud began in 2005 as a customer and it continued to 2009 when I established my first Salesforce partner, which ultimately led to my relocation to the UK to help establish Tquila, the largest EMEA Salesforce partner. That journey provided a window inside large organisations such Deloitte, Fujitsu, and TCS. During this time, I was fortunate to work closely with some of the largest Salesforce clients in the world: Vodafone, Schneider Electric, Canon, and others. This article is a reflection of my experience and a prediction of where the market will go.

State of Salesforce 2016

Salesforce became an undisputed leader in CRM. It’s fair to admit that at the moment, despite huge efforts and investments, Microsoft Dynamics CRM 365 and others are still no match for Salesforce. This has been the case for many years and is also the main reason why Salesforce is losing its footing as a disruptor and essentially becoming a legacy platform comparable to SAP. 

Implications

Salesforce is now too big to be acquired but at the same time heavily dependent on growth If growth were to stagnate in any quarter, let alone fiscal year, share price would plummet with obvious implications - no more acquisitionsSalesforce must grow year over year whatever it takes2016 is the first time in history where acquisition outpaced innovation

Follow the money

Subscriptions – this is the holy grail of Salesforce growth, unlike in previous years this growth is under huge pressure to “lock-in” customers for 3-5 years long contracts (similar to what SAP does) so they can’t leave the platform. Services – this category is heavily protected by a few players at the top, where major disruption is being caused by Indian companies that slash margins of traditional system integrators like Accenture, who are on the defensive – demonstrated by a massive amount of acquisition to destroy competition and continue dominating the market.ISV – this business model is now under siege where it’s no longer profitable to build an application for the Salesforce platform because any new ISV faces strong defence from incumbents who use their power to control many categories. A good example is Vlocity, a company funded by Salesforce Ventures and Accenture (not surprisingly the number one partner of Vlocity is Accenture). Recruitment

 – is the only area of the market that is not under the direct control of Salesforce and their top partners. Quite the opposite, recruitment is driven by a growing customer demand for control of implementations and an end to being a bill payer to Salesforce and their partners. Recruitment is the only part of the market where there is real competition and the only one that will likely become highly profitable in the long run.Investors – investing in a Salesforce based project or application is extremely risky, because Salesforce themselves, and their large partners now act as market gatekeepers trying to protect incumbents from any disruption rather than welcoming investors to their platform. This will backfire in the long run because this hostile approach will drive investors in to the arms of Microsoft and AWS, and keep only those interested in building “get-rich-quick” type companies meant to be sold to Accenture in 1-5 years’ time.

State of clouds

Sales Cloud – will likely remain the engine of Salesforce growth. Lightning rebuilt aging concepts of Visualforce and put UI on par with main competitor – Microsoft Dynamics CRM 365. Service Cloud – this part of Salesforce is the main reason why Account Executives are able to lock-in customers with 3-5-year contracts like those of Oracle or SAP. Unlike with Sales Cloud, Microsoft Dynamics is still no match for Service Cloud and the only serious competitor here is traditional rival Oracle Siebel. App Cloud – unlike in previous years, this platform lost its mojo. It was cool to develop apps on Salesforce but nowadays developers are often victims of the lobbying of incumbents who simply destroy any project that threatens to disrupt their current of future offerings. Developing on the platform creates a massive amount of risk for investors because there is no safeguard against Salesforce and incumbents killing the project just because they are working on a similar offering. Salesforce is no longer a developer friendly platform. It's now like SAP, a closely guarded ecosystem designed to deter developers who pose a threat to incumbents. Marketing Cloud – growth engine of Salesforce. A series of very smart acquisitions (Radian 6, Buddy Media, ExactTarget, Pardot) converted Salesforce into the most formidable marketing platform on the market. It will likely take competitors many years to even catch-up in this area. The only current threat is from a newly formed partnership between Microsoft and Adobe. Their challenge is that after the integration of Dynamics and Adobe Marketing Cloud, it will likely take a long time before synergies are fully realised. Community Cloud – another category where Salesforce dominates the market mostly because Microsoft made one very strategic mistake. SharePoint was for many years a closed internal only system, which was hard to customise for non-internal Active Directory users. Microsoft was also very late to recognise that keeping organisations on old versions of SharePoint (such as 2010) would block the integration of SharePoint with the rest of the organisation and beyond. Salesforce Community cloud is a direct consequence of Microsoft’s inability to recognise the true potential of SharePoint. However, with Azure, Flow, PowerApps, Dynamics 365, and of course LinkedIn, Communities now faces a formidable threat. Wave Analytics Cloud – this 2015 huge growth theme lost bit of a steam in 2016. The major challenge is a very high price point that created a massive barrier to entry for customers. So adoption is mostly driven by the activities of partners like Accenture who are able to sell Wave as part of a transformation project. The major challenger to Wave is Microsoft’s Power BI where Microsoft was quick to recognise the potential of SQL Server combined with Azure. For Salesforce to be able to defend its territory from Microsoft, it would need a major acquisition such as Tableau or Qlik. Other problems in the analytics war are Oracle, SAP, and IBM, who all invested massive amounts into R&D and can fight-off Salesforce very effectively in some major accounts.Heroku – is another growth area for Salesforce, thanks to its AWS base, which in turn makes it a main advantage and a disadvantage for Salesforce. The number one challenge for Heroku is to justify investing in a platform running on AWS as opposed to a direct investment in AWS – which is still the preferable choice for the majority of customers. If however Heroku ties closer with AWS, it will very likely get a direct Amazon investment, which would secure its position on the platform. Commerce Cloud – created by the acquisition of DemandWare, was undoubtedly a good strategic decision. Commerce Cloud combined with Sales Cloud and Service Cloud can help secure Salesforce’s position in many key accounts – while threatening Oracle, SAP, and IBM. The problem with Commerce Cloud is that Salesforce directly ventured into IBM territory, who had acquired Bluewolf, the second largest company in the Salesforce ecosystem, and will likely expand their digital offerings. Also, SAP and Oracle will retaliate by investing more to exploit Salesforce weaknesses.Thunder – is another example of the dependency on Amazon AWS. The Thunder (IoT) platform will thrive mostly from the expanding relationship with Amazon. This will however become a big challenge because the only thing that will drive this relationship ahead is the combined power to deter Microsoft. So even if we see a lot of growth here, the major winner will be AWS.Einstein – definitely a great addition to the Salesforce family but will likely hit a highly protected market. IBM, Microsoft, and AWS. The major advantage to Einstein is that, as with Lightning, when added to the core platform it will enrich core offerings like Sales Cloud and Service Cloud. 

How to Disrupt Salesforce’s House of Clouds

Let’s now address the title of this article. The answer is not a simple one. It is very unlikely that someone will build a competitor to Salesforce and disrupt all their offerings. The only competitor that can seize significant market share in all markets is Microsoft. However, it is very unlikely that Microsoft will wage war on all fronts and focus all its efforts on disrupting Salesforce. Therefore, in our disruption scenarios we will speak about the ten clouds introduced above independently.

Sales Cloud 

This cloud is the biggest Microsoft target. Microsoft has already achieved partial success with disrupting this part of Salesforce but still fails to understand the biggest weakness of the Microsoft Dynamics ecosystem. It’s a closed ecosystem and so to disrupt Salesforce you must know the weaknesses of their product, not just Microsoft’s offering. Microsoft is losing in my opinion 10-15% market share by only pushing Dynamics to Microsoft partners. They forget that Salesforce built its partner powerbase by overtaking Oracle partners. So long as Microsoft does not address this weakness in their partner model Sales Cloud is safe.

Service Cloud

I don’t believe anyone will disrupt this offering any time soon. It’s a very complicated investment case and many companies heavily invested in Service Cloud will unlikely migrate to a new platform just because Dynamics 365 slashed licence costs. There’s only one competitor who should be considered seriously – Oracle. They are, with Siebel, the incumbent that Salesforce has displaced many times but the problem with Salesforce is architecture. In many complicated operations such as CPQ in highly complex businesses in fields like Telecommunications or Financial Services, Oracle is still beating Salesforce on performance. However, the problem with Oracle is the same one as Microsoft, it’s a closed ecosystem of partners that has no chance going alone against Salesforce – they have no knowledge of what they’re up against. Again, as with Microsoft, so long as Oracle does not address this weakness in their partner model Service Cloud is safe.

App Cloud

Microsoft Azure and Amazon AWS will continue to disrupt this space. The most dangerous scenario for Salesforce would be if, just as Cisco announced quite recently, more big vendors start to abandon their own cloud projects and partner with AWS or Azure instead. For example, if IBM, HPE, and Fujitsu were to massively adopt AWS or Azure, it would damage margins on App Cloud on a totally unbearable level – forcing Salesforce to make a bet – or possibly even a joint venture with Amazon or Microsoft. App Cloud is the weakest link in the Salesforce ecosystem. Also the general attitude towards developers and investors is destroying external innovation on this platform – sending them directly to AWS and Azure. Salesforce needs to wake-up to a new reality that they are no longer the development platform of choice.

Marketing Cloud

Microsoft and Oracle will likely be pushing into this space but so long as they don’t modernise their marketing offerings it will be hard to compete with Salesforce’s marketing flagship. The major catalyst in the market will be the ability of Microsoft to integrate Adobe. 

Community Cloud

If Microsoft will, as they already demonstrated with Dynamics 365, Flow, and Power Apps, continue opening SharePoint for different use cases, not just as a “document cemetery” as one CIO nicely described previous SharePoint versions, then Azure will become a major threat to Communities. However, the same major challenge exists here as in previous cases, if Microsoft keeps its partner ecosystem closed to Salesforce they will not be able to fight off Salesforce simply because they don't know enough of Communities limits and architecture. 

Wave 

If Microsoft continues pushing Power BI and evolving their Azure ecosystem, Wave will lose market share. And if a big player like Oracle, SAP, IBM, or Microsoft buys Tableau – game over. This will very likely increase takeover bids for Tableau as well as Qlik, Gooddata, and another analytics platforms.

Heroku 

Microsoft Azure is absolutely the number one disruptor of Heroku. The challenge here for Salesforce is that Azure, unlike AWS, is built with developers in mind and provides a great UI not just for administration of infrastructure but also for development. Amazon here is a little bit behind because they still see AWS as more of an infrastructure, not as a development platform. 

Commerce Cloud

SAP and Oracle will defend this territory very aggressively. Also given IBM is, thanks to the Bluewolf acquisition, deeply embedded in the Salesforce customer ecosystem – it will be hard for Salesforce to dominate this category. This is not a “blue-ocean” type market like Marketing cloud, this is a ruthless “red-ocean” full of big hungry sharks.

Thunder

It will be hard for Salesforce to fight in this territory. Thunder is more of a “me-too” type product, because Salesforce needed to add an IoT but there’s still the question of how this will be commercially viable. The reason is very simple – AWS and Azure control their margins – they own an infrastructure while Salesforce is, as in the case of Heroku, 100% dependent on AWS. 

Einstein

This will unlikely be disrupted. The reason is because Einstein is a defence strategy against Microsoft and Oracle to entrench the position of Sales Cloud and Service Cloud, the two main Salesforce cash cows. Again, as with the previous cases, so long as Microsoft and Oracle do not recognise their major weakness – they are losing Sales Cloud and Service Cloud deals because of their low or insufficient knowledge of their partner network – Einstein will continue to entrench Salesforce.

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Conclusion

The Salesforce business model is dependent on growth, which is linked to a share price that enables acquisitions – the primary growth engine of Salesforce. So long as Microsoft and Oracle continue to ignore Salesforce partners they will not threaten Salesforce dominance. If they will do what Salesforce did to them, take Salesforce partners and enable them to sell their solution, they can disrupt the market. Without partners, they will fail, and Salesforce will continue to dominate Gartner. IBM, HPE, and Fujitsu are three other players that can shake the market if Microsoft and AWS convert them into their platform distributors.

Who will disrupt Salesforce?

My recent experience with trying to achieve developer led innovation in the Salesforce ecosystem allowed me to reflect on my 11 years of experience with this platform. 

Intro

My journey to the cloud began in 2005 as a customer and it continued to 2009 when I established my first Salesforce partner, which ultimately led to my relocation to the UK to help establish Tquila, the largest EMEA Salesforce partner. That journey provided a window inside large organisations such Deloitte, Fujitsu, and TCS. During this time, I was fortunate to work closely with some of the largest Salesforce clients in the world: Vodafone, Schneider Electric, Canon, and others. This article is a reflection of my experience and a prediction of where the market will go.

State of Salesforce 2016

Salesforce became an undisputed leader in CRM. It’s fair to admit that at the moment, despite huge efforts and investments, Microsoft Dynamics CRM 365 and others are still no match for Salesforce. This has been the case for many years and is also the main reason why Salesforce is losing its footing as a disruptor and essentially becoming a legacy platform comparable to SAP. 

Implications

Salesforce is now too big to be acquired but at the same time heavily dependent on growth If growth were to stagnate in any quarter, let alone fiscal year, share price would plummet with obvious implications - no more acquisitionsSalesforce must grow year over year whatever it takes2016 is the first time in history where acquisition outpaced innovation

Follow the money

Subscriptions – this is the holy grail of Salesforce growth, unlike in previous years this growth is under huge pressure to “lock-in” customers for 3-5 years long contracts (similar to what SAP does) so they can’t leave the platform. Services – this category is heavily protected by a few players at the top, where major disruption is being caused by Indian companies that slash margins of traditional system integrators like Accenture, who are on the defensive – demonstrated by a massive amount of acquisition to destroy competition and continue dominating the market.ISV – this business model is now under siege where it’s no longer profitable to build an application for the Salesforce platform because any new ISV faces strong defence from incumbents who use their power to control many categories. A good example is Vlocity, a company funded by Salesforce Ventures and Accenture (not surprisingly the number one partner of Vlocity is Accenture). Recruitment

 – is the only area of the market that is not under the direct control of Salesforce and their top partners. Quite the opposite, recruitment is driven by a growing customer demand for control of implementations and an end to being a bill payer to Salesforce and their partners. Recruitment is the only part of the market where there is real competition and the only one that will likely become highly profitable in the long run.Investors – investing in a Salesforce based project or application is extremely risky, because Salesforce themselves, and their large partners now act as market gatekeepers trying to protect incumbents from any disruption rather than welcoming investors to their platform. This will backfire in the long run because this hostile approach will drive investors in to the arms of Microsoft and AWS, and keep only those interested in building “get-rich-quick” type companies meant to be sold to Accenture in 1-5 years’ time.

State of clouds

Sales Cloud – will likely remain the engine of Salesforce growth. Lightning rebuilt aging concepts of Visualforce and put UI on par with main competitor – Microsoft Dynamics CRM 365. Service Cloud – this part of Salesforce is the main reason why Account Executives are able to lock-in customers with 3-5-year contracts like those of Oracle or SAP. Unlike with Sales Cloud, Microsoft Dynamics is still no match for Service Cloud and the only serious competitor here is traditional rival Oracle Siebel. App Cloud – unlike in previous years, this platform lost its mojo. It was cool to develop apps on Salesforce but nowadays developers are often victims of the lobbying of incumbents who simply destroy any project that threatens to disrupt their current of future offerings. Developing on the platform creates a massive amount of risk for investors because there is no safeguard against Salesforce and incumbents killing the project just because they are working on a similar offering. Salesforce is no longer a developer friendly platform. It's now like SAP, a closely guarded ecosystem designed to deter developers who pose a threat to incumbents. Marketing Cloud – growth engine of Salesforce. A series of very smart acquisitions (Radian 6, Buddy Media, ExactTarget, Pardot) converted Salesforce into the most formidable marketing platform on the market. It will likely take competitors many years to even catch-up in this area. The only current threat is from a newly formed partnership between Microsoft and Adobe. Their challenge is that after the integration of Dynamics and Adobe Marketing Cloud, it will likely take a long time before synergies are fully realised. Community Cloud – another category where Salesforce dominates the market mostly because Microsoft made one very strategic mistake. SharePoint was for many years a closed internal only system, which was hard to customise for non-internal Active Directory users. Microsoft was also very late to recognise that keeping organisations on old versions of SharePoint (such as 2010) would block the integration of SharePoint with the rest of the organisation and beyond. Salesforce Community cloud is a direct consequence of Microsoft’s inability to recognise the true potential of SharePoint. However, with Azure, Flow, PowerApps, Dynamics 365, and of course LinkedIn, Communities now faces a formidable threat. Wave Analytics Cloud – this 2015 huge growth theme lost bit of a steam in 2016. The major challenge is a very high price point that created a massive barrier to entry for customers. So adoption is mostly driven by the activities of partners like Accenture who are able to sell Wave as part of a transformation project. The major challenger to Wave is Microsoft’s Power BI where Microsoft was quick to recognise the potential of SQL Server combined with Azure. For Salesforce to be able to defend its territory from Microsoft, it would need a major acquisition such as Tableau or Qlik. Other problems in the analytics war are Oracle, SAP, and IBM, who all invested massive amounts into R&D and can fight-off Salesforce very effectively in some major accounts.Heroku – is another growth area for Salesforce, thanks to its AWS base, which in turn makes it a main advantage and a disadvantage for Salesforce. The number one challenge for Heroku is to justify investing in a platform running on AWS as opposed to a direct investment in AWS – which is still the preferable choice for the majority of customers. If however Heroku ties closer with AWS, it will very likely get a direct Amazon investment, which would secure its position on the platform. Commerce Cloud – created by the acquisition of DemandWare, was undoubtedly a good strategic decision. Commerce Cloud combined with Sales Cloud and Service Cloud can help secure Salesforce’s position in many key accounts – while threatening Oracle, SAP, and IBM. The problem with Commerce Cloud is that Salesforce directly ventured into IBM territory, who had acquired Bluewolf, the second largest company in the Salesforce ecosystem, and will likely expand their digital offerings. Also, SAP and Oracle will retaliate by investing more to exploit Salesforce weaknesses.Thunder – is another example of the dependency on Amazon AWS. The Thunder (IoT) platform will thrive mostly from the expanding relationship with Amazon. This will however become a big challenge because the only thing that will drive this relationship ahead is the combined power to deter Microsoft. So even if we see a lot of growth here, the major winner will be AWS.Einstein – definitely a great addition to the Salesforce family but will likely hit a highly protected market. IBM, Microsoft, and AWS. The major advantage to Einstein is that, as with Lightning, when added to the core platform it will enrich core offerings like Sales Cloud and Service Cloud. 

How to Disrupt Salesforce’s House of Clouds

Let’s now address the title of this article. The answer is not a simple one. It is very unlikely that someone will build a competitor to Salesforce and disrupt all their offerings. The only competitor that can seize significant market share in all markets is Microsoft. However, it is very unlikely that Microsoft will wage war on all fronts and focus all its efforts on disrupting Salesforce. Therefore, in our disruption scenarios we will speak about the ten clouds introduced above independently.

Sales Cloud 

This cloud is the biggest Microsoft target. Microsoft has already achieved partial success with disrupting this part of Salesforce but still fails to understand the biggest weakness of the Microsoft Dynamics ecosystem. It’s a closed ecosystem and so to disrupt Salesforce you must know the weaknesses of their product, not just Microsoft’s offering. Microsoft is losing in my opinion 10-15% market share by only pushing Dynamics to Microsoft partners. They forget that Salesforce built its partner powerbase by overtaking Oracle partners. So long as Microsoft does not address this weakness in their partner model Sales Cloud is safe.

Service Cloud

I don’t believe anyone will disrupt this offering any time soon. It’s a very complicated investment case and many companies heavily invested in Service Cloud will unlikely migrate to a new platform just because Dynamics 365 slashed licence costs. There’s only one competitor who should be considered seriously – Oracle. They are, with Siebel, the incumbent that Salesforce has displaced many times but the problem with Salesforce is architecture. In many complicated operations such as CPQ in highly complex businesses in fields like Telecommunications or Financial Services, Oracle is still beating Salesforce on performance. However, the problem with Oracle is the same one as Microsoft, it’s a closed ecosystem of partners that has no chance going alone against Salesforce – they have no knowledge of what they’re up against. Again, as with Microsoft, so long as Oracle does not address this weakness in their partner model Service Cloud is safe.

App Cloud

Microsoft Azure and Amazon AWS will continue to disrupt this space. The most dangerous scenario for Salesforce would be if, just as Cisco announced quite recently, more big vendors start to abandon their own cloud projects and partner with AWS or Azure instead. For example, if IBM, HPE, and Fujitsu were to massively adopt AWS or Azure, it would damage margins on App Cloud on a totally unbearable level – forcing Salesforce to make a bet – or possibly even a joint venture with Amazon or Microsoft. App Cloud is the weakest link in the Salesforce ecosystem. Also the general attitude towards developers and investors is destroying external innovation on this platform – sending them directly to AWS and Azure. Salesforce needs to wake-up to a new reality that they are no longer the development platform of choice.

Marketing Cloud

Microsoft and Oracle will likely be pushing into this space but so long as they don’t modernise their marketing offerings it will be hard to compete with Salesforce’s marketing flagship. The major catalyst in the market will be the ability of Microsoft to integrate Adobe. 

Community Cloud

If Microsoft will, as they already demonstrated with Dynamics 365, Flow, and Power Apps, continue opening SharePoint for different use cases, not just as a “document cemetery” as one CIO nicely described previous SharePoint versions, then Azure will become a major threat to Communities. However, the same major challenge exists here as in previous cases, if Microsoft keeps its partner ecosystem closed to Salesforce they will not be able to fight off Salesforce simply because they don't know enough of Communities limits and architecture. 

Wave 

If Microsoft continues pushing Power BI and evolving their Azure ecosystem, Wave will lose market share. And if a big player like Oracle, SAP, IBM, or Microsoft buys Tableau – game over. This will very likely increase takeover bids for Tableau as well as Qlik, Gooddata, and another analytics platforms.

Heroku 

Microsoft Azure is absolutely the number one disruptor of Heroku. The challenge here for Salesforce is that Azure, unlike AWS, is built with developers in mind and provides a great UI not just for administration of infrastructure but also for development. Amazon here is a little bit behind because they still see AWS as more of an infrastructure, not as a development platform. 

Commerce Cloud

SAP and Oracle will defend this territory very aggressively. Also given IBM is, thanks to the Bluewolf acquisition, deeply embedded in the Salesforce customer ecosystem – it will be hard for Salesforce to dominate this category. This is not a “blue-ocean” type market like Marketing cloud, this is a ruthless “red-ocean” full of big hungry sharks.

Thunder

It will be hard for Salesforce to fight in this territory. Thunder is more of a “me-too” type product, because Salesforce needed to add an IoT but there’s still the question of how this will be commercially viable. The reason is very simple – AWS and Azure control their margins – they own an infrastructure while Salesforce is, as in the case of Heroku, 100% dependent on AWS. 

Einstein

This will unlikely be disrupted. The reason is because Einstein is a defence strategy against Microsoft and Oracle to entrench the position of Sales Cloud and Service Cloud, the two main Salesforce cash cows. Again, as with the previous cases, so long as Microsoft and Oracle do not recognise their major weakness – they are losing Sales Cloud and Service Cloud deals because of their low or insufficient knowledge of their partner network – Einstein will continue to entrench Salesforce.

---

Conclusion

The Salesforce business model is dependent on growth, which is linked to a share price that enables acquisitions – the primary growth engine of Salesforce. So long as Microsoft and Oracle continue to ignore Salesforce partners they will not threaten Salesforce dominance. If they will do what Salesforce did to them, take Salesforce partners and enable them to sell their solution, they can disrupt the market. Without partners, they will fail, and Salesforce will continue to dominate Gartner. IBM, HPE, and Fujitsu are three other players that can shake the market if Microsoft and AWS convert them into their platform distributors.

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