Salesforce.com: SaaS Appeal
Heavy investment in developing, buying and maintaining key software, such as customer relationship management applications, has not always generated the expected returns. Lindsey Armstrong tells Jim Banks how many leading companies, seeking a more cost-efficient and reliable means of sourcing such software, are turning to providers of software as a service.
The concept of software as a service (SaaS) has been with us in different guises – as on-demand software or through application service providers – for some years, but it has recently stirred much greater interest, as companies of all sizes reassess the balance of cost against value in their software investments. The shock of failed investments in applications such as customer relationship management (CRM) is starting to shift perceptions.
The software delivery model of SaaS has vendors developing and operating applications that clients access over the internet – paying to use the software, but not to own it.
SOFTWARE AS A SERVICE GROWTH
The potential cost savings are obvious, but service providers are also keen to point out that behind the rapid growth in the SaaS market lie the capacity for clients to quickly implement applications such as CRM, the reliability of the service and freedom for companies using SaaS to dedicate their resources to developing value-added applications specifically tailored to their business.
Originally, SaaS targeted the needs of small and medium-sized organisations, but the momentum in the market has been greatly accelerated, as some of the biggest, most forward-looking companies in the world bought in.
‘SaaS is a hot market at the moment,’ says Lindsey Armstrong, president, Europe, Middle East and Africa, of Salesforce.com. ‘Once the very big customers moved into the fray they validated the concept for the whole market. It has become accepted practice among big organisations.’ Major global companies, including Dell, Merrill Lynch and Citicorp, have taken to SaaS. Salesforce.com can count the likes of Cisco, Misys, Daiwa Securities and Expedia Corporate Travel among its clients. It manages critical business applications – including sales, marketing and customer service – for over 41,000 customers around the world and offers integrated, customisable enterprise applications for companies of all sizes.
Clients access Salesforce.com applications securely over the internet, which means that set-up is fast and relatively inexpensive. The SaaS infrastructure allows clients to focus on building their own applications to run on the system.
‘SaaS has its roots in the SME market, but has scaled up to large enterprises,’ says Armstrong. ‘SMEs can use infrastructure that they simply couldn’t afford otherwise. Our business is now split into equal thirds – small, medium and large clients.’
‘Our platform, Force.com, enables clients to act very quickly, whereas on-site development projects can take years,’ says Armstrong. ‘With SaaS, it could take only months or even weeks, so the system is operational sooner and the return on investment starts earlier. There is certainly a growing sense that SaaS is a better way to bring applications into a company.’
SAAS CRM - A PERFECT FIT
Although Salesforce.com hosts a variety of applications, its reputation is based particularly on its experience in CRM. It is in this arena that the value of SaaS is being shown most clearly.
‘You have a number of choices if you want to implement a high-quality CRM system,’ says Armstrong. You can build it, you can buy it and host it on-site, you can host it off-site, or you can deliver it through SaaS. The first three all have their pros and cons, but for CRM, and other applications, SaaS is a perfect fit.’
Contrast the convenience and flexibility of SaaS CRM applications with the many sizeable investments in failed CRM applications, particularly around the turn of the century, and it is clear why companies are now more cautious about their software investments and are willing to consider a different approach.
‘There is a resurgence of interest in CRM, as CEOs understand that it delivers visibility, provides forward and trailing metrics and highlights many business risks,’ says Armstrong. ‘But customers also want value,’ she adds. ‘SaaS requires a relatively low upfront commitment, so companies don’t have to worry about spending millions of dollars on a bad decision. There is time to prove to them that what they want is what they are getting.’
CRM is an increasingly critical application, as all industries attempt to move closer to their customers. To achieve the goal of customer-centricity, businesses must be agile in their business models and in their systems, and must be able to use the data they have on their customers to deliver more targeted, value-added services.
At the same time, they are eager to get value from every dollar spent on software applications. SaaS provides access to systems that adapt as clients’ needs change, and often satisfies the criteria for cost-effectiveness. By leveraging a multi-tenant environment (several companies supported by the same infrastructure), with client data securely segregated, service providers save on the maintenance of the hardware and can focus on improving their services.
While SaaS promises a relatively quick return on investment, the value of the flexibility and scalability it offers can only be fully appreciated over the long term. Much, therefore, depends on the quality of the relationship a business has with a SaaS service provider. Here, Salesforce.com can call on its leading position in the SaaS CRM market, and its strong track record of quality.
‘The SaaS model is very different to any other method of delivering software. You could compare it to internet companies such as Amazon and Google in that is survives on use, value and customer satisfaction. You’re only as good as your last click,’ says Armstrong. Recognising this, Salesforce.com has dedicated customer success managers, who focus on the needs of its clients.
‘For most software companies, accountability ends when the contract is signed. With Salesforce.com it is different: the contract is where our accountability begins,’ says Armstrong.
The relatively simple systems architecture Salesforce.com operates allows it to focus its energies on updating its applications. As a result, the service is constantly being improved. ‘We have three product releases per year, with no disruption to the company, while most software companies will maybe do one every 18 months. Our technology is always ahead of the users, not the other way around,’ says Armstrong.
SaaS also embodies the spirit of Web 2.0 – the emerging use of the internet as a collaborative arena, where clients and service providers work together to determine the course of application development. Salesforce.com’s AppExchange is a perfect example. Users can contribute ideas to help define the detail of future updates, the results being voted on by members of the application exchange, which features the world’s first on-demand application-sharing service – an online marketplace where applications developed by Salesforce.com and its community of developers, customers and partners.
This could dramatically change the way companies acquire business applications in the future. ‘It is a very collaborative environment, which is a necessity for a Web 2.0 company. Collaboration is always the key, and that message is getting through to CEOs,’ says Armstrong.
By developing its own infrastructure and programming language, which customers can use to build on-demand applications, Salesforce.com is not only widening its market, but also pushing the envelope of SaaS.
‘This is platform-as-a-service,’ says Armstrong, ‘which means our infrastructure supports both our applications and those developed by our customers. We will see many more companies take this hybrid approach, particularly for HR or marketing applications.
‘The whole sector is very vibrant, and our position in it is strong. We own, for example, 50% of the on-demand CRM market, and that proportion gets higher as we expand our business. Some analysts have suggested that up to 30% of the software market will soon be in the SaaS environment. That makes it the fastest growing software market,’ she adds.
It is not a regular feature of the software market that a development can dramatically improve the performance of key applications in both small businesses and multi-national corporations. This rare feature of SaaS could see it become commonplace for any company seeking value from its technology budget.
While CEO’s drive for visibility, business agility and competitive advantage, they need to be the driver for the move to SaaS. How long should organisations cling on to clunky old investments hoping for an eventual return on investment?