Is Salesforce.com Changing Direction?

When Salesforce.com announced its 25,000-seat customer win with Merrill Lynch on February 27, it also showcased Salesforce Wealth Management Edition, the vendor's first release targeting a vertical market. The deal size is significant--even its pilot program was larger than most Salesforce.com implementations--but the real surprise is the vertical product itself. Salesforce.com, and its chairman and CEO Marc Benioff, formerly took an antivertical stance, stating that Salesforce.com is easily customizable and expandable to any need, and insinuating that vertical solutions don't truly address the needs of individual businesses. Siebel was often targeted because of its vertical focus, but now it appears the taunts were a smokescreen. "If it's disingenuous, it's not the first time a person or business has changed their approach," Jeff Kaplan, managing director of THINKstrategies, says of the switch in attitude toward verticals. "If it's Machiavellian--distracting the industry while preparing to do verticals their own way--that wouldn't be surprising either." Many analysts believe the maneuver is smart both for the company and for the industry. "It shows how the SaaS model continues to evolve; even horizontal applications like CRM and SFA can be configured to meet specific industry needs," Kaplan says. "From Salesforce.com's perspective it's good, because it broadens the market opportunity without stretching them too far. It's not too different from what they've done in the past, and they can achieve it through third parties. It's a perfect example of how to leverage AppExchange." Martin Schneider, an enterprise software analyst with The 451 Group, says that the vertical turn isn't something Salesforce.com would do rashly. "Salesforce.com isn't just saying 'We're going vertical like everybody else'; they're seeing where the need is greatest, and where they can do well with a vertical product. They picked somewhere that they could undersell the incumbents and still perform well." Salesforce.com's vertical editions aren't even big news. "There isn't much vertical customization in the CRM itself; it's what AppExchange and the open platform can offer," Schneider says. Kaplan agrees: "This is part of the natural evolution of the market. As Salesforce.com gets bigger, it becomes a bigger target for criticism." Strategies that would once have caused unbridled excitement are viewed with skepticism now that the company is an industry leader. Whether the new vertical focus is good or bad for Salesforce.com, the company will have to walk a fine line when it comes to rolling out new functionality. Much of that functionality is not native to Salesforce.com, but supplied by partners and other vendors via AppExchange. "Salesforce.com does have a tendency to step on its partners' toes when it comes to announcing enhanced functionality," Kaplan says. Schneider echoes the metaphor: "It's going to be tough not to step on the partners' toes. This announcement goes against past statements, including some very recent pro-partner announcements." The challenge isn't for Salesforce.com to provide good vertical applications--it's to keep the balance between promoting its own capabilities and keeping its partnerships intact. "Partners want to be added-value vendors, not an extended sales team for Salesforce.com," Schneider says. "Making the simultaneous VAR and on-demand model work is hard. Salesforce.com will have as much trouble as anybody else." --Marshall Lager Two Questions for Marc Benioff, chairman and CEO of Salesforce.com CRM magazine: You have previously denounced the need for vertical applications. Why did you recently announce the first vertical offering, Salesforce Wealth Management Edition? Benioff: Since our inception I've never been a fan of verticals. Really what happened were two things: We started aggregating customers by a number of key verticals. When we got into financial services they started to ask us to customize our product with a number of things. We [later discovered] our product really was satisfying a lot of them, and not just small and medium ones--where we have a lot of presence--but really the biggest in the world, including Merrill Lynch and Deutsche Bank and others. That's why we need to focus on the financial services industry, because, first and foremost, our largest customer is now in financial services. Second, we ended up having a lot of demand-specific expertise. CRM magazine: Which vertical will you target next? Benioff: We see expansion into the media as well as into the nonprofit sector, where we also have a strong presence, as well as in the high-tech and manufacturing areas. David Myron

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