Marc Knows Marketing
In a recent interview with Victoria Murphy Barret of Forbes, salesforce.com CEO Marc Benioff elaborated on his marketing prowess. And indeed Marc has done a great job selling the vision of salesforce.com. His company's stock carries the highest multiple on revenue and earnings of any comparable company in its category. Possibly in any category. But despite all of this success (and I am a big fan of salesforce.com), in the final analysis, it remains to be seen whether or not Marc knows economics.
I heartily agree with Marc that the application software business is broken. I disagree, however, that on-demand applications are necessarily the best way to cure what ails the industry. I believe that software appliances may prove to be more economical than Software as a Service (SaaS).
Just 2 weeks ago, I was in the office of a very successful senior executive of an application software company. He was very bullish on their use of salesforce.com, and he was going to give me a demonstration of the application. Well, the pages were too slow to load for the demonstration to be effective, so we skipped it. In all likelihood, it was not a salesforce.com server problem, but instead some latency problem on the Internet at that moment in time. It got me thinking that high speed LAN technology is much cheaper and much more reliable than the comparable Internet connection.
Consider that you can deliver 100Mbits wireless connectivity to an entire office with a couple of Linksys routers that will run you a grand total of about $100. These are solid state devices that never break. What would 100Mbits dedicated connection to your SaaS provider cost you? Thousands per month, or more.
"No matter," you say, "A little latency is a small price to pay to be shed of all of the misery of integrating applications with infrastructure and managing the resulting snarl of code and maintenance from multiple vendors that don't seem to communicate with one another." Indeed, the legacy approach of integrating and maintaining an application atop a general purpose operating system lacks the elegance of an engineered solution. But what if an application was as easy to use as a song downloaded from iTunes onto your iPod? That day may be coming sooner than you think.
With a software appliance, the software vendor integrates the application with just enough operating system to support the application. A browser interface is provided to configure the application, just like with SaaS. Installation of the application is as simple as downloading a file onto a server, because server virtualization technology from a vendor such as VMware turns the server into a "player" like an iPod. Have you ever had one song "crash" another song on your iPod? Of course not. When you load your servers with virtualization as the base layer, you get the reliability of the iPod player for applications that are delivered to the server in much the same manner as songs are delivered to the iPod.
The result? An application with zero integration and maintenance hassles (the application vendor does all that work for you), with a browser interface, running on a server that costs less than $2000, delivering high bandwidth output to everyone in the office (and equivalent bandwidth to everyone outside the office as any other SaaS application).
I think I'll take Marc's lesson in marketing, and stick with the economics of the software appliance approach to build my business.