This past week I attended the Cloud Computing / SaaS event of the year known as Dreamforce, Salesforce.com’s annual conference.
More than 19,000 registered for the conference — up from 10,000 a year ago — where they announced a new offering called Salesforce Chatter. This corporate collaboration service product is essentially Facebook and Twitter for enterprise users. My initial reaction was a sense of excitement. Salesforce needs to create new offerings in what it believes can be a billion dollar + market segment. However, as I cruised the expo floor and chatted with customers, I realized their sentiments were quite the opposite. Most customers had little desire to pay for this additional functionality when they already have some form of enterprise collaboration.
Even though there seems to be momentum in Cloud Computing and social networking in the enterprise, the reality is any expenditure that has more of a productivity ROI rather than hard-dollar ROI is tough for any business to make. People are still struggling out there and though Salesforce Chatter is innovative it’s still a tough sell. If you don’t believe me, just count the relatively few number of people who raised their hands when Marc Benioff asked how many people would adopt Chatter. I think this is a great move long-term for Salesforce but I’m skeptical about any immediate success.
Consumerization of IT: We’ve all heard of this term but what does it really mean? Some people would have you believe it’s simply making software applications easier to access or “cooler looking,” but to me it’s way more.
Consumerization of IT really can be broken down into three key points.
The first is product innovation, like when Salesforce offered an application deployed through the Web with an easy- to-understand interface. Now you are seeing more products that have taken that ease of use to the next level. Applications are moving away from requiring a full-time IT guy to figure out how to work the thing; people can simply start using it right away or with a quick online tutorial.
They’re also finding new and unique way to innovatively solve the same old problems. The user experience for enterprise applications has become ever so much like that of a consumer application.
Second, this type of product innovation spelled huge implications for the sales model. Traditional on- premise enterprise software companies had sales guys calling on the big companies, making six-figure sales. You needed to be able to extract that kind of revenue per customer because the technology was so complex and implement it so painful.
That’s just not the case anymore. Innovative delivery models and more intuitive UI allow applications to be sold over the phone. Since the product tends to be easier to implement and use you don’t need a sophisticated sales guy to explain the workings. What you are finding now is that people who buy the enterprise-level applications are starting to travel down the sales cycle by themselves.
Where sales guys had to lead customers through that cycle, today customers are finding what they need online, by themselves. They’re reading blogs, following on Twitter, reading through forums and other discussion areas. Hearing a company name, they visit the company Web site, download a white paper, and maybe attend a webinar. At this stage they have educated themselves about the product but still haven’t talked to a salesperson. This dramatically changes the sales model to a higher velocity remote-sales strategy.
The third point is that product innovation and new sales model lead to cheaper prices. We aren’t seeing the six-figure deals from the past, but rather consumer-type pricing schemes with monthly fees rather than major long-term investments. Because applications are cheaper to create, vendors have transferred value created from lower costs over to the customer.
Pricing now is about subscription fees rather than licensing fees. The notion of selling an application on a month-to-month deal rather than packaging into a license is yet another example of enterprise software becoming consumerized.
The new generation of software applications – easier to implement and simpler to use — frankly something consumers have been enjoying over the last 15 years on the Internet. Now we’ve reached the point where companies can enjoy the same thing for their enterprise solutions.
Ashvin Bachireddy is a venture capitalist at Lightspeed Venture Partners, a leading global venture capital firm that manages over $2 billion of capital commitments.
