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A handful of UK independent software vendors are betting their future on Salesforce.com's platform-as-a-service offering

In the second half of the last decade, on-demand CRM provider Salesforce.com shocked the enterprise software industry with its rapid revenue growth – growth that was far faster than the traditional 10% annual rate most suppliers were accustomed to.

This growth came largely at the expense of the established providers. Little wonder that many saw software-as-a-service (SaaS) as something they needed to adapt to, or get left behind.

Some of the larger software vendors took Salesforce.com’s approach, hosting the applications themselves. This, many soon found, was no simple task. Among other reasons, the software they had built over the years was not designed to support multiple customers over the web. As a result, their attempts foundered.

SAP’s foray into SaaS, Business ByDesign, was announced in 2007 but suffered many delayed as the German applications giant struggled to get the architecture right. In 2010, only 100 customers were using it.

UK accounting software provider Sage scrapped its first attempt at SaaS, Sage Live, owing to security flaws. The company returned to SaaS in January this year with Sage One.

But other software vendors took a different route, choosing to join Salesforce.com, not beat it.

In 2007, the company launched Force.com, a platform-as-a-service (PaaS) offering that allows third parties to build their own applications on top of Salesforce.com’s core. This gave independent software vendors a way to ‘go SaaS’ without building or hosting the platform themselves.

One of the first companies to do this was CODA, a UK-based accounting software provider that has since been acquired by Dutch vendor Unit4. CODA had been watching the SaaS market with interest since about 2004, recalls then-CEO Jeremy Roche, and in 2007 decided that demand for SaaS accounting applications was about to take off.
“Our biggest risk back then was building the platform, so we asked Salesforce.com for some consulting advice,” he explains.

“They said, ‘Let us show you something that may help’, and showed us what went on to become Force.com.”
At the time, Force.com did not give CODA all the flexibility it needed to build its own application. For one thing, the core data model was designed for storing customer information, not for keeping a ledger of financial transactions. But the platform was progressing quickly, and soon there was enough development functionality for CODA to take the plunge.

Some people questioned CODA’s decision, Roche recalls. “They said, ‘Why would you risk your own products on somebody else’s platform?’. But I reminded them that all our software was based on somebody else’s stack, whether its Microsoft or Oracle, or whoever.

“The difference is that Salesforce.com hosts the application as well,” he adds. “But every cloud-based application has to be hosted somewhere.”

For a traditional software vendor, launching a SaaS application is not just a technical challenge – it requires a different sales model too. CODA decided to make its SaaS division a separate subsidiary, Coda2Go, with its own sales force and marketing resources.

That division is now known as FinancialForce.com. It is majority owned by Unit4, but in 2009 Salesforce.com itself acquired a minority stake, and FinancialForce.com now counts George Hu, Salesforce.com’s platform and marketing director, among its directors.

Unit4 does not break out revenue figures for FinancialForce.com, so the wisdom of Coda’s decision to go with Force.com cannot be objectively judged. It has a few well-known organisations on its named customer list, including publisher Emap, but also a large number of fellow SaaS providers.

Roche, who is now CEO of the subsidiary, claims his main challenge is “managing growth”. He acknowledges that it is difficult for a fast-growing SaaS company to turn a profit, because more customers means more data centre and support resources. For that reason, he says, Unit4 considers FinancialForce.com an investment for the future.

Force.com natives

Force.com has also attracted start-ups. One example is CloupApps, a UK-based carbon reporting application vendor. Since CloudApps was founded by former employees of Salesforce.com and is chaired by Salesforce.com’s EMEA president, Dr Steve Garnett, there was never much question about whether or not it would be hosted on Force.com.
Using a third party’s platform cut the investment CloudApps has needed to get its product to market, says CEO Peter Grant, who before taking up his current role was one of Salesforce.com’s first employees in Europe.

“We have three competitors in this space, and between them they’ve had to raise £100 million to get started,” he says. “We haven’t needed anything like that because we haven’t had to hire lots of engineers to build a data centre and integrate lots of systems.”

Grant says that the pace of innovation that Salesforce.com delivers through its platform translates to direct business benefit for CloudApps.

Earlier this year the company launched SuMo, a social networking product that allows an organisation to communicate energy-saving opportunities to its employees and allows employees to highlight areas of waste.
SuMo is based on Salesforce.com’s social networking service Chatter, that is available through the platform. And according to Grant it is helping the company win new business.

CloudApps resists the suggestion that having built its application on Force.com, which uses a proprietary (albeit Java-like) development language called Apex, it is now stuck there. “All of our intellectual property is readily portable should we ever need to move to a different platform,” says chief technology officer Anthony Day.

Nic Scott, CEO of UK and Force.com-based HR application vendor Fairsail, is not so sure. “You have to stay within certain parameters when building your application to make sure it doesn’t break when Salesforce.com upgrades the platform,” he explains. “That means if I wanted to move to a different platform, I’d basically have to start from scratch.”

The trade-off is worth it, through, because of the functionality that the platform makes easily available, he says. For example, Fairsail has been able to win customers in countries where it has no presence, thanks to the translation functions of the platform.

And while it may have been taking a risk when Fairsail decided to build its application on Force.com four years ago, Scott says that risk is no longer there.

“If Salesforce.com hadn’t continued to grow, or if the platform had been geographically or technically restricted, then we would have had problems,” he says. “But they are well-established in many industries and geographies now.”

A new kind of platform

For all of these companies, Salesforce.com not only supports the technical foundation of their products but also provides business opportunities. Many of their customers are existing Salesforce.com users who find them through its AppExchange, a precursor to Apple’s AppStore.

The relationship is mutually supportive, says Salesforce.com’s Garnett. “The hope is that a company that is currently using FinancialForce.com, for example, will think, ‘Maybe we should be using Salesforce.com’s application too.’”
When Force.com was launched in 2007, there were not many comparable services on offer, but now there are more PaaS offerings with which Salesforce.com must compete to attract independent software vendors (ISVs).

“Our job is to get the next generation of business application developers to build on Force.com,” explains Garnett. He says the points of differentiation are the supply of marketing leads, security and pace of innovation.

According to Forrester Research, however, Force.com is a clear leader in the PaaS market for ISVs. Forrester believes there may be as many as 25,000 organisations currently using Force.com to build their applications (Salesforce.com does not publish commercial figures for the platform).

“While many ISVs value the technical completeness of Force.com, Forrester estimates a similar number are simply leveraging this platform because of the strong market momentum around the AppExchange marketplace,” the analyst company wrote.

All this only adds to Salesforce.com’s growing influence. “We’ve got 100,000 paying customers on the app,” says Garnett. “We’ve got more than a million users logging on every day, and we’re hosting some of the most sensitive commercial data in the world.”

The IT industry is already well aware of the influence that a company can wield once it establishes itself as a platform provider, with Microsoft being the classic example. What happens when the platform provider not only hosts its ISV partners’ applications, but also their customers’ data, is a new question altogether.