Salesforce.com’s Heroku Acquisition: A Clear Stake in the Ground

Dec 25, 2010 by Sinclair Schuller

Salesforce.com, over the past few years, has been reinventing itself as a platform company. IMHO, this is an extremely difficult thing to do for a company who’s cash flow is defined by the CRM market, an acronym that Salesforce.com adopted as a stock ticker. When Salesforce.com first announced Apex, it’s new fangled programming language and pseudo-stack, I took a highly critical stance because it was a clear attempt by a marketing and business team to tackle problems that only technologists can properly understand: building runtimes and frameworks that could provide a foundation for future software in the Cloud. My gripe was that Salesforce chose to create a new language that wasn’t rooted in a development paradigm shift where changes in a programmers ability to express solutions are the motivator, and instead decided to base the language development on seemingly more selfish interests and coupled the languages runtime to their operating and hosting environment. Essentially, they created vertically integrated lock-in, which is terrible for customers and the lack of purer motivations on the language development side produced a sub-par development stack best suited for small add ons.

Now we’re in 2010, and the story is starting to change, and seemingly for the better. At Dreamforce this year, Salesforce.com announced the acquisition of Heroku, the well known Ruby PaaS. Not too long ago, Salesforce.com and VMWare announced VMForce, bringing Java into the Salesforce.com cloud. Salesforce.com’s  evolution seems to be taking it down a path of stack agnosticism. This could be due to good strategic decisions making, or out of an attempt to correct a failed path with Force.com/Apex. Whatever the case maybe, its clear that Salesforce.com is embracing other stacks, and no longer focusing on creating a new $1 billion business by brute force.

It will be interesting to see where Salesforce.com goes with this. Will they make Java officially part of their Cloud by folding up a partnership with VMWare and instead make a Java Cloud their own competency? Might they go after Microsoft’s base by building or acquiring a value proposition that targets .NET developers and attempts to attract that group (who own 40% or so of the development market share) away from Azure? Who knows how far they’ll go, but one thing is clear: the Heroku acquisition clearly signaled that they want to do something different, and that something includes languages and runtime’s well outside of Apex. I really am glad that they’re adding true value and no longer beating the Force.com drum exclusively.

How do you feel about Salesforce.com’s Heroku acquisition? Any predictions on the success or failure?

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SaaS Network Effect – Get it or get left behind

Sep 24, 2010 by Jesse Kliza

A little over 3 years ago, there was a great series of posts (here and here) around how SaaS companies make money that led to input from Sinclair here on SaaSBlogs, and myself on my own personal blog at the time.  The discussion ended up with examples highlighting that a pure SaaS delivery approach provides far more benefit and strategic advantage to an ISV, than just what’s seen on the surface.  It’s not just the MRR, the ability to address the longtail of a market, etc, etc.

SaaS provides an opportunity for ISVs to create something far more valuable than just software functionality that’s delivered online.  It provides them an opportunity to become the center of their industry by leveraging the “SaaS network effect” – but it takes creativity, scale, and the right architecture to support it. (both business and literal software architecture)

Just yesterday, Max Bleyleben of Kennet Partners blogged about the aquisition of one of their portfolio companies FRSGlobal to Wolters Kluwer.  He made a great statement about this notion that leveraging the SaaS network effect is something that ISVs should be doing, as it provides much more value to the ISV above and beyond the surface level benefits of SaaS that everyone talks about:

“The first wave of SaaS companies moved traditional enterprise applications (eg CRM) onto a hosted platform. The next generation combines delivery of software functions with proprietary content — eg domain databases, analytics, benchmarking data. Without unique content, most SaaS businesses will be commoditised away. FRS had worked out how to codify statutory regulations in 40+ countries into useable, actionable templates that banks could use to manage compliance. Most important, however, FRS’s domain experts around the world continually maintain this content, effectively providing ongoing ‘compliance insurance’ to customers.”

My favorite part of his statement? – “Without unique content, most SaaS businesses will be commoditised away.”

Who Gets It?

Companies like Salesforce.com with their purchase of Jigsaw, and Freshbooks with their quarterly report cards are two examples of companies that get it.  The great news is, there’s still so much innovation to come in this area!

How are YOU leveraging the value of your userbase/domain specific data, to differentiate and deliver added value?  What other SaaS companies do you think are doing this well?

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What is VMForce?

Apr 20, 2010 by Sinclair Schuller

If you haven’t heard, Salesforce.com and VMWare plan on making a joint product announcement on April 27th at http://www.vmforce.com. Clearly, this piqued the curiosity of many, including myself. Thinking about Force.com, Salesforce.com’s strategy around the platform to date, and VMWare’s activity and intent to become more entrenched in the Cloud, my best guess is that it’s an Infrastructure as a Service (IaaS) offering, and maybe some sort of Spring-based framework layer that’s tightly integrated with Salesforce.com. Furthermore, it might even offer the ability to run native Force.com code/apps on top of it (I could see something like Spring being used  to create a harness of sorts to load Force.com apps on a native Java runtime)

Force.com is a high order abstraction requiring the use of a new programming language and a heavily diluted (read crippled) runtime. As a platform for extending the CRM functionality of Salesforce.com, it’s an amazing platform. As a general purpose platform for business applications, I think it’s too trivial of a runtime (anyone who’s read this blog before knows my position on this). Most mid-large ISVs solve complex problems addressable only through mature, expressive languages and complete runtimes and stacks. VMForce might be a step in the right direction – so let’s wait and see!

PS: For the literalists out there, one thing I noticed is that VMForce.com describes  it as a “product announcement” instead of “service announcement”. Maybe it’s some sort of special VMWare on-premises integration to the Salesforce.com Cloud?

What do you think VMForce is all about? Any drastically different theories?

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What if Salesforce.com weren’t multi-tenant?

May 5, 2009 by Sinclair Schuller

In my last post, I mentioned that I was going to write one last follow up post on the blogosphere-wide multi-tenancy discussion, so here it is! Recently, Salesforce.com quantified some of its architecture, giving us visibility into what it takes to support a SaaS business of its magnitude: 1,000 servers for 55,000 customers and 1.5 million individual subscribers! That’s not too shabby. It also gives us some insight into architecture efficiency. Clearly, there are lots of questions that would need answering to give an accurate analysis, but enough data is there to have good discussion driven by a healthy dose of assumption.

Recently, Bob Warfield over at Smoothspan wrote a couple of excellent multi-tenancy oriented posts. In one of those posts, Warfield drilled into the Salesforce.com numbers I mentioned earlier in an attempt to quantify the impact of their architecture on cost of service. Warfield gave some analysis around multi-tenancy on the overall cost of service incurred by salesforce.com. Looking at the salesforce.com annual report, it’s apparent that it costs salesforce.com $0.12-$0.13 per $1.00 of revenue to deliver its service for a total of $127 million for the year on roughly $1 billion in subscription revenue. Warfield identified that if they’re running 1,000 servers, we can use Amazon pricing as a roughshod estimate of what the actual servers would cost them if they were running on the Amazon cloud: about $4.7 million per year. That leaves about $122 million unaccounted for! As Warfield pointed out, clearly there are lots of other expenses. It’s most likely that these expenses are due to lack of automation and overabundance of personnel due to said lack of automation. To a degree, this means that multi-tenancy is doing its job: the software’s architecture and resource utilization is but a fraction of total cost of service.

To understand this better, let’s use Warfield’s numbers and recast the scenario with the question “What if Salesforce.com weren’t multi-tenant?” Currently, we know that about 55 customers are supported per server. Many propose virtualization as a route to multi-tenancy since it’s so easy to fire up an instance on say, EC2, and create a 1-1 affinity for a customer to a server. If we imagine Salesforce.com to use this architecture instead, one where virtualization is used instead of a multi-tenant approach, we get a drastically different picture. I won’t calculate the EC2 costs, but instead will use Warfield’s numbers: one EC2 instance costs about $4,700 per year ($4.7 million/1,000 instances). If we dedicated a single instance to each customer (that’s 55,000 instances based on Salesforce.com’s number of customers), it would cost Salesforce.com $258 million! Let’s be generous and give it a 2:1 leverage (maybe there is some server sharing) and cut the instances in half, we’re still pushing $129 million. Assuming that this virtualized approach got rid of all internal staff and expenses at Salesforce.com related to cost of service, we’d have to hit that 2:1 leverage to even be competitive with their current cost structure. More than likely, taking a virtualized approach wouldn’t entirely get rid of Salesforce.com’s “out of architecture” expenses since I’m pretty confident that not ALL of the remaining $122 million is dedicated to simply running their 1,000 servers, but some big chunk is. Even if a virtualized or in the cloud approach had a 2:1 leverage and slashed 75%  of the $122 million, Salesforce.com still wouldn’t have the cost profile they do now.

Point? It seems multi-tenancy at $4.7 million worth of hardware/software resources has a big something to do with the overall cost profile. As Warfield pointed out, something else is making up a brunt of the cost, but the architecture approach certainly seems to have depressed it’s part of the cost to something reasonable. Now, how about a multi-tenant architecture on EC2? I’d love to see some cost specifics in the wild on this sort of arrangement!

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