Q&A: Salesforce.com to be on-demand computing platform

It’s not often you see Larry Ellison, Oracle Corp.’s chief executive officer, rattled during a keynote address, but a question about how his company’s offerings stacked up against those from on-demand player Salesforce.com Inc. saw him scrambling for words during Oracle’s OpenWorld conference in San Francisco last week.

Watching the live online feed of the keynote on his computer in his office just a few blocks away from where Ellison was giving forth, Marc Benioff, chairman and CEO of Salesforce.com clearly relished those awkward moments. He was amused to see his former boss (Benioff was at Oracle for 13 years prior to founding Salesforce.com in 1999) struggling to summarize where Oracle fits in the software-as-a-service (SaaS) market which Salesforce.com has helped to define.

For the record, Ellison replied that Oracle’s SaaS business was the same size as Salesforce.com’s and served 2,000 customers. Although on-demand software is “very important,” the Oracle CEO said it was “nonsensical” to think that all software will end up being hosted. Benioff takes a different approach, believing that on-demand applications are the future.

In a wide-ranging interview, Benioff talked affably about his company’s vision, competitors and customers. An edited transcript of that conversation follows.

IDGNS: Salesforce.com recently announced it would make its Apex programming language and development platform available to its customers. What are you trying to do there?

Benioff: We have 25,000 customers. We began by offering salesforce automation, then we moved to customer relationship management [CRM]. The two things our customers have been asking for are deeper customization and deeper integration. I didn’t really understand what that was. It took a while until I finally understood what they were saying: they wanted to manage all their information on demand.

Our vision is of becoming a platform for on-demand computing, the eBay for business software. We don’t want to build or own it all. Look at Google, they have great maps. Yahoo has great maps too. We don’t want to build our own maps, but do mash-ups with their maps.

We want to provide tools that give customers the ability to extend their investment in Salesforce. We want to give them the raw horsepower to do other things. Siebel became so fixed and so inflexible that it didn’t have the ability to adjust its [CRM] technology.

IDGNS: Talking about Salesforce.com being a platform begs the question: Will you ever stop selling CRM software?

Benioff: We’re in two businesses today. We’re the leading independent CRM vendor and also the leading on-demand platform. We’ll always be in CRM. Our largest user Cisco has 7,500 users on Salesforce. Before they had Siebel. Merrill Lynch has more than 5,000 Salesforce users.

IDGNS: What’s the average size of your customers?

Benioff: It’s a flip answer, but there’s no average size. We manage all our customers on the same database and the same servers. Small is 1 to 100 employees, midsize is 100 to 1,000 and large is above 1,000 staff. Our split is one third, one third, one third. It’s excellent because as the different markets ebb and flow, the business continues to grow.

IDGNS: Are you happy with your worldwide presence?

Benioff: We are global, but we do need to invest. We’ll grow all our businesses up over time.

IDGNS: Are your both data centers live now?

Benioff: Yes. The West Coast is a mirror of the East Coast data center. If we lose San Jose, we have the East Coast.

IDGNS: As part of your global investment, will you need to locate data centers outside of the U.S.?

Benioff: We’re evaluating that. We’re looking at Switzerland and Japan. We’ve not decided on our commitment. We don’t need them today.

IDGNS: Earlier this year, a panel of the heads of open-source companies complained about the cost of Salesforce.com subscriptions which have become pretty expensive as they’ve rapidly grown their operations. How do you respond?

Benioff: Every major open-source company chose Salesforce as they started internationally. They voted with their wallets. We are constantly renegotiating our agreements with each customer. We offer the best reliability. We’ll never run at 100 percent, but at a very high level. We’ve never lost a customer. A significant percentage of our customers have service level agreements (SLAs).

IDGNS: What’s a significant percentage?

Benioff: We have thousands of SLAs with customers. A Merrill Lynch with 5,000 users expects that level of maintenance.

IDGNS: What’s your take on Oracle’s on-demand strategy?

Benioff: Larry [Ellison] owns 4 million shares of Salesforce.com. He’s said on-demand is the future. Bill Gates said the same. Henning Kagermann [the CEO of SAP AG] never said that. Two out of the top three [vendors] say that on-demand is vital. I don’t understand what SAP is doing. They’re really injuring their customers by not embracing new technology. SAP has really done a disservice to its subscribers, they’re so locked in. Oracle may not execute in the on-demand world, but at least they say it’s important.

IDGNS: What do you think Oracle will do about on-demand applications?

Benioff: Oracle’s got to be there. They aren’t there and they’re doing a terrible job. Microsoft is in the same spot, they’ve got nothing.

Lots of companies would like to do on-demand, but they’ve not figured out how to crack the code. With our AppExchange Incubator, we’re giving companies physical space in San Mateo, California at the former Siebel headquarters. It’s US$20,000 per cube per year. We’re looking to offer incubators in Singapore, Bangalore, London and Tokyo.

IDGNS: In the growing virtual world, isn’t it a bit retro to provide physical office space?

Benioff: ISVs [independent software vendors] want it. They’ve been relocating their offices here to be near us. They need our help. They don’t understand the on-demand business model. We can give it to them in-person. We’ve almost sold the first 30 cubes, we have 100 in San Mateo. We offer classes, Wi-Fi and direct access to our data centers.

IDGNS: Might these businesses be potential acquisition targets for Salesforce.com?

Benioff: We could invest in them, we could acquire them. The cubes are also for VCs [venture capitalists]. They’ve invested over $100 million in AppExchange companies. VCs say they’ll invest $1 billion in AppExchange companies in the next 18 months.