November 30th, 2007
Leapblogging: The Salesforce.com Ecosystem Debate, Round II
Dan Farber’s rebuttal to my most recent post on Salesforce.com seems to miss the main point of my blog, and instead goes into an extensive discussion about a broader comparison between the two companies than I ever intended to make.
I never claimed that the two companies were comparable in terms of their competitive profiles, market positions, financial status, or any of a similar set of issues that Dan carefully documents in his blog. Nor did I make any claims as to the technological superiority or inferiority of the two companies products or platforms.
What I did say, and which I stand by, is that Everdream has been able to provide its partners with a platform/ecosystem that is financially beneficial to those partners. In terms of its main business, Everdream does not compete with Salesforce.com. But in terms of the business model of its ecosystem, I contend that it is highly competitive, insofar as Everdream’s partners make money out of the ecosystem, while it is doubtful that any significant revenues flow from AppExchange to Salesforce.com’s partners.
Now for some of the back story to this issue: I spent considerable time and energy last year trying to get Salesforce.com to reveal relevant financial information regarding its ecosystem partners’ success. Salesforce.com first claimed it had some numbers, but they were so ludicrous (over $100 million in revenue was a number floated to me over a year ago) that the number was basically retracted in favor of a more measured “we don’t know because we don’t see any of the direct revenue stream,” to paraphrase the correction given to me. But that’s as far as things have gone, and it points to less of a success than Salesforce.com would like anyone to believe: If partner revenue numbers were favorable, you can be sure we’d have heard about it by now.
Absent any disclosure from Salesforce.com, I’ve tried on my own to come up with meaningful numbers regarding the success of the ecosystem, and have relied on two metrics, both of which support my contention that there are little if any revenues going to partners from the Salesforce.com ecosystem.
The first metric is one you can test yourself: drop by the AppExchange website and see what companies are in the top ten download list. Ever since this site came up, as far as I can tell, Salesforce.com has dominated its own top ten list. The list as of this writing includes Salesforce.com software as the number one, two, three and five most-frequently downloaded applications. So I continually wonder, when I see numbers such as the 31,000 installs that Dan quotes for AppExchange, how many of them are non-Salesforce.com. I have always assumed, and I contend it’s a valid assumption, that the number of partner installs is a small subset of the total.
If you believe in the long-tail effect, then maybe this trickle of partner installs is fine, though for whom I’m not sure. But if you’re an ISV looking for a great place to sell software, I’m not sure AppExchange represents the golden opportunity that Salesforce.com claims it is.
And that’s where my second metric comes in. I get to meet up with lots of ISVs who are part of AppExchange, and I make a point of asking each of them if they are generating revenues from being listed on the website. Not a single company, and I’ve asked a good dozen in the last year, have told me anything different than the following: participating in AppExchange is a marketing exercise that allows my company to ride the SaaS/Salesforce.com wagon. It is not a revenue-generating ecosystem.
Now I grant you that the sample, while statistically big enough to cover a 750-member cohort, is not by itself a good indicator. But, again, I’ve asked Salesforce.com to come up with a list of revenue-making AppExchange vendors, to no avail.
And I’m only looking for revenue-making partners: making a profit on AppExchange is another question. The partner fees, conference fees, co-marketing costs, product development, etc. cost a pretty-penny, and it would take a lot of downloads for the average partner to start to show a real profit on its AppExchange participation.
On to Dan’s comment about my use of the term “ego-system” to characterize Salesforce.com’s ecosystem. Dan offers a blanket amnesty for Salesforce.com’s partner-unfriendly ego-system by claiming that one “could say the same about the early stages of Microsoft, SAP and others who built platforms that third parties have been able to leverage profitably.” I don’t think ecosystem companies should get such an easy pass, and let me go on record as saying that, in both the early and now later stages of Microsoft’s, SAP’s, and other platform companies ecosystems, there is a lot to condemn about how well the opportunities are managed for the partners. To say these companies’ early stage ecosystems are healthy models to emulate because they return “profitability” to partners today is to ignore the massive quantity of reporting and blogging about how much room for improvement (to put it politely) there is these classic ecosystem models.
Finally, I claim that Dell leapfrogged Salesforce.com, and I assumed that it was clear that I meant for that leapfrog comment to be explicitly about the ecosystem issue in the SaaS market. Dan’s reading was that I am claiming that Dell has leapfrogged Salesforce.com in a much broader sense of the term, and if that was the impression I gave, then let me clarify. Salesforce.com claims that a key part of its leadership in SaaS is due to its platform play. I claim that its platform play – in terms of the success it brings to its partners – has been leapfrogged by Everdream’s platform play.
I remain unconvinced that Salesforce.com is deserving of category leadership in SaaS platforms when Everdream is there to show us how to do a better job for its ecosystem partners. But if anyone really wants to settle this once and for all, let’s hear directly from Salesforce.com on this topic. They and they alone can really answer the question of a viable partner ecosystem, all the rest of us can do is just speculate in as much of an informed way as possible. Salesforce.com, it’s your turn.
Joshua Greenbaum's opinions on enterprise software have annoyed enough vendors that he now checks under the hood of his PC every morning before he boots up. For disclosures of Joshua's industry affiliations, click here.
