How To Make A Software Revolution For Business

Transcription

1 The Software Revolution Salesforce.com Feb, 2000

2 There is a software revolution going on. This software revolution will fundamentally change the way organizations view enterprise software. This software revolution will change enterprise software the way the personal computer (PC) changed enterprise computing. This software revolution will bring about a concept and product category where a new class of vendors will sell and deploy enterprise software over the Internet, as a service. Before the PC, customers had only one choice for enterprise computing spend a few million dollars up-front, buy a mainframe, and wait months (or years) for the consultants to implement and customize it for your organization. When the PC revolution came along, organizations were finally given a viable alternative -- buy a PC, buy off-the-shelf applications, and be up and running in a matter of hours (or days), at a radically lower total cost of ownership. The same analogy applies to traditional, client server based enterprise software -- spend a few million dollars up-front, buy a software license, and wait months (or years) for the consultants to implement and customize it for your organization. At the end of this software revolution, organizations will finally be given an alternative -- buy enterprise software, over the internet as a service, and be up and running in a matter of hours (or days), at a radically lower total cost of ownership. The Vision of Enterprise Applications Over the past decade, traditional client-server based enterprise application vendors (e.g. SAP, Siebel) have touted a grand vision enterprise applications will take your everyday business processes and automate them, ultimately helping your organization become leaner, and more efficient. Thousands of brave, deep-pocketed companies have taken the plunge and invested heavily in this vision, undertaking large project installations of applications such as ERP (financial, manufacturing and distribution automation) 1 and CRM (sales force, customer support and marketing automation) 2. At the end of the process, customers are still largely unsatisfied. In a customer satisfaction survey comprised of more than 23,000 interviews, 74% of interviewees indicated that these projects either did not meet expectation or were simply considered as failures 3. Meanwhile, hundreds of thousands of smaller enterprises 4, still interested in achieving the benefits of enterprise applications, but unwilling to incur the costs and implementation burden, have warily eyed the vendor horizon looking for a new, better alternative. A Revolutionary Alternative Enterprise Applications as a Service The Internet has caused a paradigm shift in information technology (IT). Today, almost every employee has access to the Internet. Employees can safely buy consumer goods, read up-to-theminute news, and securely access important corporate information, all from within an Internet browser, from anywhere in the world. Whether enterprise applications are hosted on your own 1 According to IDC #W18312 (Jan 1999), $57M spent in According to IDC #W20345 (Oct 1999), $3B in CRM, $888M SFA spent in Gartner Group, Is ERP Delivery so Bad, Feb According to IDC U.S. Segment of the 1999 Global IT Survey : There are over 600,000 companies in the U.S., with revenues between $40M and $500M that have less than $400,000 annually budgeted for IT

3 hardware, within corporate headquarters, or if they are hosted in a third party site is irrelevant by using the Internet, those traditional distinctions become meaningless. This paradigm shift brings a new age -- the delivery of enterprise applications, over the Internet, as a service. These services will provide the same value of traditional, client server based enterprise applications, but at a small fraction of the cost 5. These services will be sold under a subscription model, require almost no implementation, require no client software (other than a browser), and reduces up-front costs to zero. This paradigm will be exceptionally attractive to the small to medium enterprise (SME) whom often deem creating and maintaining an internal IT infrastructure as being a prohibitively risky and expensive investment 6. How does it work? We re all familiar with the concept of online retail, where companies create a website that hosts a catalogue of purchasable retail items (e.g. Amazon.com hosts a catalogue of books or CDs). Imagine instead that rather than hosting a catalogue of purchasable items, a website was created that hosts a specific enterprise application (for example, a sales force automation solution), and provides it over the Internet as a service. This is exactly what this new breed of software vendors are providing sophisticated applications that are built as websites and are designed from the ground up to be used over the Internet. These new websites allow you to enter, retrieve, and edit all the same information that you would traditionally enter into an enterprise-class application. Therefore, just by using a standard web browser, you can now start using an application that is as easy to use as popular consumer sites (e.g. Amazon.com, E*Trade, Yahoo!), but with all the enterprise-class functionality of traditional enterprise applications (e.g. PeopleSoft, SAP). What are the benefits of providing these applications over the Internet as a service? Immediate, enterprise-class functionality Traditional enterprise application vendors rely on a complex, expensive implementation, customization and training phase in order to get customers up and running. Typical installations range from months to years. By leveraging the Internet, you can start using an application of similar value, in a matter of minutes. With no software to install (all that s needed is a standard Web browser), and a familiar, simple user interface to learn (similar to popular consumer sites such as Amazon.com, E*Trade and Yahoo!), you can start using these applications immediately. Collaboration Traditional enterprise application vendors face significant obstacles when it comes to sharing information. Proprietary Intranets, complicated synchronization and sharing models, complex application integration, cross-organizational security issues, and idiosyncratic client software are all factors contributing to an inherently limited ability to share information and enable team collaboration. By leveraging the Internet s ubiquitous communication standards, and by providing a central repository for information, you can manage, share and 5 The total cost of ownership will be roughly 1/50 th the cost (first year TCO) of traditional, client server based, enterprise application software. See Appendix A. 6 Most small to medium enterprise can t afford traditional client server based enterprise software. IDC estimates that the mean IT spending in 1999 for organizations with between employees, was $391,130.

4 leverage corporate information with your colleagues, managers, partners and customers more easily than ever before. Integrated Content and Services Traditional enterprise application vendors have inherent difficulty consolidating corporate information, corporate services and web content into a single application. By leveraging the Internet and browsers, vendors leading the software revolution can weave relevant, powerful content and services seamlessly into the application to provide a single destination for all your employee s needs (e.g. content such as corporate news and updates, customer information and press releases, relevant services such as maps, restaurant listings, travel services etc) No up-front costs. Traditional enterprise application vendors require you to spend millions of dollars up-front. Furthermore, it is estimated that out of these millions of dollars paid up front, less than 10% of those dollars are spent towards the application itself 7 -- meaning 90% of your dollars are spent towards supporting the application (e.g. installation, implementation, customization, administration, training etc). By leveraging the Internet, almost all of your dollars are spent on the application service, on a monthly basis, with minimal support required. Radically lower total cost of ownership. Traditional enterprise application vendors require you to spend significant time, effort and money building a hardware and software infrastructure (e.g. application servers, network servers, database servers, dialup servers, disk backups etc) to run your enterprise applications. Vendors leading the software revolution deploy and maintain all of this complex infrastructure for you and are able to amortize these costs over all customers. As a result, your total cost of ownership is estimated to be roughly 2% to 5% of traditional enterprise applications. For a specific example, see Appendix A for a comparison between traditional client-server based sales force automation (SFA) solutions and salesforce.com, an internet-based SFA solution provided over the Internet as a service. How will I subscribe to the service? Customers will be able to subscribe directly to the service either by signing up online, or by calling the vendor and signing up by speaking to a sales person. Customers will be able to sign up for the service and train themselves on the service with minimal need for human interaction with the vendor. Signing up for the service will be similar to signing up for an ISP (Internet Service Provider) service where the customer s credit card or purchase order will be automatically debited (or invoiced) on a monthly basis. How does this differ from an Application Service Provider (ASP)? First, we need to define what an ASP is. According to a recent IDC report 8, ASPs provide a contractual service offering to deploy, host, manage, and rent access to an application from a centrally managed facility. Using that definition, with respect to the software revolution, ASPs are a step in the right direction. ASPs do provide the customer an ability to outsource management of their hardware and software infrastructure, and they do use the Internet to connect users to the application that they host (rather than traditional outsourcers who often required proprietary networks). But, ASPs typically host a 7 Gartner Group: R , June 21, The ASPs' Impact on the IT Industry: An IDC-Wide Opinion, Bulletin #W September 1999

5 standard third party, client-server based application (e.g. U.S. Internetworking s sales force automation application is just a hosted Siebel application, rather than an application that was designed from the ground up for the Internet). As a result, many of the traditional liabilities are still inherent. For example, customers still need to: Undergo some hardware and software implementation, customization and training. Face the same architectural liabilities (e.g. application integration, divergent standards and data models, idiosyncratic user interfaces) which inhibit team collaboration Face the same architectural liabilities which inhibit integrating enterprise functionality with rich Internet content and services into a single destination and application Pay for a similar (somewhat reduced) total cost of ownership to the traditional enterprise applications model. ASPs simply amortize the total cost of ownership over a period of years, instead of incurring the costs up-front 9. In addition, trying to run traditional client-server applications over the Internet is like trying to fit a square peg into a round hole these applications simply weren t designed for use over the Internet. As a result, ASPs face new obstacles: Since client-server applications were written to run either predominantly on a desktop or over a very fast internal office network, traditional client-server user interfaces are often very graphics intensive and often include significant program logic running on the client side for each screen the user views. To achieve the same effect over the Internet, the graphics are sent as large bitmaps, and the program logic is sent as large pieces of Java code. The result is very large downloads over the Internet (often >200KB per page) for each page you want to view. Unfortunately for these users, large page downloads (>40KB per page) are unacceptable to end users relying on a modem for connectivity 10. Data models were intended for single organizations. This inhibits the ASPs ability to house multiple organizations on the same platform reducing their ability to amortize software and hardware costs over thousands of customers Nevertheless, we still believe that ASPs are a step in the right direction and are receiving acceptance in the marketplace. The fact that customers are embracing this intermediary step is excellent validation that the customer need for viable alternatives is dire, and that the software revolution has arrived. Conclusion The revolution of delivering enterprise applications over the Internet as a service, is a concept and product category whose time has arrived. As a concept, this gives customers an attractive alternative -- an immediate, easy to use, significantly lower cost way to benefit from enterprise applications. As a product category, the software vendors leading this revolution will provide a single website destination for enterprise class applications, content and services, and will sell this at a dramatically lower cost. 9 TCO savings are estimated to be in the 20% to 50% range: Gartner Group (M ) 10 According to Zona research, the average user waits no more than 8 seconds before aborting a page request. By shrinking average page sizes from 40KB to 34 KB, the average visitor retention increased by 30%

6 Appendix A Traditional client-server based SFA versus Salesforce.com Traditional Costs Year 1 Year 2 Year 3 Year 4 Total Cost Application and Module licenses 1 $400,000 $0 $0 $0 $400,000 Support/Update Cost 2 $80,000 $80,000 $80,000 $80,000 $320,000 Implementation Cost 3 $2,000,000 $0 $0 $0 $2,000,000 IT Infrastructure Cost 4 $500,000 $50,000 $50,000 $50,000 $650,000 IT/Customization & Support 5 $300,000 $300,000 $300,000 $300,000 $1,200,000 Training Cost 6 $10,000 $0 $0 $0 $10,000 TOTALS $3,290,000 $430,000 $430,000 $430,000 $4,580,000 Salesforce.com Year 1 Year 2 Year 3 Year 4 Total Cost Application and Module licenses 7 $57,600 $57,600 $57,600 $57,600 $230,400 Support/Update Cost $0 $0 $0 $0 $0 Implementation Costs 8 $1,800 $0 $0 $0 $1,800 IT Infrastructure Cost $0 $0 $0 $0 $0 IT/Customization & Support $0 $0 $0 $0 $0 Training Cost $0 $0 $0 $0 $0 TOTALS $59,400 $57,600 $57,600 $57,600 $232,200 COST SAVINGS ($3,230,600) ($372,400) ($372,400) ($372,400) ($4,347,800) TCO Comparison 2% 13% 13% 13% 5% 1 Assuming 100 users, $4000/user 2 Average traditional support costs are 20% of total license fees 3 Average implementation costs are 5 times the license fees, and takes 6-12 months 4 Includes a database server, application server, NT license, database license, laptop upgrades, and a dialup server 5 Three full time IT employees 6 One week training 7 $50/month for first 5 users, $50/month for each additional user thereafter 8 Jumpstart program for training and data integration