Siebel v Salesforce — Lessons from the Death of a Tech Goliath

Yesterday, Fortune.com posted an article I had been contemplating writing for several years.

It was a point of view story on the collapse of Siebel Systems and the rise of Salesforce to become the global leader in CRM. Well, at least a large portion of the CRM market.

In case you didn’t see the Fortune article, click here to read it. When you have finished, come back and the following narrative might add some color as they had to edit down the original and it lost a few points I had wanted to make.

The Power of Consistency

Last week, in preparation for a commercial launch, I asked the CEO of one of my companies the following questions:

  1. Do you and your team feel you know the 3-5 things you do that no other company can do?
  2. Do you feel your customers, prospects and industry analysts understand what these unique capabilities are and value them as “must have”?
  3. Do you believe your Corporate Sales/Investor Presentations, Corporate Demo and Corp Website feature your unique capabilities?
  4. Do you believe each and every person inside your company knows your unique capabilities and value propositions and can recite them verbatim?

These questions sound fairly simplistic but in order to answer affirmatively requires a company to have put in place strong internal communication processes.

 

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Innovation – the Intersection of Fear of Status Quo, Opportunity and Talent

At InterWest, I recently had the pleasure of hosting an executive team from a 100 year old insurance company. They were visiting Silicon Valley in order to meet with various “innovative” companies in order to learn how they might themselves become more innovative.

The format of the meeting was a discussion between myself and eight executives. They wanted to know how we, InterWest, identified innovative ideas and/or sponsored innovation inside our portfolio companies.

It was easy to answer the latter – we don’t.  We are investors in ideas we believe are innovative but we are not the creators of that innovation – at least not typically. It is the entrepreneur and the team that are the innovators.

Forecasting the Winners in the Cloud Computing/SaaS Market

Trying to determine which companies will emerge to be the future leaders in the cloud computing market is still fairly difficult. A poll taken by Saugatech last year revealed that 51% of the respondents  “didn’t know or weren’t sure which company would be the next ‘master brand'”.

While at the application level, it’s easy to view Salesforce.com as the star of that sector, it gets a little murky as you move to other functional areas of the front and back office as well as down the overall cloud ‘stack’. As with most nascent markets,  the market is highly fragmented: CoLo/Managed Services (e.g. Rackspace, OpSource, many others),  Infrastructure/Platform (e.g. Amazon, Salesforce.com, VMWare, many others), Tools (e.g. Salesforce.com, Corent, Serena, SAP/Coghead, many others), and some a mixture of 2 or more areas (e.g. Salesforce.com).

SaaS: Lead Generation – Not Sales Capacity – Drives the Model

One of the key issues that concerns investors and management teams alike vis a vis the SaaS business model is its potential to consume a large amount of capital until finally reaching profitability. Many people have written about this topic, including me.

SaaS companies are typically built upon a stream of relatively low cost subscription licenses, paid out monthly/quarterly/annually — even multi-annually. Unfortunately, for the vendor, the subscription model usually generates far less up front cash than a traditional ‘perpetual license’ software model. But, over time, the compounding effect of the SaaS model can build into a nice annuitystream — provided churn rates are minimized.

It is this up front cash differential that is the primary appeal of the SaaS model over the traditional software model with customers. However, this differential is also what makes the model vexing for the SaaS management team and the investors.