In declaring the "End of Software," Marc Benioff grew Salesforce.com into a billion-dollar software company in just ten years. The SaaS leader now joins the ranks of an elite group of megavendors who dominate the industry landscape.
The milestone prompted SandHill.com to ask the billion-dollar question: Will there ever be another billion-dollar software company? The opinions of industry experts lead to an emphatic answer: "Yes." Here's why.
Global Markets Will Expand & Evolve
- Bryan Stolle, General Partner, Mohr Davidow Ventures
Unless human activity on the planet comes to an end, yes, there will be more billion-dollar software companies.
The world economy (current environment, aside) continues to grow over the long run. We've recently added nearly 3 billion humans to the economic stage, as India and China join the WTO. Combine this with higher education reaching more people than ever, and it's hard to posit a long-term scenario that doesn't result in a larger global economy.
The world grows and changes in ways we often could never predict or envision. Today, we take the Internet as a core part of our lives for granted. People under thirty-years old conduct their social interactions in a large part on-or-through the computer and the Internet - yet the technology isn't even a decade old.
If you had predicted the demise of the multi-billion-dollar newspaper business even ten years ago, people would have thought you were insane, especially outside of Silicon Valley. Most people under 50 now get most of their news from the Internet, and probably haven't looked at a classified ad in a newspaper in close to 10 years.
With a larger global economy comes larger companies - some old, some new. There will be more billion-dollar software companies. How we conduct business, who we conduct business with, and where we conduct business has changed radically in the last decade. In fact, the global financial crisis is the best proof of how interconnected we have all become.
The existing billion-dollar software companies are ill-suited to support much of how we now do business. We often talk about Oracle and SAP as owning the back-office and now the front-office - yet eBay is both for tens of thousands of meaningful businesses.
Some of the giants will adapt and survive. But new giants will also emerge, just as the names of many of the original ERP giants live on only as memories for those of us who have been around a while.
Given the evidence, the proposition that no other software company will ever make it to $1 billion in revenue strikes me as one of the classic technology overstatements like Bob Metcalfe's prediction that the Internet would collapse in 1996.
Serving the Right Market at the Right Time is Key
-Bill Portelli, President and CEO, CollabNet
Five or ten years ago, when I visited a client, I would have to spend an hour explaining the benefits of SaaS, open source, and offshore development before I could even begin to describe CollabNet's offerings. But about three years ago industry reached an inflection point: Distributed development became a business imperative for CIOs. They realized developers did not need to physically reside in the same building to develop an application. With that, SaaS, open source, offshoring and SOA became "household" words.
Since then, we've seen our customer count increase by 10x over the first seven years. Though we've changed our product, packaging and model slightly, the most important force behind that growth has been the crystallization of the market into which we're selling.
Today, buyers and sellers are struggling with the precise definition of the cloud. Yet as I visit executives and simply introduce CollabNet as distributed application lifecycle management in the cloud, they immediately understand what we offer.
When I look at which vendor is the furthest along in the cloud computing vendor landscape, I see Salesforce.com. Amazon did the most to sensitize the market and build the infrastructure. But they have chosen not to have their own front end development environment, instead choosing to offer a set of APIs that allow companies like CollabNet to offer integration of development, build and test capabilities for their cloud. Google is working fast to be a contender. VMware, Microsoft, IBM, HP and Sun are all playing now - each is driving towards public or private cloud offerings. CollabNet is working towards providing a distributed software development lifecycle front end for many of these providers.
In my opinion, Salesforce.com is the most advanced vertically-integrated cloud provider. The company provides the operational infrastructure, security, management, the Force.com developer environment, and more. They've moved away from being a sales force automation and CRM company to being the first vendor to enable customers to design build, and deploy new applications in their cloud.
Given the fact that IDC pegs the cloud market at $42 billion by 2012, it's hard to see any short term market size or competitive concerns stopping Salesforce.com from getting their fair piece of that market. But Salesforce.com won't be the last ISV to hit $1 billion in revenue. In fact, I think they're just first in what will be a long line of next-generation billion-dollar software companies.
If you analyze the cloud based "developer services" market, we believe a majority of the $20-$30 billion spent today in IT tools, services, and infrastructure of the entire software development lifecycle will ultimately be deployed via a private or a public cloud deployment method. At one-fifth the cost and a 10-50 percent increase in development productivity vs. traditional silo-based LAN methods of software development, Web-based "developer services in the cloud" is an unstoppable force when combined with the business and technology trends towards distributed development. There is no doubt in my mind that this developer services market is going to flip in the next ten years. It is simply a better way of building software.
This is not a secret. Lots of megavendors are developing and partnering with other emerging software companies to offer developer services capabilities as a front end to these private and public clouds. It is critical to have the right solution for the right market at the right time. Salesforce.com figured it out. Now CollabNet and other next-generation vendors are defining what it takes to be the next billion-dollar company.
Focused Solutions Will Continue to Deliver
-Scott Abel, Founder, President & CEO, Spiceworks
Salesforce.com was founded 10 years ago on one simple concept: dramatically change how software is consumed. There were two big ideas in this concept:
1) No software - You should not have to suffer through a big, complex and expensive software installation project to solve your sales force automation problem;
2) A simple, scalable, pay-as-you-go pricing model - Why pay for more software than you need? Why tie up all your money up front? You should be able to pay for the value the software provides as you get it. If you use a little, you pay a little. If you use a lot, you pay more.
The company has done a fantastic job of staying focused on these two simple concepts while dramatically expanding the value proposition of their software platform. Fast forward to 2009 and Salesforce.com is used in 56,000 companies worldwide and generates $1 billion in annual revenue. They have become the poster child for Web 1.0 in the enterprise.
What's interesting about the Salesforce.com model is that they didn't change how sales people worked. There was sales force automation software before Salesforce.com - Siebel was a wildly successful company that automated almost every facet of the SFA process. Salesforce.com's big innovation was changing how this software got consumed. They made it trivial to get the product up and running quickly with their software producing value in days not months. And they made it affordable - you could outfit a small sales team for a hundred dollars a month while a similar Siebel might cost tens of thousands of dollars.
Will we see any impact from Web 2.0 in the enterprise the way we did with Web 1.0? Will there be another success like Salesforce.com emerge based on Web 2.0 innovations applied to the enterprise? We think there will. We believe there is a new class of applications emerging - Social Business Applications - that will fundamentally change the way we work. Be it accounting or sales, customer support or IT - these applications will embed professional social interactions directly into the workflow of the application to make every user of that application smarter, more efficient. It's the classic network effect - applied to how we do our jobs every day.
We believe Spiceworks is the first such Social Business Application for the IT industry. It combines the automated workflow IT pros use to do their job every day, with the expertise of more than 600,000 IT professionals worldwide - embedded directly into the application workflow. The application leverages the shared community expertise for everything from troubleshooting advice, shared reports and plug-ins for extending Spiceworks functionality, to advice on what products and services to buy to manage their networks. To quote one of our users ' "It's like Facebook for IT Geeks".
Spiceworks may be the first such Social Business Application, but we won't be the last. We'll see these show up in other disciplines as well - from sales and support, to accounting and finance, to HR and recruiting - they'll eventually transform every industry. Once you get used to having hundreds of thousands of experts on tap to help you do your job every day, it's pretty tough to go back. Not all of these companies will succeed. But one of them will become the Salesforce.com of their space.
We're biased, of course, but we think Spiceworks will become the first billion-dollar Social Business Application company in IT. But that's a long way off in the future. Today we're just focused on making the best Social Business App for IT we possibly can.
The Next Billion-Dollar ISV Will Look Different
I agree with Bryan, Bill and Scott: Yes, there will be many more billion-dollar software companies - but they won't look like the ISVs of today.
As the next-generation software leaders reach maturity, they'll look more like a services and solutions company. Sure, they'll have a software backbone and a technology platform to enable the services they provide. But to customers, the next software companies will seem more like services companies.
The debate has already begun. Is Google a software company? What about Amazon.com? How about ADP? These companies offer a technology platform, software, services - some automated and some human-powered - all rolled into a solution. Witness the growth of business process outsourcing and knowledge process outsourcing solution providers. At their hearts, these firms are software companies but they are packaged and marketed as services providers.
CollabNet, Spiceworks and many other emerging software leaders could arguably be called services companies already. They deliver software, communities and services all rolled into their solutions.
There is no question that there will be a lot more billion-dollar software companies. The only question is whether we will continue to call them "software" companies or something else entirely.
We welcome your questions and comments.
M.R. Rangaswami is co-founder of the Sand Hill Group and publisher of SandHill.com.