dreamforce 2012 wrap-up: more than just salesforce...dreamforce 2012 2 cloud/saas industry wrap-up...

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Cloud/SaaS Industry Dreamforce 2012 Wrap-Up

September 2012

Mark R. Langner Managing Director – Research

415-464-6322 (t) 415-994-0557 (m)

[email protected]

Dreamforce 2012 Wrap-Up: More than Just Salesforce “…full of sound and fury, Signifying nothing…” Macbeth, William Shakespeare

While on the surface that quote may seem a bit harsh, in many ways, the above is an apt quote to sum what we saw and heard from Salesforce at last week’s Dreamforce conference in San Francisco. The “meat” of the conference, however, was the growing and thriving ecosystem of SaaS companies around Salesforce - particularly those that are developing their own identity outside of Salesforce.

First off, it was LOUD. In all my years of attending various industry events, I have never

been to an event that was turned up to 11 like Dreamforce 2012! Rock bands, DJs, motivational speakers, giant screens replaying keynotes everywhere… Dreamforce was a cacophony of sound – much of it ancillary to the core content of the show.

The below picture really summed up the zany “feel” of Dreamforce – 10 AM, middle of a closed Howard Street in SF, giant chess set and rock band in the background playing to no one in particular (not pictured, but appearing at the same time, Tony Robbins & pick-up soccer field).

The “meat” of the Dreamforce 2012 was the

growing and thriving ecosystem of SaaS companies around

Salesforce

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To a degree, much of this sideshow was a distraction from the fact that the show was loud for another far more important reason – the show was absolutely packed – a reported 90,000. Whether or not that number can be believed, the conference had an exceptionally busy Expo floor every day – including on a Friday, last day of conference – which is truly exceptional.

Therein lies a bit of the incongruity of Dreamforce. Mixed in with all the distractions and chest thumping of Salesforce (which we will get to in a moment), the show has become a must attend for anyone in the SaaS industry with even the most tenuous of connections to Salesforce. On one hand, this demonstrates how important Salesforce has become to the SaaS universe as a leader and must have integration (despite some shortcomings), and on the other it shows how big the market and opportunity is outside of Salesforce as there was plenty of activity at Dreamforce in the Salesforce “ecosystem” that had little or nothing to do with Salesforce proper.

After fighting the crowds on the Expo floor and meeting with a number of CEOs of Salesforce ISVs, partners and other SaaS players, there were a few notable trends that we heard on a recurring basis.

An Impressive Ecosystem

Without a doubt, the ecosystem of partners, ISVs and add-ons that has been assembled around Salesforce is impressive. Much of this can be attributed to Saleforce’s embracement of easy and open API’s for their partner developers. The portions of the Expo floor that were dedicated to ecosystem companies were completely packed for three days straight – far more busy than the Salesforce pavilion at the back of the Expo floor.

Several CEOs with whom we spoke noted that Dreamforce has become a must attend event for meeting both potential customers as well as other potential partners – regardless of how large or small an impact Salesforce has on their own business.

From our perspective, what all this activity, and breadth of companies attending, represents, is how central Salesforce has become and will be to SaaS solutions going forward. Expect next

year’s Dreamforce to be as important, if not more, to the industry in general.

Partner, Competitor, or Co-opetitor?

If the strength of the attendance by companies in the ecosystem was a testament to the importance that Salesforce is playing in the SaaS market, the darker question regarding the role that Salesforce plays as a partner, competitor or co-operative competitor was one that came up repeatedly in conversations with CEOs.

As one CEO mused – “having Salesforce as a partner is great, they say the right things regarding allowing partners to be experts in their segments and being hands off on markets deemed ‘non-critical’, right up until they determine that your market segment is ‘critical’”. There certainly are examples where that concern has been legitimatized, for instance the announcement of Chatterbox storage that will compete with “partners” such as Box.net (in which Salesforce is an investor).

Along similar lines, we also heard some concerns about how much value the Salesforce ISV program is actually creating for partners as they have experienced limited traction from a customer lead perspective. Our take is, while Salesforce is viewed by many ecosystem players as a “must have” integration or partner, those same companies need to have their own identities and opportunities outside of the Salesforce ecosystem. Being totally dependent on Salesforce for lead generation will not be the most successful strategy.

Still, there is a general sense that Salesforce’s appeal and ability to penetrate the market of larger customers will only grow over time. As one CEO noted, “Microsoft is being pushed increasingly to the attic – they are getting only the biggest of wins – clearing the field for Salesforce in much of the Fortune 3000. We need to be there alongside Salesforce as they grow into that market.”

The ecosystem of partners, ISVs and add-ons that has been assembled around Salesforce is impressive. Much of this can be attributed to Saleforce’s embracement of easy and open API’s for their partner developers.

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The World According to Salesforce

It’s hard to fault a company at their own event for, as one CEO put it, “shameless and pervasive promotion”. But there was some that noted there was a lot about what was being said by Salesforce that left a bit to be desired. A few of the recurring complaints we heard on this front were:

1. There is a Fine Line Between “Vis ion” and “Hype”: One of the most consistent themes we heard at Dreamforce was that Salesforce was pushing the envelope regarding their vision of what various offerings could bring to their customers and partners, and what those offerings are capable of doing today. This included concerns about product features that have been announced but are not available nor will be anytime soon as well as integration of acquired companies.

2. The Social Enterpr ise is What?: It was difficult to avoid the term “Social Enterprise” at this years conference. The emphasis on social was similar to last year. What all the noise about the “Social Enterprise” actually means to customers and Salesforce partners is not clear. The general consensus from the CEOs that we spoke to is that the importance of social to consumer facing B2C businesses is clear. However, for the vast majority of B2B players, how social makes a real impact on their business is yet to be determined. Most companies focused on the B2B sectors that we spoke to are still wondering how they might actually use these technologies to drive their business as they have not seen a compelling demonstration or use case to date for social.

3. Confusion About Acquisit ion Strategy: Over the last 18 months, Salesforce has been active moving beyond its core CRM offering into platforms, digital marketing, social, business data, etc. In some cases, the addition of these offerings can be seen as clearly adjacent to Salesforce’s core offering. In others,

the strategy is less clear. Several people we spoke to expressed some confusion regarding the Salesforce acquisition strategy. This lack of clarity regarding the strategy manifested itself in two repeating themes:

a) Will Salesforce Purchase

Something in my Sector?

b) When/Will Salesforce Actually Integrate these Acquisitions and how Does that Affect my Business as a Salesforce ISV?

The Importance of Data and Analytics

Our last and perhaps most important takeaway from the conference is the growing importance of analytics and data to the SaaS universe. Without a doubt one of the biggest trends in the show was the focus on data and analytics. This is not particularly news to readers of our reports in Internet and mobile advertising.

Importantly, we continue to see the growth in capabilities and functionality around data and analytics. The event was filled with companies that were focused on helping other companies:

a) Delve into and understand the data that they already have or collect (often including Salesforce data) to better understand and target customers than is possible within Salesforce;

b) Integrate internal data (including Salesforce data) with external data (e.g., Social Network data, or traditional demographic data) to identify and provide a better understanding of potential sales and marketing targets;

c) Provide the necessary tools to handle that data accurately, efficiently and quickly. The ability to pull in data from various internal and external sources is a challenge, as is processing and deriving business intelligence from that data in real or near real time.

The reason behind the focus and importance of these types of companies is that the access

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to data for companies (whether internal or external) continues to grow (particularly around social and mobile) as does the opportunity to begin to tap vast store of existing internal customer data as Big Data technologies such as Hadoop make the handling and integration of that data realistic from a processing and efficiency perspective.

Dreamforce 2013

As we look forward to Dreamforce 2013, we expect that show to be as heavily attended as this year’s edition. The importance of the SaaS business model continues to grow and Salesforce will continue to be a SaaS market leader. Salesforce has set out quite a vision for where they want to take their offering and the market in general. The question for 2013 will

be how much progress they have made in converting that vision to reality, including what acquisitions they make to build their platform and offerings. How much they achieve between now and then will be something that all participants in the SaaS market will be watching closely.

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About Headwaters MB

Headwaters MB is an independent, middle-market investment banking firm providing strategic merger and acquisitions, corporate finance services and merchant banking through proprietary sources of capital. Headwaters is headquartered in Denver, CO, with 10 regional offices across the United States and partnerships with 15 firms covering 30 countries.

Headwaters MB has a significant international track record; providing our clients with a global reach. Our team has generated significant revenue from cross-border transactions and has been the winner of “Cross Border Deal of the Year”.

The firm has an established reputation as quality service provider and trusted long-term advisor to clients with a history of process and transaction excellence.

The Headwaters TMT Team

Gary Moon John Batdorf Mark R. Langner Head of TMT Banking Managing Director Managing Director – Research 415-766-3862 (office) (415) 926-7454 (office) 415-464-6322 (office) 650-515-8734 (mobile) (415) 847-8805 (mobile) 415-994-0557 (mobile) [email protected] [email protected] [email protected]

Sun Jen Yung Managing Director 203-992-1667 (office) 917-297-8716 (mobile) [email protected]

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dreamforce 2012 wrap-up: more than just salesforce...dreamforce 2012 2 cloud/saas industry wrap-up...

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