Global CIO: Salesforce.com CEO Benioff On Beating Microsoft & SAP In The Cloud

Behind his competitive zeal and his company's explosive growth trajectory and his high-stakes strategy to position Salesforce.com as an unmistakably full-fledged and mainstream enterprise software provider, Marc Benioff has a surprisingly gentle and sympathetic view of customer-side companies that are still resisting the cloud.

"People are riding the curve at their own pace, and that's just the way it is," Benioff said during an interview in his San Francisco office. "That's reality, and it's not necessarily a shortcoming that everybody's not seeing it the same way or jumping on board aggressively. Everybody gets there eventually."

But for traditional enterprise software companies and other IT vendors, Benioff's observations are far from gentle—and we'll get to those in a moment. What struck me most about Benioff's comments relative to the enterprise players was that he based his analyses not on some arcane technical issues or price battles or slogans, but rather on the ability to deliver innovation and change. And how the delivery of those essential qualities cannot be achieved with outdated approaches, no matter how much spin or glitzy makeup is applied.

Global CIOs: A Site Just For You Visit InformationWeek's Global CIO -- our new online community and information resource for CIOs operating in the global economy.

Benioff's view is that while it's perfectly okay for customer-side CEOs and CIOs and LOB heads to take their sweet time in coming to grips with the cloud and its essence, once they're there, they're not going to be fooled by close imitations or simulations or knock-offs. Once they commit, he says, they will never go back. Which means that uncommitted software companies are spreading themselves perilously thin across the essential triangle of credibility, capability, and opportunity.

(For more analysis on Salesforce.com and CEO Benioff, please check out our "Recommended Reading" list at the end of this column.)

He sees Microsoft and SAP as stuck, inextricably, in that tar pit, while kinda/sorta-partner Oracle still has one leg squarely out on terra firma.

"Microsoft is a great company in the perspective of operating systems for PCs, and for servers, and for Office, and for Back Office—that's what it used to be called; I don't know what it's called now," Benioff said. "And Microsoft succeeded greatly because they offered a lower-cost alternative to Data General or Digital Equipment—but those companies aren't around any more. That model is finished—they're gone.

"Today customers don't need to deal with all that stuff—they can just move to the Internet, and that's where the world is headed. Microsoft's mistake has been holding on too long to an old paradigm and as it keeps trying to control things and offer a new upgrade like Windows 7 that has no enhancements. And that's not innovation and it's not good for customers.

"On the other hand, you've got Apple and Google and RIM: those companies are what the Internet is all about, and they show the promise for how going live on the Internet can help our customers change their businesses. If you're a software company and you're not looking very, very closely at that simple truth, then you're not going to make it."

Oracle fares better in Benioff's estimation, but not necessarily well. Benioff has on multiple occasions expressed publicly is admiration for Oracle CEO Larry Ellison, who is simultaneously Benioff's former boss and mentor, plus Salesforce.com's first major investor, plus the person who invited Benioff to present at Oracle Open World, plus the person who until recently revelled in regaling financial analysts with tales of the thrashings Oracle gave Salesforce.com in head-to-head competition.

To say that their relationship is multifaceted would be an early contender for understatement of the year.

"I've always had a great relationship with Oracle—I worked there for 13 years, and Larry Ellison was the first major investor in Salesforce.com," Benioff said. "I have a great deal of respect for him and for Oracle and in some cases we've been able to work together very well for customers.

"But if you were at Oracle Open World (in October in San Francisco's Moscone Center), at the bottom of the escalators that everybody had to go down every day Oracle had these giant Exadata machines—their big new Database Machines—and that's who they are. But it's also just exactly the opposite of our message. They want you to buy lots of Oracle software, and when they bring Sun aboard, they'll also want you to buy lots of hardware.

"With us," Benioff said, "there's no software and no hardware or any of the complexity that goes with that, while their approach with the Sun acquisition is all about more software and more hardware. Plus there's all the complexity and management and maintenance that goes with all of that, and all the middleware stuff like BEA and WebSphere.

"We just approach the world in very, very different ways."

While that is certainly true, Oracle and Salesforce.com seem like identical twins compared to SAP and Benioff's company: Benioff surely had nothing good to say about SAP's products—quite the opposite, in fact—but I had the unmistakable impression that his most biting criticism was aimed at SAP's lack of vision, its lack of commitment to innovation, and its resistance to change in spite of customers' fervent desire and need for such change and innovation.

"SAP customers have to be seeing some of these developments in cloud computing and wondering, 'What am I paying 22% maintenance fees for?' All that money goes to cover the huge cost of human capital they're carrying with all those programmers and developers trying to debug and maintain and sustain those giant and complex applications," Benioff said.

"SAP has probably done the worst job of all in terms of innovation and increased value to customers, and they shouldn't be able to simply exist and keep charging these enormous fees without launching anything new or innovative or valuable.

"SAP is the anti-cloud: they stop innovation, they stop new ideas, and they try to keep everything under their control." Benioff chuckled and shook his head in mild disbelief before underscoring his point with this anecdote:

"In the U.K., I just hired a terrific guy from SAP and he said that one of the great things about SAP is that you can leave the company in 1999, and return to the company 10 years later in 2009, and you wouldn't have to learn anything new because absolutely nothing would have changed because they don't pursue any innovation!" For all of its size and technical knowledge, Benioff said, the company is caught in a vicious pincher trap between a culture that venerates its existing technology and approach, and a business model driven by 22% support and maintenance fees that doesn't tolerate deviation from that norm.

"SAP completely de-emphasized its cloud approach because the new business model that cloud computing demands would have disabled their revenue stream, which is built largely around annual maintenance fees," Benioff said.

"That's why they started their own cloud project—Business ByDesign or whatever it was called—before they pulled it back and then started it again and now aren't sure when it'll be out. They're not interested in innovation because that conflicts with their existing revenue stream that requires maintenance fees to remain at 22%. So they can't handle innovation.

"I don't know--maybe they don't feel they need to do a lot of new things because nobody really cares about SAP—they only have about 30,000 customers," Benioff said. "We have 70,000 and that number is growing very rapidly—and the reason it's growing rapidly is that we're delivering innovation and value and helping our customers move faster and make the changes they need to make."

Stay tuned: Coming up on Monday, Jan. 25, in Part 2 of this 2-part discussion with Salesforce.com's founder and CEO, we'll move from this external analysis of the competitive set's philosophies and take an inside look through the eyes of Benioff at Salesforce.com's position in the marketplace, the rapidly expanding role that the Force.com platform is playing among Salesforce.com's customers, and Benioff's unbridled excitement over his new Chatter social-media collaboration tool that will go live next month.