Companies and the Clouds They Keep; While Salesforce has a head start in the race to build a cloud platform, Amazon could emerge as the winner

Companies and the Clouds They Keep

By Peter Burrows May 22, 2014

After co-founding (CRM) in 1999, Marc Benioff spent years preaching the gospel of its radical new business model, cloud computing. The days of the hard sell are long gone, Benioff says. Just this month, the Salesforce chief executive officer played host to News Corp. (NWSA) Chairman Rupert Murdoch and Wal-Mart Stores (WMT) CEO Doug McMillon, who’d traveled to Silicon Valley to hear how Salesforce could help them cut costs and increase sales.

Murdoch and McMillon didn’t come just to hear about the customer-relationship-management software that’s Salesforce’s bread and butter. According to Benioff, they wanted to learn more about Salesforce’s cloud “platform,” a mélange of programming tools, data centers, and partnerships that let companies quickly and cheaply create cloud services of their own. “The world’s most important CEOs realize that their companies also need to become cloud platforms, and that’s why they’ve become so interested in our services,” says Benioff.

Salesforce is not alone in recognizing that the competition for cloud dominance is moving in this direction. Phase 1 was the “software as a service” craze, during which hundreds of companies followed Salesforce’s lead and rushed to create cheaper, easier-to-use online versions of traditional programs. Among the startups that rose to prominence are Workday (WDAY), which creates software for human resources departments, and Dropbox, which specializes in document storage.

Then, in 2006, (AMZN) pioneered “infrastructure as a service” by renting out use of its vast data centers so companies didn’t need to build their own. Booming demand enticed others to enter what is now an $8 billion-a-year market, according to Synergy Research Group. Amazon’s rivals have been cutting prices furiously in the hopes of whittling down its commanding 43 percent share. In March, Google (GOOG) announced it was slashing the cost to rent storage by 68 percent and the price of computing power by 32 percent. Microsoft (MSFT) and others are following suit.

Now these companies—along with enterprise software titans such as IBM (IBM), Oracle (ORCL), and SAP (SAP)—are focusing on building out soup-to-nuts cloud platforms. All include programming tools, some designed so that even Luddites can quickly create new cloud services. They also handle tedious tasks such as applying security patches and adding more servers when traffic spikes. As a result, companies can roll out cloud services faster and more frequently.

Amazon is “one of the only companies I know that tells customers, ‘Hey, you’re paying us too much.’ ”—Larry Carvalho, IDC

Coca-Cola Enterprises (CCE), a large Coke bottler in Europe, has used various platforms to create new apps. One it recently installed on the phones of hundreds of salespeople has cut the time needed to tally inventory on store visits by more than 30 percent, says Chief Information Officer Esat Sezer. Rather than count cans and bottles the old-fashioned way, all they do is snap a picture of cooler shelves and let the software do the work. Sezer says it took just a few months from concept to deployment. “In the past this would have taken years, literally,” he says.

Salesforce launched an online store for cloud software applications called AppExchange in 2006 (that’s two years before Apple(AAPL) opened up its own App Store for iPhone users). In 2007 it made the technology it used to write its flagship customer-relationship-management product available to developers through site; app makers pay Salesforce a cut of their sales. Last year it repackaged all of this into a broader suite called Salesforce1, which also includes tools to adapt developers’ apps for smartphones and other mobile devices. This month, Benioff says, it will add tools so developers on its platform can also have their apps run on wearable devices—a salesman out on his morning job could counter a competitor’s discount using his smartwatch.

By themselves, these platform services are not huge moneymakers: They contributed about $400 million of Salesforce’s $4.1 billion in revenue last year, according to Gartner (IT) analyst Yefim Natis. Yet ultimately, the cloud platform war could be every bit as consequential to the future of computing as the Mac vs. Windows clash of operating systems in the 1980s and ’90s. By making it easier and more lucrative for companies to create Windows-based applications, Microsoft engineered a de facto monopoly. The same will hold true in the cloud, says Natis—though it’s unlikely that one company will achieve a comparable level of dominance. “The one with the most software developers wins,” he says.

To help foster an ecosystem around Salesforce’s cloud platform, Benioff has sprinkled an undisclosed sum of money over more than 100 startups. Many are focused on areas outside Salesforce’s wheelhouse. The primary goal of these investments, says John Somorjai, Salesforce’s senior vice president for corporate development and strategy, is to create a service that’s not available from Amazon, Google, or the others.

Salesforce is currently the market leader in the $4.6 billion-a-year “platform-as-a-service market,” with a 20 percent share, according to Synergy. But after years as the clear front-runner, the company is now neck-and-neck with Microsoft and Amazon. When it first rolled out its Azure cloud offering in 2010, Microsoft required developers to use only Windows-related technologies to write their code. When few agreed, it followed Amazon’s lead and focused on renting out its data centers. Only recently has the company begun layering in more platform-oriented features, this time in a way that doesn’t require use of its in-house tools, says Microsoft technology fellow Mark Russinovich.

IBM bought a data center operator called SoftLayer a year ago and has since been introducing pieces of a platform it calls BlueMix that’s designed to help longtime corporate customers easily create cloud services that work with their existing setups, according to Steve Robinson, general manager of IBM’s Cloud Platforms Services division.


The price cut in Google’s cloud storage fees announced in March

Amazon has been mostly content to focus on renting its raw data center capacity and offers only rudimentary tools for software developers, says IDC analyst Larry Carvalho. Yet the company, with its vast customer base and aggressive pricing philosophy, would make fast headway if it chose to do more. While IBM, Microsoft, and Oracle are famous for cranking up prices to support their rich profit margins, Amazon last year introduced a Trusted Advisor feature that automatically scans cloud customers’ usage to find ways to lower their monthly bill. Says Carvalho: “They’re one of the only companies I know of that tells customers, ‘Hey, you’re paying us too much.’ ”

Benioff’s devotion to cloud computing has its downsides. Most companies still have some key applications they deem too important to run from someone else’s data center. And all of the cloud platform wannabes could be threatened by open-source alternatives offered by a range of upstarts, including Pivotal, a subsidiary of EMC (EMC). “Marc was a game-changer, but that was a decade ago,” says Sezer, who says open-source services may end up being a 10th of the cost of platform providers such as Salesforce. “His next level of innovation and service offerings cannot wait a decade. It has to be a matter of months, not years.”

The bottom line: While Salesforce has a head start in the race to build a cloud platform, Amazon could emerge as the winner.



About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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