SAP and Salesforce to duke it out in vertical markets?

Chris Kanarakus has a fun piece that talks about a Salesforce inspired poke at SAP where Keith Block, president and vice chairman Salesforce makes the implied claim that by going after six verticals it has realistic aspirations to overtake SAP in sales.

Apart from the fact that even on best predictions, Salesforce will rake in less than 20% of SAP's total revenue by the end of this year, it would take a precipitous collapse in SAPs markets combined with sustained growth at over 30% compound for at least the next seven years before Salesforce caught up with SAPs current revenue. Hardly likely but then all things are possible.

What Kanarakus missed and what Block doesn't say is how Salesforce is going to get there. The article points to several key hires by Salesforce along with a vague build/buy/acquire/partner strategy:

Salesforce.com is also hiring executives with ample experience in each of these verticals, including Andy Baer, former CIO of Comcast Cable, who will head up the communications and media segment; and Shelley Bransten, an ex-Gap mark[et]ing executive Salesforce.com has tapped to lead its retail and consumer products effort.

In each industry, Salesforce.com will mull over the relative benefits of building functionality itself, working with a partner or acquiring companies, and then choose a path accordingly, Block said.

I would be very surprised if this is enough unless there are big acquisitions that catapult revenue. Even then, the outcomes are far from clear. Why?

We have long been arguing that early verticalization will be a key driver for cloud vendor revenue growth going forward. This is important for Salesforce now it has achieved number one CRM status per Gartner because it has to scale sustained growth into the enterprise at a rate it has yet to come close to achieving in the past. It is less important to  SAP which can still follow a verticalization strategy but along different lines to achieve or sustain double digit growth.

But the most important driver comes from having deep vertical market expertise inside the developer organization. This is where both companies are severely challenged, a topic upon which Salesforce is silent but which also impacts SAP. My bet is that SAP can get there more quickly provided it concentrates resources into that area and/or mobilizes its extensive developer network to fill in white spaces. Both options are open to the company if it plays nicely along with potential extended partnerships with its existing SI community.

Right now, Salesforce positioning is little more than that - positioning larded with a dollop of FUD to keep the chattering classes interested. I'd be far more interested in hearing from customers who need vertical market attention in the broad CRM context to better understand whether this is real or imagined.

My sense from talking to customers is that they are far more interested in what today would be custom apps or special use cases tied to real time analysis and barely repeatable processes. In short, it seems to me we are very early in the game and that any broad industry initiatives will be the outgrowth of company specific co-development.

That said, the enterprise software market is in a state of flux and anything could happen although I don't see any knockout punch coming any time soon. To that extent I am not prepared to put my neck out and call 'bleh' on Salesforce. But then one should never under estimate the gravitational pull of SAP.

Disclosure: at time of writing SAP and Salesforce are premier partners.

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