Salesforce.com's First Foray into Financial Apps, Joint Venture

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 |  Includes: CRM, N
by: Jeffrey M. Kaplan

Salesforce.com (NYSE:CRM) has teamed with Unit 4 Agresso to create a new company, called FinancialForce.com, that will build upon the Coda 2go on-demand financial application.

This move is another indication that CFO receptivity toward SaaS-based accounting, financial management and enterprise resource planning (ERP) applications is rising.

The new joint venture will build on Coda’s original Force.com-based SaaS solution, and the growing momentum in the SaaS accounting and financial management applications market produced by NetSuite (NYSE:N), Intacct and others in this area. (Disclosure: I’ve done work with all of these companies.)

This announcement is newsworthy because it is Salesforce.com’s first direct foray into the financial application market and its first joint venture.

There are probably an assortment of marketing and legal reasons why the two companies have formed this joint venture. However, the reality is that few joint ventures in the tech and software industry have been successful because the partners often have differing priorities or can’t get their business processes to align.

In this case, the two companies are obviously confident they can overcome the shortcomings of typical joint ventures because Salesforce.com has been aggressively promoting Coda as a pioneer user of its Force.com Platform-as-a-Service (PaaS) for a while. By making this additional investment, it suggests one of two primary possibilities regarding Coda’s performance:

  1. Either Coda is experiencing tremendous growth and Salesforce.com wants a larger part of the ‘action’.
  2. Or, Coda is not getting enough traction and requires more capital to successfully compete in the market long-term.

In the same vein, it raises questions about how Coda’s SaaS capabilities fit into the company’s legacy software environment. Was the company experiencing internal tensions trying to balance its SaaS and legacy businesses? Or, is it simply trying to remove any barriers that the legacy business may pose so it can accelerate the growth of its SaaS business?

In either case, this venture is a mixed blessing to existing players in the SaaS financial apps market, software vendors developing SaaS apps on Force.com, and Salesforce.com’s AppExchange partners.

Salesforce.com’s entrance into this market clearly lends greater credibility and visibility to SaaS-based financial applications as a viable alternative to legacy, on-premise software. Its deep pockets and powerful marketing engine should significantly increase the amount of attention aimed at CFOs. This will certainly help all SaaS companies trying to educate CFOs and others in the executive suite about the business benefits of SaaS.

The new initiative will also send shockwaves through Microsoft (NASDAQ:MSFT), Oracle (NASDAQ:ORCL) or SAP, who are already facing serious challenges trying to respond to the rapid rise of customer interest in SaaS alternatives.

But, the joint venture will also raise concerns among many SaaS vendors who have been suspicious of Salesforce.com’s ulterior motives for a while.

The joint venture is an obvious threat to direct competitors in this segment of the market. It also poses questions for other SaaS and traditional software vendors who may have been considering Salesforce.com’s Force.com PaaS.

Why should they build their applications on the Force.com platform if there is a chance that Salesforce.com might eventually compete with them? Especially, since this isn’t an isolated event.

Salesforce.com has made a series of acquisitions in other areas of the software landscape which have encroached on some of its AppExchange partners’ primary businesses, including content, knowledge and services management which have all led to new Salesforce.com offerings.

This move also puts into question Salesforce.com’s impartiality when it comes to its partner relationships and AppExchange marketplace. For instance, if you do a quick search on the AppExchange for accounting or financial applications, FinancialForce.com is at the top of the list based on “Keyword Relevance”, even though other players are ranked higher based on Popularity or Ratings.

I’m not suggesting that Salesforce.com doesn’t have plenty of good reasons to make this move, and it is certainly within its rights to take these actions. However, it will also create more anxieties and provoke more apprehension among current and aspiring SaaS vendors which could harm its existing and potential partner relationships.

This would be unfortunate since it comes at the same time Salesforce.com is trying to expand its partner ‘ecosystem’ and promoting its new VAR program.

Yet, if Salesforce.com helps to raise the visibility and legitimize the value of SaaS in the eyes of CFOs and other executive decision-makers, it will also create more opportunities for other SaaS vendors to capitalize upon. If this occurs, most SaaS vendors will be willing to put up with the potential tradeoffs.