One of the initial successes in web based software was in sales force automation software. SFA was long dominated by the Siebel Systems, founded by Tom Siebel, a former Oracle executive. SFA shares the same problems that traditional ERP software shares; it's expensive, it's slow and it's a pain in the ass to set up and install. On top of that, sales force automation isn't a particularly difficult thing to do. I mean managing contacts and appointments with reminder notices? Not too hard as the paper version of this software (ie the organizer & calendar have been around for years). So this particular piece of ERP software was ready for webifying almost immediately. So whenSalesforce.com launched it took a huge chunk of the "on demand CRM" marketshare closely followed Rightnow Rechnologies. I am not sure of the purpose of artificially segmenting the market in this way into software and on demand market segments. These two market segments are certainly collapsing into each other.
Salesforce started out like many web based application companies by going after the middle market (companies 50-500 million in annual sales). This market typically has been underserved in the ERP software market cause it's too damn expensive with the typical seven figure depolyment costs. Netledger did this same approach with accounting software. I used their software until they wanted to charge me $399 a month - at which point I thought I would buy a copy of Quickbooks. So going after the middle market is a pretty good strategy. Typically these guys have customers and money to spend but not enough to really justify the big boys selling their software in a more scaled down shrink wrapped version.
So entering an underserved market and getting some customer wins are good way to prepare yourself to move into the Fortune 2000 - which everyone's business plan in the ERP space calls for. (Why anyone would want to sell to the Fortune 2000 is beyond me. They are notoriously stingy, demanding and the sales cycle is roughly 2 years. I once read a business plan which called for selling to the middle market to build credibility to sell the Fortune 500 (please note I use Fortune 500 & Fortune 2000 interchangably. Fortune 500 is US companies only and Fortune 2000 is the same type of companies world wide.) After selling several Fortune 500 accounts, they would use this credibility to move down market to THE MIDDLE MARKET. I pointed out that they would have better luck building credibility in the middle market and selling there since they weren't asking for enough money to actually complete a Fortune 500 sales cycle.
The problem of course for these software vendors is as I see it two fold. First off many of the functions they are replicating aren't particularly hard to do in software (contact lists? calendaring? contact management?) Web enabling these in software isn't that hard at this point. I am sure when Tom Siebel founded Siebel in 1993, CEO thought it was a pretty cool idea. Apply the same business management processes to ERP to sales and you turn all your sales droids into copies of your top performing. Hey maybe you can convert anyone into a effective sale person, thus eliminating the incredibly expensive commissions that your very best performers earn. Well your top performers remained your top performers and you weren't able to commoditize the position of salesperson.
This brings me to the real crux of this post. SFA & CRM are relatively easy to do. There is very little in the way of barriers to entry. There are a number of open source software packages which capture about 80% of the functionality of the Salesforce.com. SugarCRM is well on the way to being Siebel killer as 80% of the functionality is about all most customers need. Sure it might cost about the same to customize but you avoid the dreaded vendor lockin and the vendor upgrade treadmill. Open source is well on it's way to commodizing yet another software market segment.
Of course what's bad for Siebel is also bad for salesforce.com. With commodity software kicking butt, it's just a matter of time before someone takes the SugarCRM code and ports it to a web application to compete with salesforce. In fact that's exactly what is happening
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