Benioff v. Plattner: let history decide

nbsp;Salesforce.com CEO Marc Benioff and former SAP CEO Hasso Plattner squared off in a Churchill Club-sponsored debate, at the Computer History Museum yesterday, on the topic of the future of enterprise software. Naturally, each man championed his company’s vision, with Benioff touting on demand (also known as SaaS) and Plattner highlighting the virtues of traditional licensed software.

As in all debates, there was a great temptation to name the winning debater rather than the winning position. On this count, Benioff’s verbal firecrackers (including a dare to build SAP applications on the Salesforce.com platform) won him the edge, as well as the suggestion that on demand will win a great deal of market share away from licensed software. The Churchill Club’s press materials for this debate stated that, “According to Gartner, 25% of all software will be deployed with the SaaS model by 2011. Deutsche Bank predicts 50% by 2013.”

The battle of personalities in the debate obscured objective consideration of the true issue, which was whether predictions like this indicate the imminent demise of traditional software. Price pressure was one of the important issues that wasn’t addressed directly. After all, on demand is hot not because people have an innate preference for Web-based platforms, but because the cost of ownership of on demand is lower than that of traditional licensed software.

One of the premises of the on demand model and its supporters is that this price pressure is an inevitable result of the commoditization of software. The argument goes that it is becoming simpler and simpler to build software; so simple, in fact, that people can build and customize their own software, as long as someone (such as Salesforce.com) provides them with a platform that includes development tools and other infrastructure.

But does increased ease of production mean commoditization? One trend worth thinking about is automobile production. In 1915, Ford’s highly efficient techniques meant that a brand new Model T could be sold for $6,900 in 2008 dollars. Today, however, even economy cars cost more than that. The trend simply didn’t continue. Part of the reason is that, even as production became more cost-efficient, people began to demand more of their cars. Contemporary automobiles are extremely advanced pieces of technology that have gone far beyond the Model T’s purpose of taking drivers from A to B.

Although Plattner didn’t make the point, and Benioff wouldn’t have accepted it, it’s still worth asking if there might be comparisons between the state of automotive technology and software. In the first years after the assembly line, Ford was able to reduce prices by over 400%, but over a long enough timeline, consumers demonstrated their willingness to pay for more complex technology rather than holding out for low prices (otherwise, the streets would be flooded by Yugos).

Is on demand the equivalent of the 1915 Model T–a product at the summit of its cost efficiency, but not able to meet consumer needs for advanced technology? Is there a limit to the market for do-it-yourself software customization, just as there’s a limit to the do-it-yourself car customization market? If we look at the consumer world, a century of consumption has proven that people are more willing to pay companies to customize and service big-ticket items (such as cars), but prefer to build, customize, and maintain low-ticket items. The on demand debate is really about whether the chasm from big-ticket to small-ticket buying behavior can be crossed in the software realm, and examples from other markets suggest that the chasm can’t be crossed. It would have been interesting to hear Benioff make the case for why enterprise software is fundamentally different, but the clash of personalities and marketing strategies at the Churchill Club prevented a substantive debate from taking place.

Demir Barlas, Site Editor