The On Demand Ecosystem

Soapboxmic
Historically, many e-business software vendors have positioned themselves as providing functionality to plug gaps in enterprise resource planning (ERP). This approach was an indicator that the ERP vendors were at the top of the food chain and dictated the functioning of the entire applications ecosystem.

Lately there have been two interesting developments in this arena. AMR questioned whether the ERP majors were cannibalizing their own ecosystem; and the rise of on demand signaled the emergence of a rival ecosystem. Both of these developments mean that ERP companies cannot indefinitely enjoy the "Microsoft position" of having smaller vendors adapt to, and complement, them.

The rise of on demand means the rise of an ecosystem that works in a very different way from that of the traditional ERP ecosystem, specifically by giving partners more power and responsibility. For example, in the case of Salesforce.com, Above All, and Bell Canada, despite the fact that Salesforce.com was the interface and database of choice, it was the partner, Above All, that served as the main point of contact for the customer.

Salesforce.com, which began as a hosted customer relationship management (CRM) vendor, more recently became a champion for a bigger vision: an iTunes or eBay-like galaxy of on demand applications running on the Salesforce.com platform, or AppExchange.

Unlike the majors, whose tendency is to either acquire or erode members of their ecosystem, the Salesforce.com vision assumes the existence of a big network of independent partners.

Of course, if this partner ecosystem doesn’t grow or doesn’t add much value in terms of applications and functionality, the on demand vision itself will be threatened.

That’s why it was particularly interesting for me to talk to DreamFactory recently. The company is closing about 26 customers a month directly from the AppExchange platform, where it provides project management and organization mapping tools that integrate with Salesforce.com. Right now, about 80 percent of all of DreamFactory’s customers come directly from the AppExchange channel.

This is important because, if an ecosystem is to succeed, it can’t be solely due to efforts of the "junior" organisms. The organism at the top of the food chain has to throw bones, as it were, down the chain.

In return, what you get is innovation. AppExchange is up to 280 applications, including those popular applications from DreamFactory. Salesforce.com couldn’t have developed too many of those on its own and, under this ecosystem model, it doesn’t have to. The partners handle innovation; Salesforce.com handles the platform, interface, and data environment of record; and the low prices of on demand mean that customers can easily mix and match different applications without undertaking large investments.

It’s the customers, ultimately, who win out, thanks the dropping price of on demand as well as the downward pressure exerted by the model on on-premise solutions. DreamFactory showed me some of what they’d done for hospitality company LodgeWorks. In four months, DreamFactory rigged up a composite application that allowed LodgeWorks to blend Salesforce.com data with project and document management. DreamWorks also ended up designing the analytical interface which, for example, lets LodgeWorks see key data like that pertaining to room allocation in its various locations.

DreamFactory was just funded to the tune of $6 million, which is a reminder to other small companies and entrepreneurs that there are tangible opportunities that come with fitting into an on demand ecosystem.

by Demir Barlas, Line56