by C.G. Lynch

Analysis: Salesforce’s Addition of Google Apps Shows Google’s Intent to Enter Business Software Market

Apr 14, 20088 mins
CRM SystemsEnterprise ApplicationsIT Leadership

By tapping into Salesforce's customer base and latching on to that company's reputation as a trusted corporate technology provider, Google can make inroads in selling its software to businesses. is scheduled to announce today that it will offer Google Apps— Google’s Web-based software that includes e-mail, calendar, instant messaging, documents and spreadsheets—to its current customers for free, in a move analysts say further illustrates Google’s commitment to sell its technology to businesses.


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The partnership between the two companies will also put increased pressure on Microsoft and its Office productivity software suite, which, next to the Windows operating system, accounts for a majority of that company’s revenue.

“We’re committed to Google Apps as an offering [for business] and we’re working hard to make this a new way for people to work,” Scott McMullan, the lead partner at Google Enterprise, told CIO.

With the move, Google will now have access to a larger pool of businesses to draw from and convince that their software, delivered over the Web, provides a compelling and cheaper alternative to Office, which Microsoft requires companies to install and run on their own machines and servers.

The deal also means Google gets access to’s sales department, “who, by the way, were able to convince businesses that online applications are the way to go,” says Rebecca Wettemann, a vice president and analyst with Nucleus Research.

A Match Made “in the Cloud”

“We have a natural affinity for Salesforce customers,” Google’s McMullan says. “This [partnership] allows us to reach them more quickly.”

This “natural affinity” McMullan speaks of comes from the fact that both companies have built their business models, and their subsequent base of customers, over the Web.’s core product is customer relationship management (CRM) software, which companies use to track the activities of their clients and manage sales and marketing leads.

Like Google, delivers software to customers over a Web browser and hosts the data on their own servers, a strategy often described as “cloud computing.” Unlike Google, which makes an estimated 98 percent of its revenue from advertising and search, has been making lots of money doing it.

Since launching from a San Francisco apartment in 1999, has sold its CRM product to approximately 42,000 customers and reported nearly $800 million in revenue last year.

“By having a partner like Salesforce who has far more of a positive reputation in meeting enterprise requirements, Google can only win,” says Tom Austin, a Gartner analyst. “In the past, Google hasn’t behaved the way companies want providers to behave.”

Though Google has pointed to a massive adoption of Google Apps as an indicator that it has enjoyed inroads in the corporate space, including its offering of a premier edition for business that companies can buy for $50 per user per year, it has had difficulty winning the trust of companies and their IT departments.

According to Wettemann of Nucleus Research, prospective customers have contended it’s too risky to store data offsite and have complained Google Apps lacks the rich functionality (and the ability to work offline) that Office has. “I’ve heard people say Google needs to prove they can trust them,” she says.

Recent research supports her conclusion. In CIO‘s annual consumer technology survey of 311 IT decision makers, more than 50 percent of the respondents said they would not even consider using Google Apps or Gmail, Google’s e-mail system, at their companies. Of the reasons cited, security was checked off as the highest concern. (See CIOs Still Fear Web 2.0 for the Enterprise).

But Google has taken several steps during the past year to address those concerns through acquisitions, partnerships, and improvements to the Google Apps software suite. Last July, Google acquired Postini, which provides security around corporate e-mail. A few months later, the consulting firm Capgemini announced it would offer support to businesses that wanted to use Google Apps.

Google added a presentation software after being criticized for not having an alternative to Microsoft PowerPoint. In addition, Google recently made it possible for people to take documents and spreadsheets offline.

“Google is trying to show that Google Apps is a viable alternative [to Office] in the business environment,” says Jeffrey Kaplan, managing director of Thinkstrategies, a consulting firm that advises companies on how to use Web-based software. “Salesforce, meanwhile, wants to include as many productivity tools as possible to make its primary product easier to use.”

It’s There and It’s Free, But Will Salesforce Customers Use It?

Should customers want to try Google Apps today, they can have several features added immediately, including Google Talk (instant messaging software), documents and spreadsheets (think: Google’s version of Microsoft Word and Excel), Gmail, and Google calendar, all for no extra money.

In the summer, will begin offering the premier version of Google Apps, which includes technical support. The premier version has been designed as more enterprise-friendly, and also includes a wiki that allows people to build corporate intranets and microsites for their departments to collaborate on key projects with no programming experience.

It won’t be clear how many users will latch onto the Google Apps offering within for several months, but some customers have already considered it. Douglas Menefee, CIO of The Schumacher Group, which provides staffing and management services to hospitals, has been a customer for two and a half years.

He uses Salesforce’s flagship software to manage the relationships between the Schumacher Group’s physicians and the 150 hospitals where they work. Since many physicians are always moving around the hospital, stopping at whatever computer is available, the ability for them to access Google Apps makes it easier for them to work on and edit documents without saving them on that machine.

“We are going to leverage the fact that Google Apps doesn’t require software to be installed on workstations,” Menefee told CIO over e-mail. “Additionally, we will be syncing info with [Salesforce] to improve collaboration and communication.”

But Menefee stressed that certain information won’t be traded over the software just yet.

“We will not at this time use Google Apps to retain any patient information due to HIPAA (Health Insurance Portability and Accountability Act) and additional security discussions which need to take place,” he says.

In addition, the approximately 700 full-time employees at the Schumacher Group will not be dumping Microsoft Office. “I’m not prepared to migrate [them] off of the Microsoft platform,” Menefee explains. “However, I am looking to leverage the infrastructure for the 2,500 providers who are independently contracted with us.”

What It Means to Microsoft

Microsoft would likely seize on Menefee’s refusal to ditch Office as evidence that knowledge workers who spend all day at their desks prefer it to any other productivity software, especially since they’ve used it for so many years. But although Office has more bells and whistles than Google Apps and other web-based alternatives, it’s not clear how many employees actually use them, according to Kaplan of Thinkstrategies.

In a survey of 420 large and small companies taken this month by Thinkstrategies and Triactive, a technical support firm for web-based software, nearly 99 percent of companies reported that Office was installed in 99 percent of their corporate PCs. By utilizing a tool that could actually track the usage of the Office applications on these computers, the study found that, at the 20 largest companies sampled, only 26 percent of the features were being used and centered around basic functions in Word, Excel and PowerPoint.

The rate of adoption with which companies have upgraded to newer versions of Office, meanwhile, has also been low. In a Computerworld survey of 727 respondents, most of whom worked in IT management, only 37 percent said they planned to upgrade to Microsoft 2007. Analysts don’t know that 2008 will be much higher.

“Microsoft’s real challenge is how to get people to buy the next version of Office,” Wettemann of Nucleus Research says. “It’s a pretty mature product. What other features can they add?”

The Battle for Hearts and Minds Continues

Google, meanwhile, continues adding features to Google Apps. It relies on the collective intelligence of its users to determine which ones should be tacked on to the product. The Google blog has provided a forum for developers to discuss how they can use open Application Programming Interfaces (APIs) community to build more functions on top of Google Apps. This led to Google Gears, a tool that allows you to take Google Reader offline. has undertaken a similar strategy with its Force platform, which allows developers to build business, web-based applications.

While Microsoft still thrives on a business model that relies on installed software, it has begun running a hybrid Web and desktop model that they’ve called software plus services. Its online version of Office serves as a good example. End users must have Office installed on their computers and then can go to a website where they can check in and check out documents.

But the movement to getting software over the Web will ultimately be decided by practitioners and business buyers, not the vendors themselves.

The Schumacher Group’s Menefee, for instance, says nearly 50 percent of his company’s software runs in a hosted environment now. He says software as a service has freed up his technical people to focus on other, more important things.

“This helps our developers to focus their time on innovation to build better solutions to impact the 2.5 million patients that our doctors see on an annual basis,” he says.