There are a couple of announcements today at’s local marketing event in Munich. Definitely the most important one — and the one that customers have been eagerly awaiting — is the joint announcement from Salesforce and T-Systems, the systems integration branch of Deutsche Telekom (DT). Earlier, Salesforce announced that it’s planning to build a data center in Germany, which is definitely the best way to comply with German data privacy laws and the emotional concerns of German customers around privacy. But as a US-headquartered company, just operating a data center is not enough; companies need to create trust and have experience in fulfilling legal and regulatory compliance mandates. This makes T-Systems exactly the right partner for Salesforce: It’s big enough to compete with data center heavyweights like Fujitsu, HP, and IBM but local enough to understand German customers and law.

The picture shows DT CEO Timotheus Höttges and Salesforce’s Marc Benioff just a few minutes ago.

Let’s look into more details of T-Systems’ offering how it relates to First of all, it will simply feel like any other Salesforce data center. Customers will see absolutely no difference, regardless of whether their “tenant” is running on the East Coast, West Coast, or the US-based data center dedicated to European customers. In the future, they can choose the Salesforce UK data center and, starting in 2015, a Salesforce Germany data center. All are fully managed by Salesforce, operate on the same code base, and will get new releases and upgrades at the “same” time.

T-Systems is known for its systems integration business, some traditional outsourcing, and the strength of its multibillion-euro business around managed services for SAP solutions. Over the past few years, T-Systems has added modern infrastructure-as-a-service offerings that Forrester would consider virtual private clouds compared with the aggressive pure public cloud model of providers such as Amazon Web Services. However, the landscape of vendor offerings has changed significantly over the past two years, putting major systems integrators (SIs) and hosting providers such as T-Systems under even more pressure. Many software makers — and now finally even SAP, with its Hana Cloud — have gotten serious about software-as-a-service (SaaS). On the other hand, AWS has increased its understanding of the privacy requirements around delivering virtual private clouds in Europe. A partnership approach with the major public cloud SaaS vendors is exactly the right way out, as:

  • Most SIs have a thin value contribution to SaaS partners. Putting Salesforce’s German data center atop a T-Systems data center allows T-Systems to contribute value twice: Once in the infrastructure, and again in the systems integration and implementation services around the Salesforce application.
  • T-Systems provides colocation services to Salesforce. This is totally different from the managed hosting services it has thus far provided for SAP solutions (for example). Colocation primarily means just housing, power, and networking. Salesforce will implement and manage the server hardware consistent with the operation of its other data centers.
  • Colocation can also mean a future ecosystem of SaaS providers. The term “colocation” arises from the fact that multiple solutions are located in the same place. Major colocation providers like Equinix have demonstrated the power of this model, for example in banking: Although multiple banks operate their own data centers, in many cases those data centers are hosted by the same colocation provider that hosts many of their competitors’ data centers. This has allowed banks to conduct interbank transactions at local network speeds. T-Systems already has partnerships with Microsoft around Office 365, with SAP around Hana, and with; if it manages to bring this community to a colocation model in its data center, it could quickly become the most interoperable way to consume these public SaaS solutions in Europe.
  • Salesforce, not T-Systems, is on the hook for the major investment required. T-Systems has invested in data center space, but estimating how quickly Salesforce will take off in Germany is tricky. The model disclosed today at the Munich event keeps the risk with Salesforce, not with Deutsche Telekom.
  • T-Systems provides the customer access. While drive aggressive marketing, it’s still a long way down to the German Mittelstand, which represents the largest growth segment.

While this is a dramatic move on the part of T-Systems, I think it’s a very smart one. It will also bring major change to in Germany:

  • Customers will be able to buy from both Salesforce and T-Systems. Forrester assumes that the two firms will follow a joint sales approach that combines the themes of innovation and local trust.
  • Salesforce has relationships with SIs like Accenture. However, none of the SIs contributes value to the infrastructure.
  • Salesforce has still a gap to fill in satisfying hybrid integration. Like mostEuropean enterprises, German companies have legacy on-premises infrastructure and increasing numbers of SaaS solutions. Hybrid integration is required to address these hybrid application landscapes. We hope that a partnership with T-Systems will stimulate the ecosystem of integration vendors that also host cloud-based integration services or iPaaS offerings in the same data center. Unfortunately, Software AG CEO Karl-Heinz Streibich, speaking briefly at the same event, missed to pick up this ball. – Update: Karl-Heinz Streibich just shared in the analyst roundtable, that long term, they might consider hosting their Agile Apps Live and potentially future iPaaS services in the same DT data center.
  • Forrester expects some editions of Salesforce to appear on DT’s Business Marketplace. Versions of Salesforce that address smaller companies are the right product for the small-business segment of German’s Mittelstand. Hopefully, DT’s Business Marketplace and Salesforce’s AppExchange will get federated!
  • Salesforce needs to tweak the business setup further. I’m not a lawyer, but I do hear the concerns of Forrester’s German clients every day. It could make sense for Salesforce to consider a local operational business unit, such as a Betriebsgesellschaft GmbH, in a German jurisdiction to get a bit more distance from the US Patriot Act and the NSA affair. Emotions are just as business-critical as legal realities for Salesforce in Germany.

Now, time-to-market matters for both Salesforce and DT. Today’s announcement is one that looks forward to 2015. DT needs to keep its commitment to its T-Systems branch, and Salesforce needs to stay focused on “understanding Germany.” If both companies continue to evolve the partnership, they have the potential to deliver a Salesforce breakthrough in Germany.