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Special Report: Benioff on Salesforce.com's performance

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22nd Aug 2006
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Salesforce.com posted a fiscal second-quarter loss last week, but the results topped Wall Street expectations as subscriber numbers shot up. The company also raised its guidance for the full fiscal year - ahead of analysts' forecast prompting a rally in its stock.

For the quarter ended July 31, the company booked a loss of $145,000 compared with profit of $5 million in the year-ago period. But revenue surged 64 per cent to $118.1 million from $71.9 million a year ago, driven by a 63 per cent rise in subscription and support revenue and an 82 per cent increase in professional services and other revenue. Analysts forecast sales of $114.2 million.

One of the reasons for the loss was a leap in operating costs from $51.5 million to $90.3 million, due to higher expenses for research and development, marketing and sales. But the firm’s CEO Marc Benioff remains upbeat and confident.

"Today virtually every major software vendor in the world is talking about the end of software," he declares. "While other software companies talk about an undefined on-demand future with undefined products that may or may not be available at some point in the future, Salesforce, like other major Internet companies, is delivering the promise of on-demand services to nearly 25,000 customers with more than 500,000 subscribers around the world today. Salesforce.com is executing while others dream.

"Our second quarter revenue performance was excellent, particularly in a quarter where other large enterprise software companies, like SAP, stumbled. Our relative revenue performance indicates that we continue to grow market share at the expense of Oracle, Microsoft and SAP, and in their collective inability to deliver on the promise of on-demand computing.

"In the first quarter we surpassed the $400 million run rate revenue level by achieving the first-ever $100 million revenue quarter for an on-demand software company. Now we are poised to surpass the $500 million revenue run rate level during our next fiscal quarter. This performance makes us the fastest-growing software company of our size anywhere in the world today. While there's a lot of work ahead, we are well on our way to joining that elite group of billion dollar software companies by becoming the first-ever billion dollar on-demand services company."

Benioff points to the company’s AppExchange as an example of the firm’s success and its creation of a third party eco-system of applications. "As our customers continue to look beyond CRM to manage more and more of their business operations with on-demand services, our strategy for building the world's foremost platform for creating and acquiring those services continues to gain momentum,” he explains. “ The AppExchange platform gives customer and ISEs alike the ability to build, deploy and run applications of all kinds anywhere, anytime on-demand. The AppExchange directory lets ISEs published those applications for use by any of our nearly 25,000 customers.

"Our customers, or our ISVs and Salesforce.com are using the AppExchange platform to build capabilities that go way beyond CRM, built on customisations and match-ups with other open API Web services. Our ecosystem is building solutions for virtually every area of business. As of the end of the second quarter, our customers had built over 50,000 custom objects using our AppExchange technology. Now they have access to over 300 full applications created by more than 200 ISVs on the AppExchange directory."

He cites Sprint Nextel as an example of the AppExchange in action. "By deploying AppExchange Mobile to approximately 2,800 salespeople, Sprint is enhancing their field productivity and customer satisfaction by making their customer data stored in Salesforce.com available for retrieval and update from virtually any wireless device carried by any of their sales and service professionals,” he says. “This is huge value creation for Sprint and represents additional revenue for Salesforce.com, as evidenced by the sale of 2,800 copies of our AppExchange Mobile."

Another customer win of note was Bear Stearns in the US – which also had the satisfaction of being a competitive win over arch-rival Siebel. "Bear chose Salesforce.com over an on-premise Siebel solution, because our service allowed them to deploy more quickly while lowering their overall cost of ownership," says Benioff. "In addition, after a long competitive evaluation, Bear identified Salesforce.com's Unlimited Edition as the best tool for them to improve their account management and prospecting capability. They are now deploying our service to roughly 1,000 sales, trading and research employees."

That kind of competitive win has its own frisson of course, but in general Benioff is sceptical of competitive pitches from rival firms. "There is one competitor that I was reading about how they have this new on-demand product. It is a big software company - and I won't name names here - I was talking to a reporter, and I said, well, can you tell me what is the URL for their on-demand offering? They said, well, you know, this is a big software company and they are in the Pacific Northwest. They are known as leaders in the software industry.

"I said, yes, but can you give me the URL, because in the on-demand world the difference between the software world and the on-demand world is we have these URLs. So ours are Salesforce.com and AppExchange.com. What is their URL? They said, oh, I guess they don't have one. I said, well then they probably don't have an on-demand product either.

"It is kind of amazing to me, because this vendor had announced an on-demand product every year for the last five years in press releases, press tours, demonstrations, but there's no URL. Where's the URL? How do you log on? I think you have to be very careful, because the reality is that in this new on-demand world you have to be able to go to this website. You have to be able to try it out. You have to talk to customers, users and look at the reviews. Talk to the analysts, and see the technology."

That would be Microsoft he’d be talking abut then? "With Microsoft, the first thing that they did in 2002 was they announced their CRM offering. They said not only will we have a CRM product that you can buy, but also we will offer a service just like Salesforce. And you can go back and look at the press release in 2002, or I am happy to share with you. To install their product you had to buy SQL Server. You had to buy Active Directory. You had to buy almost every piece of software Microsoft has ever made.

"Then somehow they said partners could then take that thing and then host it for you. Well, I really don't know one example of that. After five years, I don't know of one customer running in the hosted environment. I'm sure it must exist. It has to. Now I know that there are customers who buy that CD-ROM and jam that stuff into their organization and try to get it running, much like SAP customers do, or Oracle customers do. It is all that stuff still shipped on that CD-ROM, all those different components.

"Yet Microsoft in the last five years, each of the last five years they announced they are going to have the software product and the hosted product, or the on-demand product, or whatever their nomenclature is of the year. But it just has not played out that way. We just don't see it. Where's their on-demand product? I know they have a software product, but where's the on-demand offering? Now they say, well, you know, yes, we made a mistake. We have to rewrite our product. We're going to rewrite it to be a multi-tenant product. Now Marc is right. We need to have a multi-tenant shared service. This is their new line and Steve Ballmer was onstage I think last month or the month before saying, yes, we know, we have to build a new product. And we're going to have it available in 2007."

But Benioff is not convinced. "I don't know how you take this idea and then implement it using this Microsoft model that Steve Ballmer talked about, where he is going to do it, his partner is going to do it, and his customers going to do it. I will be very impressed when I can go to Microsoft's website, logon to their service, their multi-tenant shared service - which I can't do today - also to go to a partner and to go to a customer to see it implemented in this triumvirate somehow. And then to see their trust site with their availability, their transaction volume, speed, and so forth.

"I can understand why they're upset. We are transforming the industry. That is our job. We're trying to move the industry away from software and toward services. We have partners in that. Companies like Google and Yahoo!, who are building things like email on-demand, spreadsheets on-demand, word processing on-demand. We're part of a larger movement to get companies off of software and on to the Internet.

"This is a different business model. This is a different technology model. To make those analogies, I don't completely understand it. And I really don't understand how they are going to get this strategy to work, which is why it is not at all."

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By Anonymous
25th Aug 2006 09:31

I love Marc Benioff rants. I admire the way that salesforce.com has challenged the old guard of software. I know that $118m for a quarter is small change for the likes of Oracle, Microsoft or SAP, but salesforce.com is finally proving that the age of the ASPs has arrived.

(And because I admire the way salesforce.com are providing such a newsworthy challenge, I can even turn a blind eye to CMC's rather one-sided coverage. A salesforce.com sponsored promotional email and then a series of salesforce.com press releases disguised as CMC news articles, all in the same week. Coincidence?)

Just for the record, Mr. Benioff, my company uses hosted Microsoft CRM. The URL is http://crm.

I don't need to visit a public website and login with a username and password because the service is integrated with our Active Directory domain controller and DNS server. The software's pretty good, perhaps even slightly better than salesforce.com for usability, functionality and Outlook integration. It even comes with an offline edition which subscribers to your Professional edition have to pay for. Of course, it's still single-tennated, which offers greater security and integrateability, but costs us more in hosted infrastructure fees. It also irks me that Microsoft charge UK customer more than US customers for their software; but then, salesforce.com does the same thing.

If you'd like to find out more about getting hosted Microsoft CRM, Mr Benioff, why not visit streamlinesol.net, crmontarget.com, aspective.com, consultcrm.co.uk, or some of the other Microsoft hosting partners?

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By Stuart Lauchlan
30th Aug 2006 19:29

...I can assure you that the editorial content of CMC is totally detached from any sales activities - as my often frustrated sales colleagues will also tell you - sorry chaps:-). They exercise no control over the editorial and news content any more than the editors exercise control over the sales/advertising.

As for the so called 'press releases disguised as CMC news articles', it's a weekly newswire which is a diary of record of events. As such it is inevitably partly driven by announcements from major vendors. But off diary events and activities also account for a large proportion of editorial. For example, the above report is nothing to do with SF.com's PR and marketing activities.

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