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Special Report: Benioff and the billion dollar company

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21st Aug 2008
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Salesforce.com profits have more than doubled and the firm remains on track to top the billion dollar turnover mark. CEO Marc Benioff shares his thoughts on the firm’s performance, partners and platform as a service (PaaS).

By Stuart Lauchlan, news and analysis editor

A billion dollar run-rate, profits that have more than doubled – and a share price that went on the slide. Software as a Service (SaaS) champion Salesforce.com had a stellar quarter, but Wall Street still got the shakes.

The firm reported a quarterly profit that more than doubled to $10 million from $3.7 million last year, while revenue rose 49% to $263.1 million from $176.6 million. Revenue in Europe rose by 69% year over year, while revenue in Asia increased by 79%. The international business now represents 28% of revenue, up from 24% a year ago.

"Passing this important milestone also sets the stage for a new dream. We are now laying the groundwork for the future, to join the elite group of software companies that have passed $2 billion in annual revenue."

Marc Benioff, CEO, Salesforce.com

All good stuff it would seem. But the company saw its share price drop more than 7% when the results were announced, which some commentators attributed to concern about the impact that this week's InStranet acquisition will have on future earnings as the company cut back its profits estimate.

But the firm remains on track to top the billion dollar turnover mark with forecasted full year revenues of around $1.075 billion. “Our second quarter results make it official - Salesforce.com has become the first ever software as a service company to achieve an annual revenue run-rate of more than $1 billion,” said CEO Marc Benioff. “This is an exciting milestone and fulfillment of our dream, not only for Salesforce.com but also for the entire software industry. It demonstrates that an important new model has taken hold as the future of software.

“Passing this important milestone also sets the stage for a new dream. We are now laying the groundwork for the future, to join the elite group of software companies that have passed $2 billion in annual revenue. The first decade has been all about delivering enterprise software as a service, and we’ve established the standard for customer success in this new industry. As we look to the next level, we will continue to focus on CRM, software as a service and our application product line.

“But now, we’re pioneering a new frontier as well - our Force.com platform as a service (PaaS) is an exciting new model that is energising developers and inspiring ISVs to build their own applications using our services in the cloud. Along with our core strength in applications, Force.com platform as a service will be the critical innovation to fuel the next level of success for our company, our partners and, most importantly, our customers.”

Beefing up deployments

Those customers have been joined this quarter by firms such as Hitachi, Moody’s, Liberty Mutual, Chevron, Qualcomm and General Electric. In addition, some existing customers have beefed up their deployments.

"Force.com platform as a service will be the critical innovation to fuel the next level of success for our company, our partners and, most importantly, our customers."

Marc Benioff, CEO, Salesforce.com

“We have expanded our relationships with several of our largest and most important global customers, including Dell, Citi and Canon,” said Benioff. “Of note, Dell has signed a three-year agreement through 2011 to use the Force.com platform to build and deploy applications to their entire global workforce. This was the single largest transaction in our history and makes Dell one of our most diverse customers. Dell will use Salesforce services for sales force automation, partner relationship management, innovation management through their Dell ideastorm.com website, customer support, and full enterprise wide application and deployment using Force.com PaaS.”

Benioff said the Dell contract was a good example of how Salesforce.com is expanding its footprint in the enterprise. "I have called it kind of our Trojan horse strategy where we find the way to get into the company through one of our key pieces of technology, and then by building relationships with the customer over time using our direct sales force, we add more products until the point where we become really the enterprise standard for that organisation,” he noted.

“What we originally started with Dell is we built the ideastorm.com website for them using our Ideas technology. We deployed the sales force automation system for them, for all of their sales force worldwide, which is a substantial organisation,” he explained.

“We also helped them enter the indirect channel through delivering the Dell Wall, which is their partner portal based entirely on our Partner Relationship Management technology. Then we saw them having interest in customer support. They came to [the] Dreamforce [conference] last year and got very excited about building on Force.com and building custom applications. We also have been working with some of their key software providers to port some of the applications that they have internally natively onto Force.com for them to use. All of that together, suddenly we were one of their key technology vendors. It gave them the ability to sign an enterprise licence agreement with us, a three-year agreement that goes through 2011 for their entire global workforce and the largest transaction that we’ve done.”

Expanding partnerships

Salesforce.com has also been expanding its partnerships with other IT champions, including Google and Apple. “We have worked with Google to integrate with search ads and apps. We are currently working on deeper integration of our two cloud computing platforms, starting with the announcement of the Force.com toolkit for Google’s APIs. As more enterprises seek to take advantage of the power of cloud computing, it’s important for leaders like Salesforce.com and Google to constantly collaborate on these new tools and standards,” explained Benioff.

"We are really about to see something unprecedented, which is really the manifestation of a whole new development paradigm."

Marc Benioff, CEO, Salesforce.com

“We were pleased to be the exclusive CRM offering at Apple’s launch of the new iPhone 3G and app store last month. Salesforce customers and developers were immediately able to not only run our Salesforce automation application on the new iPhone but also deploy custom Force.com applications on it as well. Already, the Salesforce.com iPhone edition has been downloaded more than 40,000 times in less than six weeks.”

In conclusion, Benioff remains upbeat about Salesforce.com's progress – and about the expansion of the new SaaS paradigm throughout the whole industry. “We are really about to see something unprecedented, which is really the manifestation of a whole new development paradigm,” he declared. “You see it emerging from a lot of different places. You’ve seen it kind of come out of the initial application offering because our customers demanded more customisation and more integration to the point where they were building custom applications and to the point now where they can build any application.

“We have also seen customers want to be able to use some of the traditional internet sites, like Amazon and Google and others to be able to deploy their applications. That’s pretty amazing, the rapid acceleration of the Cloud as an application development and deployment paradigm. We want to ride that paradigm and we want to be experts in the enterprise. That’s really where we see the traction. We can very rapidly build applications for our customers and when those custom applications are done, we get a lot of scale, security, reliability and availability instantly built right into the app.

“Customers aren’t going to buy their own data centres anymore. They are not going to buy their databases, they are not going to buy their application servers, they are not going to buy their toolsets. They are going to be receiving them through the Cloud. We benefit from this paradigm because we have a full range of applications that developers can leverage when they build applications. But at the end of the day, this is all about SasS becoming a new standard, PaaS becoming a new standard, but it’s really all about Cloud Computing.”

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    By Stuart Lauchlan
    26th Aug 2008 11:20

    I take your point that the billion dollar mark has not yet been passed - and you didn't see that headline on here! - but as noted in our article it's well "on track". Most of the analyst firms are pretty happy with that prediction. Marc Benioff is clearly entirely confident and keen to flag it up. Time will tell.

    The deferred revenue issue? Well, that also remains to play out of course, but it's interesting that the concerns might be attributed to whether Wall St overestimated what the figure should be. We've seen that time and again, especially with firms that generate their own sense of excitement and momentum. Maybe, as Bradley Whitt points out in the URL that you link to, "In other words, The Street just had it wrong." I guess we'll find out in about 3 months time...

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