Focus: Benioff's billion dollar babyby
With Salesforce.com becoming the first cloud company to hit the billion dollar revenue mark in a fiscal year, CEO Marc Benioff has good reason to be pleased. Benioff talks about the software as a service giant's first ten years - and speculates about its next decade.
By Stuart Lauchlan, news and analysis editor
“We have become the first enterprise cloud computing company to report more than $1 billion in revenue in a single fiscal year,” declares Marc Benioff, CEO and co-founder of Salesforce.com. “That's a remarkable achievement in any environment, let alone the one that we're currently facing."
Benioff has some considerable reason to feel pleased. He made public his intention to see Salesforce.com top the billion dollar mark some time ago, but there were those in the market who predicted that the collapse of the global economy might have put paid to that notion this year. Had that happened, the cries of glee from many would have been heard. But in the event, Salesforce.com has delivered. Maybe, just maybe, SaaS is the recession-friendly option that many of its evangelists would claim
“We're winning deals in companies of all sizes in virtually every industry - technology, media, pharmaceuticals, consumer retail, chemicals, education and financial services. We're selling to a wide variety of industries and a broader mix of products,” says Benioff. “We added roughly 3,600 net customers during the fourth quarter to bring our total net paying customer count to more than 55,400. That's an increase of roughly 14,000 customers for the year, more customers than we added in our first six years of business.
“These new customer additions are key to our growth strategy not only because they result in new business today, but because of their growth potential in the future. There's a common theme in the deals we won in the fourth quarter. Customers are taking a hard look at the maintenance payments that they're making to enterprise software companies and replacing those stagnant legacy technology costs with predictable scalable subscriptions in constant built-in innovation of cloud computing.
“Customers are choosing the low cost, low risk, and fast results of Cloud computing over expensive hardware, software, and data centres that burn through precious capital and yet rarely produce the promised returns. In face offs with Oracle, Microsoft, and SAP, customers moved to the Cloud in record numbers in FY '09. That's because in days like these, when cash is king, liquidity is critical and credit is scarce, the predictable flexible cost of cloud computing is overwhelmingly the right choice.”
Benioff cites some interesting names among those who made the cloud computing move, particularly an enterprise agreement with EMC for roughly 17,000 subscribers, replacing the maintenance fees that it was paying Oracle. “EMC is using Salesforce.com for Salesforce CRM sales, partner management, and custom application development on our Force.com platform. This was a great win against Oracle and replaces their existing Siebel infrastructure,” he says.
Marc Benioff, CEO, Salesforce.com
“But the EMC deal was just one of many big wins in which we actually replaced those legacy maintenance streams of Siebel and Oracle CRM, including wins at CMC, Canon, Corporate Executive Board, DeVry, Equinox, Axiom, one of Oracle's largest on-demand CRM customers, and others. We also beat Oracle head to head in significant new CRM wins at Cigna Health, Epson, Williams Scotsman and others as well.
“But our success was not confined to wins against Oracle. We saw the same kind of success against SAP during the quarter, with large transactions at Baker Hughes, the Brady Corporation, Lennox International, which was one of SAP's very first US customers, and finally, in an enterprise license agreement with one of SAP's largest manufacturing customers as well. ELAs like this one, Dell, and others that we completed during the quarter and the year are evidence that Salesforce CRM and Force.com are evolving into true and complete enterprise standards. McGraw-Hill has also standarded their enterprise on Salesforce in a major win against Microsoft, one of many wins against Microsoft this quarter, including Websense, Old Second Bancorp, SL Financial, Arthur Gallagher, the Academy of Art University in San Francisco, and Trapeze Software.”
But it's not just new business that is coming in; existing customers are upping their investments. “Our new business signings in the fourth quarter were once again balanced between new customer wins and add-ons and upgrade activity from our existing base of customers,” says Benioff. “Additions at Aon pushed their total deployment to more than 11,000 subscribers globally; First Data grew their deployment by more than 30% during the quarter and now has nearly 4,000 subscribers; Symantec became one of our elite customers, with more than 25,000 subscribers now deployed; and InterCall signed an enterprise license agreement making our product the standard way to manage all of their information.
Benioff highlights the introduction of the Service Cloud, Salesforce.com's customer service push built on its acquisition of Instranet, as a key factor in the firm's growth. “It is our vision of how service and support should work in an age of cloud computing with call centre, customer portal, knowledge base, and ideas all running in the cloud,” he says.
He names a deal at DeVry University as a good example of the Service Cloud push in action. “We are again replacing a leading customer service provider,” he says. “This new deployment will include more than 3,000 subscribers and a customer portal that will serve nearly a half a million users. Key in this win was the knowledge search capability we added in the third quarter when we acquired InStranet. DeVry joins Orange, Comcast and many other large enterprises discovering the power of the new Service Cloud. Other large service and support transactions this quarter included Avid Technology, Perceptive Software, TRANSCOM and Novapost and Maxwell Systems.”
The collaborative nature of the cloud has also been seen in Salesforce.com business, he argues. “Our Salesforce ideas application helped the Obama-Biden transition team build the first Citizen's Briefing Book in the cloud. During the transition, Change.gov was the home for healthy debate and vigorous voting on important issues to the electorate,” he notes. “We're also seeing an acceleration in the use of our Salesforce-to-Salesforce service, the ability for Salesforce customers to share information between the tenants of our database with more than 200,000 records now shared between customers.”
Marc Benioff, CEO, Salesforce.com
The company's platform as a service (PaaS) has also been delivering results with the largest subscriber win to date at Avon. “Using Force.com, Avon will be deploying a custom application to more than 75,000 users globally on mobile devices” explains Benioff, describing Avon as his favourite deal of the quarter. “I am just delighted to see Avon come onboard with Salesforce. It's a critical application that they're using with many of their distributors and employees and users across the world. Currently, it's 75,000 and has the opportunity to grow well beyond that - built entirely on Force.com. After an extensive review of all the major application development environments out there, databases, application servers, user interfaces, they chose us.
“We also completed an agreement with Lawson, Japan's second-largest convenience store chain, to replace 600 Lotus Notes databases. Force.com will be used to integrate 2,000 suppliers, 8,500 stores, and 150,000 contract workers with a corporate-wide deployment of nearly 5,000 Force.com subscribers. These innovative companies join other pioneers like Japan Post and Dell as major enterprise customers who are building their enterprise applications in the cloud with Force.com. For the quarter, platform subscriptions represented more than 5% of new business in the quarter for a second quarter in a row.
“Custom applications, that is, applications built by our customers natively on the Force.com platform crossed the 100,000 mark for the first time. Pretty incredible. There are now more than 452,000 custom objects or traditional custom database tables now serving our customers. Our servers are now running 21 million lines of Apex Code, our procedural language that runs on our multi-tenant virtual machine, up from 15 million last quarter and 10 times the level of the first quarter.
“Visualforce, our custom user interface development environment, more than doubled in the fourth quarter to 109,000, again, more than 10 times the number in the first quarter. And our newest service, Force.com Sites, has seen a dramatic response in its pilot, which started at Dreamforce in November. Already customers have created 1,500 sites that have received 130 million hits, 15 million page views, and served up 2 terabytes of data. Starbucks, for example, is using sites for their innovative new Pledge Five program, the company's campaign to encourage people to donate five hours to their communities.
“It's not just customers who are embracing the Force.com platform cloud. ISV partners are investing, too. The number of native apps more than tripled to 166 in the fourth quarter, up from 50 at the end of the third quarter. Developers signed on at a brisk rate as well, leaving the legacy client server application development world and entering the cloud. We've seen ISVs like CODA really develop a lot of innovative and exciting new capabilities. As you know, CODA's developing a full financial suite - payables, receivables, general ledger. All that platform momentum with Force.com is a clear indication to us that customers are ready for Cloud computing applications.
Lowering IT costs
The way that companies buy into the Salesforce.com Platform approach seems to be taking shape now. “Customers traditionally start with either our sales application or a service application or Ideas and then add maybe partner management, add content management,” explains Benioff. “They move on to building some applications in Force.com. Maybe we see their whole sales and service organisation come online. And it's not that unusual that we start talking about an enterprise license agreement.
Marc Benioff, CEO, Salesforce.com
“Just this quarter I've been involved in a discussion with a very large company. A third of the company currently uses Salesforce.com; they have a third of the company on our unlimited edition product. But the CIO is under a tremendously constrained CapEx environment, can't afford more software and hardware or data centres for the year, and has been talking to us about an enterprise license agreement for the whole company to help reduce his total cost. Then he has a significant agreement with an Indian outsourcer in Bangalore and is going to take a third of their consultants and move them over to Force.com.
“That's our total strategy. We call it seed and then grow and then dominate that account, and so they're fully vested into our architecture. And at the end of the day that's how we have achieved high levels of customer success and adoption and how we've done a good job of managing our attrition. Even in these unusual environments, you know, where we might see customers reduce their employees or right size their organisations, in many cases we'll see them grow with us.”
It's all part of a general trend, reckons Benioff, partly driven by the economy. “In the marketplace, especially over the last 90 days, there's a tremendous push by customers to lower their cost of their IT environment. CEOs are putting tremendous pressure on CIOs to lower their traditional enterprise software maintenance fees. They're asking them not to build new data centres. They're asking them not to buy more hardware and software and are giving them very modest CapEx budgets because they just don't have the credit to be able to extend to the CIO for these large purchases.
“So what that is pushing the CIO to do is to look for alternatives, and we, of course, are a reasonable and validated alternative in many of these customers and that's why they're coming to us as their new enterprise standard for CRM, for sales, for customer service, which had tremendous growth in the quarter and the fiscal year was spectacular for our customer service application, and thirdly, our platform, and the three of those together bringing us in as a key and strategic new enterprise supplier.”
Salesforce.com is coming up for its tenth birthday soon. For his part, Benioff is looking out towards the second decade. “We start our next decade in times that are testing the resources and resolve of every company,” he says. “That extends, of course, to the way businesses think about how they use and, most important, how they pay for technology. Now that credit is as tight as it has been in generations, big invoices for hardware, software and data centres are surrendering to the far more predictable costs and benefits of cloud computing.”