Is's aggressive marketing spend taking its toll?

25th Feb 2011

SuperBowl ads don't come cheap. Last month splashed out millions of dollars on lavish advertising for its Chatter collaboration offering at this highlight of the US sports calendar, one of the most expensive advertising slots on network television. This week the Cloud CRM market leader announced fourth quarter profits were down 46%, a decline blamed partly on surging costs.

So is's aggressive marketing spend starting to take its toll? Well, there's no regret voiced by CEO Marc Benioff over the SuperBowl stunt for one. "Our Super Bowl ad marks a milestone in how enterprise software companies can accelerate important new services and brands like," he argues. "We've already added more than 10,000 new networks since introducing in our first-ever Super Bowl ad only a few weeks ago to get the momentum going.
"New Chatter deployments in the fourth quarter included Analog Devices, Avaya, Avis Budget, Citrix, Epson, McAfee and 3M. Customers also deployed Chatter into new departments and functions across the enterprise and companies purchasing additional subscriptions to Chatter included BSkyB, Sony, Trend Micro and Wachovia In addition, SunGard will deploy Chatter across the entire enterprise, replacing its existing enterprise social network, just as Dell did before them. Both are now standardised enterprise-wide on Salesforce's Chatter."
Agressive marketing
Aggressive marketing has been part of's DNA from its inception, from the heady days of piggybacking on the back of efforts by CRM market leader Siebel through to today's dalliances with rapper "The hit to the bottom line reflects the Saleforce’s bold and determined investment strategy to take on not just competitors in its immediate space, but ‘big fish’ in the communications field more broadly," notes Kate Hanaghan of research firm K2 Advisory.
"Clearly you’re looking at a company that wants to place itself at the forefront of corporate communications. Trouble brews when companies are unable to match their operating costs with continued revenue growth. And that, it seems, is not looking like an immediate problem for Salesforce. It added 5,100 net new customers during the quarter and is forecasting annual revenue to exceed $2bn for the first time. Wall Street is also buying the story, with shares up more than 8% in after hours trading."
Certainly revenue growth remains on track to hit that $2 billion a year landmark and customers keep signing up, so the underlying trend remains firmly focused on expansion. "For the full year, we added approximately 20,000 net new customers and more than 1 million net new subscribers. We now have a global community of more than 3 million net gain subscribers," says Benioff. "In the fourth quarter alone, we signed two eight-figure transactions, including our largest deal ever, and more than 30 seven-figure deals."
Benioff argues that the firm is scoring against the competition as well. "Against Oracle, we won significant new or add-on business this quarter with customers such as AT&T, Citi, Telefonica and Xerox," he says. "And companies also prefer our Sales Cloud over Microsoft CRM, which just is not kept pace with the social, mobile and open technologies the rest of the world has embraced and offers customers no competitive advantage. [Recent] wins for new or add-on business against Microsoft include Abbott, Gannett, Hilton and Scripts."
The year of Cloud 2
For next year, Benioff remains confident that the $2 billion a year run rate will be passed and that the market will move into his predicted Cloud 2, iPad-centric next phase. "We just finished up our business planning for the year, and we've issued our our vision and values, methods and obstacles and measures, to our worldwide teams and given them their goals," he explains. "We think this is really the year of Cloud 2. Where Cloud 1 was really about low cost and fast and easy to use, now we really see this huge shift to the next version of Cloud 2, which is social, driven a lot by a billion people on Facebook and Twitter and mobile.
"[The] iPad's growth has been unbelievable, and analysts saying that they are going to see another 50 million tablets in use this year, sold this year in addition to what's already been sold. This has been a huge opportunity for us. A lot of our customers had been very worried about the old vendors, Microsoft, Oracle, SAP, locking them in to their old proprietary standards like .NET and C#. And they've been looking for new open standards like Ruby and Java, and that's where we've really tried to deliver."
But overall, Cloud 2 is just another manifestation of the core vision, he adds. "We are really helping our customers to manage and share all their customer information in the cloud," he argues. "At the end of the day, that is our vision. That's what we're helping our customers do. They look to us to manage and share that customer information in ways that they never did before, and we're making it better with Chatter. Over and over again, we're the source of the customer information in our customers' databases."
Interestingly there was an indication that this clarity of messaging might have been confused by events at the recent Dreamforce conference in San Francisco with Benioff taking exception to analyst suggestions that the firm now has eight Clouds to deal with and that this is likely to prove an ongoing challenge.
"We don't have eight Clouds; We have four core product lines," he insists. "I think that, that was kind of one of the things that got misunderstood at Dreamforce. Our four core product lines are the Sales Cloud, the Service Cloud, the Platform and, of course, the Collaboration Cloud. These are our four core areas of focus for the company, and continue to be."
For his part, Benioff remains typically upbeat – never mind the $2 billion landmark, he's got his eye on a greater prize. "We're looking forward to being the first Cloud Computing company to deliver more than $2 billion in revenue this year," he concludes. "And you should expect us to continue to invest in growth in fiscal year '12 as we start to focus on our next milestone, $3 billion. It's coming."

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