Software // Enterprise Applications
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5/19/2006
09:20 AM
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Does Salesforce.com Have The Chops To Become A Billion-Dollar Company?

Salesforce CEO Benioff's big bet? He can sell more CRM subscriptions by connecting functions to his platform.

It's a sunny afternoon in San Francisco, but from his office overlooking the shiny Ferry Building plaza and beyond to the bay, the placid views aren't calming Marc Benioff. Instead, Salesforce.com's CEO pushes his bearish frame up in his Aeron chair and launches into a lampoon of Peter Graf, one of the more vocal executives at rival SAP, with flailing hand gestures and a faux German accent.

SAP has been talking up Web versions of its CRM software while continuing to make its real money on conventional apps--no harm there, but counter to Benioff's wager that most business software eventually will be used and managed as a Web-based service. "Vell! At SAP, let me tell you, softVARE as service is just one way to deliver softVARE!" Benioff blusters. "It's just a del-i-ver-y met-o-do-lo-gy! Customers vant hosted--and zen zay moove!"

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It's an unusual performance for a CEO, but then, Benioff isn't your typical chief executive. He starts an interview by sandbagging a venture capitalist who wouldn't invest in his company and then asked him for a favor--then rewinds my tape recorder over his comments, declaring them post facto "off the record." (They're not.) He's prone to grand pronouncements: Online software isn't just about Salesforce. "This is a movement," he says. "No one will be untouched."

Marc Benioff: An outsider no longer

Marc Benioff: An outsider no longer


Photo by Jeffery Newbury
Benioff's right there--software vendors in nearly every vertical and horizontal market segment are exploring the model. They've watched organizations flock to 6-year-old Salesforce in droves--444,000 end-user licenses, by last count--sold on the service's ability to help on-the-road salespeople manage their frantic schedules with a minimum of technical fuss. Once dismissed as only a small-company solution, Salesforce apps are used at Amazon.com, DuPont, Morgan Stanley, Nokia, Sprint, Staples, and Target. The CIO of Merrill Lynch--another customer--is five floors below us as we speak, Benioff says.

"Salesforce attacked complexity," says Jason Maynard, an analyst who follows the company for Credit Suisse. "You didn't have to be beholden to the gods of IT to get your stuff up and running."

Salesforce last week reported that first-quarter revenue grew 63% to $104.7 million, the company's first quarter with more than $100 million in sales. But the company posted a $229,000 net loss as a hiring blitz increased costs. Salesforce added 45,000 new subscribers, down from 48,000 the previous quarter. This year, the company is on pace for $483 million in revenue, which would be 56% higher than in 2005. Revenue growth the previous three years: 76%, 84%, and 88%.

The question is, how far will the software-as-a-service movement reach, not just for Salesforce but for the IT community at large? The practice of running software remotely for customers has been around for more than a decade. But a confluence of widespread wireless connections, low-cost servers, and the ability to host many customers' data on a single set of computers has propelled the concept into big business. A wave of startups tried selling hosted software to companies in the late '90s, but many of those apps weren't tuned for the Web, and outsourcing to unknowns carried a stigma. But the dot-com collapse and wider economic downturn put pressure on CIOs to cut IT costs, which made it difficult for vendors to sell software packages with big up-front costs. Finally, PC users are more accustomed these days to working with Web software--after managing everything from their music collections to retirement funds online, it's not a big leap to continue working that way at the office.

Google, Yahoo, and others are building fast-growing consumer businesses around online-only software, but their money's in selling ads. So far, giants such as Microsoft, Oracle, and SAP haven't had much success selling conventional apps as Web services. And yet Salesforce's growth ambitions depend on companies wanting to access much more than CRM as a service. So one way to answer the question about software as a service's potential is to look at the growth prospects of its champion. Put another way, can Salesforce be a $1 billion-a-year company?

For Benioff, it's all about getting more subscribers. If Salesforce keeps up the pace, Benioff figures the company can reach 1 million subscribers sometime in 2008--enough to double annual revenue to $1 billion. "It really is all about seats," he says. "We have the million-subscriber dream."

Trojan Horse
Central to the strategy is an online marketplace for complementary software called AppExchange, which debuted in January. It includes more than 200 applications, from partners including Adobe Systems, Business Objects, Google, and Skype. AppExchange offers HR, marketing, finance, and other software--mostly from small vendors--that Salesforce doesn't make, and which runs inside Salesforce's user interface.

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