Global CIO: Salesforce CEO Marc Benioff Has Declared War -- Are You Enlisting?
It comes down to whether you believe that Salesforce could reduce some costs for you and deliver every single bit of functionality and value that Oracle or Microsoft or SAP could.
As CFO Graham Smith told the analysts, "While we've closed a number of large transactions in this quarter, as Marc discussed earlier we are seeing some big deals get downsized and others get delayed as customers look to manage near-term expenses. … Retaining our installed base is an equally important priority for us. Attrition is a significant variable that can create upside or downside to revenue forecasts. While there was a small uptick in attrition in the fourth quarter, it continued to be less than 1% of net paying subscribers per month, as it has been since we went public in 2004. However, given the current economic environment, we are expecting higher attrition rates in fiscal 2010 than we saw in fiscal 2009. We've reflected that in our fiscal 2010 outlook."
A deeper analysis of this "customer traction" is offered by Sunil Shah on the Seeking Alpha Web site: "Although revenue grew 34% from last year, this only tells part of the success story -- the bookings made and related to that specific quarter. The other part of the story is the change in deferred revenues, relating to contracts sold but due in future periods. So the overall customer success rate would be captured as an addition of quarterly revenue and the change in the deferred revenue over that quarter. This would give the true 'customer traction' over the quarter, and a year-on-year comparison would give a real growth rate without any seasonality, clearly a factor for the company. … The customer traction depicts a markedly more somber picture, with a growth rate currently of 16%. Remember that figure: [Salesforce] is currently growing at 16%."
Shah's analysis also included this table (see table below), which shows Salesforce's official revenue on the upper line and his "customer traction" figure on the lower line.
Keep in mind, though, that Shah is assessing Salesforce from the perspective of its stock price, and not from its viability as a long-term player because of its technologies, vision, and customers. In fact, Shah very clearly delineates the two points of analysis -- market viability and stock price -- with his overall conclusion that Salesforce "is a great company with an exorbitant valuation."
But your concerns lie mostly in the realm beyond market caps, and in that world Benioff is simultaneously a lover and a hater: He embraces and evangelizes the large and growing industry ecosystem around Salesforce while simultaneously excoriating the entrenched model that he says is sucking up too much money and delivering not nearly enough innovation.
My colleague John Foley, who runs InformationWeek's excellent Plug Into The Cloud site and follows Salesforce's strategy and products closely, had this to say about Benioff: "I just checked his Facebook profile and he's got 3,044 Facebook friends. At Salesforce's CloudForce event in New York in December, he talked about relationships with Apple, Amazon, Google, Facebook. 'We love everybody,' Benioff said. Earlier in the day, he gave checks, courtesy of the Salesforce Foundation, to the Tibet Fund and a school in the Bronx. Of course, he hates Microsoft and he hates software, but otherwise it's all goodness and love. You could argue it's gimmicky, but what other software CEO is taking that tack?"
Ah, yes, Microsoft -- it might not always be the first guest to arrive, but very late into the night, long after the lightweights have crashed, it's often been the last or among the last guests standing. And as my colleague Rob Preston wrote in a recent column about how Stephen Elop, the president of Microsoft's Business Division, regards the rapidly emergent cloud model:
Still, Elop, whose $18.9 billion unit oversees the Office, Exchange, SharePoint, and Dynamics CRM lines, sees software services delivering total-cost-of-ownership savings of 10% to 40% compared with premises versions. "The degree of interest in online services is greater than I expected," he says, "and it's the economy that's causing that." Customers, Elop says, are anxious to discuss projects that cut costs over the next 12 months, with no capital outlays.
Microsoft has sold more than a half-million seats of Exchange Online, SharePoint Online, and Office Communications Online, Elop says, and more than 10,000 customers have signed up for trial versions of the Exchange and SharePoint offerings. Microsoft should have a $1 billion cloud computing business within 24 months. Microsoft may arrive in the cloud exhausted, but it will arrive in force very soon.
As Marc Benioff and Salesforce continue to hammer relentlessly at the thick institutional walls of the enterprise software model, I can't help thinking of the old bromide about how "if it was easy, anybody could do it." And it's surely diverting and maybe even inspiring to some to hear Benioff twist a bovine metaphor about Microsoft and say that its cash-cow packaged software business has come down with "mad cow disease."
But in the end, it's not about Salesforce or its numbers or its CEO; it's about you. Your company, your priorities, your budget, and the degree to which you believe that Salesforce can not only reduce some costs for you but also deliver every single bit of functionality and value that Oracle or Microsoft or SAP could, plus a lot extra to cover the transaction costs. It's about whether you believe Benioff's company is a force of nature that will endure, or an interesting phenomenon but not interesting enough to bet your career on. Good luck.
Bob Evans is senior VP and director of InformationWeek's Global CIO unit.
To find out more about Bob Evans, please visit his page.
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