Reaches Profitability

By Dennis Callaghan  |  Posted 2003-03-03 Reaches Profitability is close to making new hosted back-office application services available and has reached profitability.

The hosted customer relationship management software provider has long planned to offer hosted back-office applications. Billing Edition is the first phase of that strategy, featuring hosted applications for billing and invoicing, electronic bill presentation, contract management, order management and order entry.

"The code is in production and the first customers should be live in the next week or two," Marc Benioff, chairman and CEO of San Francisco-based, said in an interview.

Benioff, who once boldly predicted that would offer "every module that SAP has available to license" as part of its hosted service, has scaled down his ambitions somewhat.

"Well offer back-office applications that are customer-facing," he said. "Were not going to be offering general ledger, payroll or HR." Benioff said would instead work to integrate its services with those applications its customers already have. itself uses Oracle Corp.s software for those applications.

Full accounts receivables functionality is next on the companys list of services to add, he said.

"Well continue to flesh it out over the next 18 to 24 months," Benioff said.

Not all customers are anxiously awaiting the back-office services though. Bob Kocanda, director of sales operations for Honeywell Inc.s Industrial Measurement and Control business, has 120 seats of Enterprise Edition, which his group uses for sales, marketing and customer service. But Honeywell IMC has standardized on Oracle applications for the back office and Kocanda just wants better integration between those applications and his applications.

"Were hoping to get that link from the front-end customer contact and sales opportunities to order entry on the back end then share information back and forth," said Kocanda, in Westmont, Ill.

With a software investment already made in Oracle, Kocanda said hes not looking to migrate to the hosted back-office applications, even though the front-office services have proved to be a good fit for his group. Ultimately, Honeywell Industrial Measurement and Control would like to tie together applications from first customer contact to manufacturing.

"Wed like to be able to drive towards establishing customer contact, linking to the sales forecast, then tying that all the way through to the factory floor," Kocanda said.

"Weve looked at Oracle, SAP and and no one has a total solution to do all of that. So we need them to give us the hooks," Kocanda said.

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Last Friday, held its annual Freedom From Software celebration in New York. Benioff had extra reason to celebrate this year. He claims the privately held company is profitable. Benioff said had $52 million in revenues last year with an additional $42 million in deferred revenue based on contracts signed, revenue generated from 80,000 paying users. Revenues for this year are on pace to exceed $100 million, he said.

The ASP(application service provider) business has long been derided for lack of a sustainable business model. But Benioff said has attained profitability just three years after its services first went live.

"People said wed never become cash-flow positive and we did. They said wed never become profitable and we are. Now I guess they say we wont be able to sustain high-enough margins," Benioff said. "We keep reporting only positive results. Were becoming a large-scale, enterprise supplier."

A presentation produced by the company compared it to its chief competitors in the hosted CRM services space: UpShot Corp., Salesnet Inc. and NetLedger Inc. The slide identified UpShot as having $22.8 million in annualized revenues from 18,000 users, Salesnet with $10.8 million in revenues from 9,000 users and NetLedger with $4.8 million in CRM (customer relationship management) revenues from 6,000 users. Of those, none were identified as profitable and only UpShot was identified as cash-flow positive.

Benioff said determined those numbers from contacts it had with those companies, but executives at UpShot, Salesnet and NetLedger all threw cold water on his claims. Zach Nelson, president and COO of NetLedger in San Mateo, Calif., said the company is generating more than $1 million a month from its CRM services and expects to be cash-flow positive by the third quarter.

Salesnet chairman and CEO Mike Doyle said the numbers reported on Salesnet were inaccurate, though he declined to reveal what the companys actual numbers were, saying the Boston-based company is privately held and does not publicly release financial information. He did day that hed like to see what privately-held Salesforce.coms actual balance sheet looked like though.

"I would be interested in seeing how their marketing budget compares to R&D," Doyle said. "The ad and events agencies must be making big bucks off of Marcs glitz campaigns."

UpShot CEO Keith Raffel likewise would not comment on what his companys actual revenues and customer totals were, since UpShot is also privately held. Though he questioned the accuracy of even Salesforce.coms own numbers.

Honeywells Kocanda said he couldnt vouch for Salesforce.coms profitability claims. But he considers the company to be a stable technology provider from his dealings with them.

"From the standpoint of having the support resources in place to support enterprise customers and getting solutions out to their customers, they seem pretty responsive," he said.

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