Salesforce.com on the Prowl for More Acquisitions

 
 
By Renee Boucher Ferguson  |  Posted 2006-08-23
 
 
 

Salesforce.com on the Prowl for More Acquisitions


NEW YORK—Shortly after announcing on Aug. 21 that Salesforce.com had acquired the small software development company Kieden, CEO Marc Benioff confirmed that he is indeed on the lookout for additional acquisitions.

"Were paying attention to what customers want us to do," Benioff said during an Aug. 22 interview with eWEEK at a Salesforce for Google AdWords kickoff luncheon here. "Kieden was really the only company that had Google AdWords," software that enables marketers to track the success of their Google advertising campaigns—and track down leads generated from ad clicks.

Click here to read more about the Salesforce for Google AdWords service.

Kieden is Salesforce.coms second acquisition. In April it bought Sendia, which makes wireless software delivery tools.

While Benioff did not specify which software areas he would look to for potential acquisitions, he did say what he is not looking for: a large acquisition that will require a lot of integration to Salesforce multitenant CRM (customer relationship management) software, and an acquisition in a market where there is already a lot of competition.

"If there are lots of players we may not want to go in there," said Benioff.

Kieden is a good example of what Benioff is looking for. The San Francisco-based company is a startup in the true sense of the word; its first day in business was last January. The company was started by three partners (two are veterans of Salesforce.com rivals Oracle and SAP) who had met at webMethods, an application integration company that has just the sort of capabilities Salesforce is looking to tap with its AppExchange platform.

By the time Kieden was acquired by Salesforce, it had racked up four employees, 730 test drives of its software (on AppExchange), and 170 registered users—45 of which became customers. Its software, which tracks the efficacy of Google advertisements for Salesforce.com customers, has been in "public" beta since May 24, according to Kraig Swensrud, the founder of Kieden.

More importantly, what attracted Kieden to Benioff is that the company has its roots in Salesforce.com. It developed its Google AdWords software on AppExchange—a software development, integration, runtime and trading community platform for third-party companies.

"We prototyped two versions [of our software] in the first couple weeks, one on AppExchange and the other on our servers," said Swensrud. "As a small business, AppExchange was extremely important to us. It was a platform and software stack that was already there."

AppExchange, announced just 11 months ago, is equally important to Benioff. Its where he found Kieden—and where he is looking for other companies that might be a good fit for Salesforce.

Read more here about the Unlimited Edition of AppExchange.

"Were not trolling AppExchange," said Benioff. "Were watching what the customers are using."

Billion-dollar man?

For a company that started out with a lofty goal 10 years ago—to end the software model as we know it, one based on license revenues and on-premise implementations—Salesforce.coms aims dont seem as far-fetched as they once did.

Major software developers Microsoft, Oracle and SAP (particularly Microsoft) all talk about beating Salesforce.com—a fact that demonstrates the companys impact on the market and on the growing acceptance of software delivered as a service. At the same time, Salesforce reached 500,000 subscribers for the first time in its second quarter, reported Aug. 16, and revenues rose 64 percent, to $118 million. AMR Research released a report Aug. 22 pointing to Salesforce as a leader in the on-demand CRM sector, with 44 percent market share.

And while the mantra at Salesforce is still akin to "the death of software," Benioff has set a new goal: $1 billion in annual revenues and 1 million customers. While he declined to outline a timeframe for reaching the goals, the company has a good chance of getting there, according to analysts.

"The bottom line is their core SFA [sales force automation] product is still firing on all cylinders on a quarterly basis. Within the next two to three years alone they should be able to [reach] a million subscribers," said Michael Nemeroff, senior vice president of research at Wedbush Morgan Securities.

Nemeroff predicts that it will take a million subscribers for Salesforce to reach $1 billion in revenue. "Last quarter, their average revenue per subscriber was $75.25," he said. "That average has been going up for the last two quarters, where previously it was declining. Its an important metric [showing that] the company has a lot of levers to pull with the existing customer base."

Next Page: The tripping point.

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The billion-dollar mark is a huge milestone for any software company, let alone an on-demand pure play vendor like Salesforce. Its one that few companies have achieved (SAP, Oracle and Microsoft are there).

"The billion-dollar mark is also a tripping point for a lot of companies," said Nemeroff, in New York City. "They get really close—really close—and then they trip over it. Its a psychological point. Its a very difficult task to get there and maintain it. A lot of companies fall short."

Asked how he plans to double his business, Benioff said its more of the same, rather than new technology.

"Its more of what were doing," said Benioff. "More AppExchange, more Salesforce, more CRM, more PRM. All the things were doing now, we think are the things to get there. We dont think there are any missing pieces. Its all about execution. Thats what we have to do every day."

Salesforce will lean heavily on its heritage as a multitenant SAAS (software as a service) provider—both in providing software to customers and in enabling users to develop their own multitenant applications through AppExchange.

Multitenancy is the practice of running every customers software on the same server, with upgrades occurring frequently (about once a quarter) and implemented simultaneously.

But Salesforce isnt the only company beating the multitenant drum. Microsoft announced Project Titan in July, its plan to add multitenant capabilities to its CRM software. Earlier this year SAP announced a "hybrid" brand of CRM software, one that promises multitenant capabilities but loads each customers installation on a separate server. Oracle, too, is heavily invested in on-demand (though no word yet on multitenancy plans) with its $5 billion acquisition of Siebel earlier this year. Then there are pure-play on-demand companies like NetSuite and Sugar CRM (which is open source) that offer comparable functionality in a multitenant model.

NetSuite develops on-demand CRM and ERP (enterprise resource planning) software. On Aug. 22 the company announced its NetSuite Keyword Marketing module for sussing out the efficacy of Google advertising.

"We obviously didnt write this code overnight and we have released announcements about our earlier versions of this technology last year," said Zach Nelson, NetSuites CEO. "Salesforce.coms acquisition is an attempt to catch up with NetSuite in this space. Ultimately the fact that NetSuite has order management [functionality] integrated in its system will always give us a better solution as we can track word-to-close."

Nelson pointed out that NetSuite Keyword Marketing Module also supports Yahoo—between 20 and 30 percent of all keyword purchases—while Salesforce.com is limited to Google. Kieden founder Swensrud confirmed Aug. 22 that the company had planned to offer AdWords for both Google and Microsoft adCenter, and will continue down that path if customer demand is there.

"When we started we had plans to do Google and Yahoo," said Swensrud. "But the response from customers was so much toward Google, to focus on doing that right."

Benioff said hes not too worried about the mounting competition from bigger software companies making a play in the on-demand world—particularly Microsoft.

"Microsoft ought to change the [multitenant project] name from Titan to Titanic," said Benioff, with obvious glee. "The issue is that theyve made a number of statements that indicate they have no idea what multitenancy is—that customers, partners and Microsoft will all run the same code. Its not about customers running multitenant code, which is why Microsoft has no clue."

Benioff also points to the venture capital industry as a sure sign the Salesforce strategy is working. "You talk to [venture capitalists] and theyre going to tell you theyre not funding software companies, only service companies. And only those companies that have multitenant capabilities," he said. "I dont care what SAP and Oracle have to say; the venture capitalists have spoken."

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