Benioff Backs A New Software Model CEO Marc Benioff looks to end the practice of selling "shelfware" by offering a line of hosted enterprise applications. He talks passionately about taking down competitors Siebel, SAP and Oracle.

Marc Benioff gets enthusiastic when he talks about hosted applications. San Francisco-based, the company of which he is chairman and CEO, is in pursuit of enterprise software leaders SAP AG, Oracle Corp. and Siebel Systems Inc. with a line of hosted CRM (customer relationship management) software. It is extending its hosted services to customer-facing back-office applications. Benioff spoke with eWEEK Senior Writer Dennis Callaghan on the eve of the companys launch of its Enterprise and Offline Editions last week about Salesforce.coms competition with licensed software vendors.

eWEEK: Is Siebel your No. 1 target?

Benioff: Certainly for this release. Theyre the big elephant that needs to be shot. What we offer today is essentially everything that they offer that anybody uses.

If you talk to our big customers, what theyll tell you is that, theres no need for them to even think about Siebel Systems. …Autodesk…Putnam Lovell Securities…Paymentech… All three of these are big companies [that] Siebel targets, but they decided that instead of going to Siebel, theyve chosen What theyre doing with us is everything from lead management, campaign management, contact management, sales force automation, customer support automation, and now were starting to show them what we can do with invoicing and billing and order management, this kind of thing, and show them how its all totally integrated.

Were really focused on Siebel right now because most people do have the awareness that theyre the leader in CRM and we want to continue to go after them. That said, we currently have more active CRM implementations worldwide than even they do. We have 3,800 implementations. We have 200 in Japan, 3,000 in the United States and 600 in Europe. So we have a broad base and all those are active, running. Were a zero shelfware company thats part of the new world order. No shelfware.

eWEEK: So whats been the secret to Salesforce.coms success, especially when the licensed software vendors initiatives, like and, have failed?

Benioff: A little bit of paprika in our sauce. The key to our success is that No. 1, we built a great product. The product continually gets spectacular reviews. All the major labs have done a review and they all say that this is a great product. And I think thats the No. 1 thing that we demonstrated at a new level that you dont have to buy software, thats one point.

But the second point is that its just much better than the old model. And our stuff is easier to use, its lower cost across the board. Then we coupled that really great product with I think a lot of awareness around the concept of you dont have to buy software. This little logo [of ours] – software with the line through it – and doing a lot of creative marketing things, like things that we learned at Oracle. We ran a protest against Siebel, at their user conference we marched against them protesting the use of software and how its destroying the economy. So this kind of thing, breakout marketing, guerrilla marketing.

And then No. 3, just running the business with the best people we could find and doing the best job we can do. Those things together have really been the things that have made us successful.

eWEEK: Why move into back-office applications? Isnt that doing too much too soon?

Benioff: The company is not even three years old, itll be three years old on March 8.

It really came from my own observation that when I started my company, of course I had so I managed my sales force, but then I wanted to manage my customer support organization, so I added customer support because I wasnt going to buy something to do that.

Then my marketing guys were complaining, so now they can use campaign management, all this stuff. Then, all of the sudden, all this collections activity started to appear in our support cases. Ive got all these guys who are in collections and accounts receivables management who are also customer facing so why dont they share and participate in the same customer database.

So the objective is to have all customer-facing employees be able to use the service. And that means that whether youre in sales, support, marketing, collections, accounts receivables, contracts management, theyre all customer relationship employees.

Now [Siebel Systems CEO] Tom Siebel has not had the vision to go out and include accounts receivables as part of his CRM vision. Instead hes gone down a different path with his human resources and I think that thats fundamentally an error. I dont think hell be successful in that pursuit. I think the key is that all customer-facing employees need to be integrated around the same customer database and thats what were doing. So in our first foray into financials, were really just extending the CRM paradigm. Thats another SAP module that our customers dont have to buy.

eWEEK: So you see this as extending your CRM applications rather than distracting your application focus?

Benioff: Its an integrated approach. The way our customers have their database set up today, if you look at that database and the way it looks, they manage their accounts, they manage their contacts, they manage their opportunities, they do forecasting, theyve added customer support information thats called cases. So they bring up their browser and basically our application shows up in their browser. They log on. They authenticate themselves. So they can come in here and they can manage their leads coming in, they can manage their accounts, they can manage their contacts, their opportunities, do their forecasts.

We group everything, we can give you the 360-degree view of the customer. So this makes sense to me because I am building a system that lets my customers really understand their customers. We need this to run our company and I think our customers need this to run their companies too. Most of these functions like contract management arent even automated inside of a company today…But this is a logical extension to me because this is still all around the customer. Its conceptually very easy for us to extend and we will keep extending these tabs out.

The next one you could expense would be accounts payable, so if you wanted to manage all the expenses associated with this customer. What are you spending on that customer? You can link campaigns into how much am I spending on the ads, how much am I spending on the direct mail. And you keep building it out.

And the difference between what were doing and what SAP has done, SAP has built everything up from the general ledger. So theyre a general ledger centric company. Same thing with Oracle. In 86, SAP and Oracle both built their first module called General Ledger, it was a client-server module. Then they built payables, then they built receivables. Then, in 93, 94, they built HR. It wasnt until like 97 that Oracle built CRM. SAP just released their CRM like last year. Its not integrated with anything else really at a deep level. And certainly, they dont have a customer-centric environment, the way we do, and Oracle doesnt either.

So theyve built their applications out in this way that everything is what I call ledger-centric. I dont think that the general ledger should be in the middle of the application stack. It doesnt make sense. If youre running your business, you want to be able to really see how customers are driving revenue and expenses because that will give you a much greater focus as a business owner. … First the general ledger was built, then A/R, then payables, then SFA, then customer service and then the customers sit on the edge. Then they added the Web site, then they added the leads stuff, then they added all this stuff. But really in the heart and soul is SAPs ledger and their manufacturing.

Thats not the way we do it. The way we do it is the customers in the middle, then we integrate with the Web site, the HTTP protocols. When SAP started writing their software, HTTP did not exist, HTML did not exist. We begin by integrating the customer through marketing campaign management, then we have sales force automation, that was our first major module, then we added customer service and support, now were adding accounts receivables.

Next year youll see us move into payables. Then theres general ledger and manufacturing. So when you look at the two models, we say to people, Look, SAPs a great model. You own your own software, its client-server, its general ledger in the middle, its proprietary integration, and its license revenue models. We have a totally different architecture. We have a shared information utility architecture. We have this .Net-architected offline appliance…where the customers in the middle, everythings XML wrapper and its a subscription revenue model.

These are two totally different ways. [SAP] is not bad. This works, thousands of people use this every day around the world, its great. Its just really expensive and really hard to use. So if you want something thats really expensive and really hard to use, you should choose Siebel, Oracle or SAP. But if you want something thats very low cost and very easy to use, then this is the way to go.

eWEEK: But those enterprise software vendors say you can never match their function, you can never match their customization capabilities?

Benioff: We have programmers, they have programmers. They write programs, we write programs. But were writing them differently than theyre writing them. Theyre writing them in a very hard-to-use, very expensive model. They havent changed their model. So yeah, they can say that theyre super [customization] rich, and functionality rich. But the reality is so was Cullinet [Software Inc.] So was McCormack & Dodge [Corp.] So was [Dunn & Bradstreet Software Inc.] And so was the software from all those companies that Computer Associates [International Inc.] acquired. They had as much functionality as SAP had, on the mainframe. But when theres a paradigm shift, you gotta get out of the way. Because the technology continuum does not stop.

If you think that SAP is going to be the future, well the past never equals the future. And certainly the present never equals the future. SAP is partly the past and partly the present, but SAP is certainly not the future. And Siebel is certainly not the future. Its a big, monolithic, client-server application. Its not what people are going to use as the Internet matures and grows and evolves. SAPs probably very upset because we just shipped our German version. Were starting to close customers in Germany, in their homeland and we have a great product that runs in German, it runs in Japanese, it runs in English.

eWEEK: Would you expect to find a lot more competition as you expand into back-office applications from what people are already using?

Benioff: Our fundamental competition is ignorance. That is, people do not realize that they just dont have to buy this stuff and they dont have to be held hostage by these CRM and ERP vendors. They think that theres only one path and there isnt. Theres another path and theres a better path and a higher path and that path requires no software.

eWEEK: Whos the typical customer today and is your customer profile going to change?

Benioff: Well, it could be an SAP customer. Certainly Adobe [Systems Inc.], which is a large company in the software industry, second largest PC software company in the world. They have 500 users on [Adobe president and CEO Bruce] Chizen said that he couldnt afford Siebel, he couldnt afford SAPs CRM technology. So they use us instead. … Same thing at Autodesk [Inc.] The software companies realize first that they dont have to buy that stuff. Because they know whats technically possible today. And theyre adjusting their business and technology models. Adobe has a fantastic Internet suite today. So does Autodesk. They have products that use the Internet, they understand the technology. So heres two premiere SAP customers and they both said, Were not going with SAPs CRM module.

Even though Salesforce.coms only three years old, the product is only barely two years old. So thats a lot of progress in a short period of time. We have 3,800 customers. But if you look at our growth, we had the first online sales force automation solution, the first online CRM solution, the first Web service with more than 3,000 customers, the first international online service. Now we have the first enterprise [hosted application] which is what we [shipped on Feb. 22]. We have our new offline edition. And we have the first online e-business suite. And we have a lot of major customers who are using this product today. It includes Adobe and Autodesk, but it also includes Siemens and Alcatel.

Well do $50 million in revenues this year, weve won a lot of famous awards, weve closed a lot of larger transactions also. So we have a lot of deals out there that are good for us and we closed partnerships also, like Tibco [Software Inc.], which has standardized on us.

eWEEK: Given your strong cash position, do you expect to make any acquisitions in the near future?

Benioff: We are so totally focused on our own business and the opportunity at hand that we dont really have time to acquire anybody. The only thing we have time to do is to fulfill the orders and the thousands of customers that are coming to us every month to find out is this really true. … This market is growing very very fast. Itll do $46 billion next year. $46 billion is a big market and so we want to serve that market and have these new products to serve the market with.

eWEEK: Do you expect the big enterprise software vendors to make more of a push for hosted applications?

Benioff: No, because theyll go out of business if they try. So its not gonna happen from them. They have a business model thats built on making their [financial] numbers at the end of the quarter. SAP and Siebel and Oracle, everything happens in the last seven days of a quarter. Really, theres only 28 days that are important for those companies. They dont sell really for 365 days a year, they sell for 28 days.

And what they sell is mostly shelfware. Most of the software thats out there sits on the shelf. Over and over again, you see research that says that large percentages of this software is on the shelf. And thats fundamentally true. That a huge amount of the seats that have been sold have never been installed. And thats not true for us. We only charge for whats being used.

eWEEK: Making your financial numbers is only an issue for public companies. Can we infer that is looking to stay private for the foreseeable future?

Benioff: It does not give us an advantage to stay private. Theres not much of an IPO [initial public offering] market, so there really isnt much to talk about right now in regards to an IPO. Weve seen one successful tech IPO in a year. The reality is that were financing our operations now from internally generated cash. So we dont need an IPO to fund our operations. Thats not true of any other ASP in the world. Not only are we basically larger than any other ASP in the world, were probably about the size right now of all the other major ASPs combined. And were the only ones generating cash.

eWEEK: Is the product more responsible for your success than the business model?

Benioff: I think its a combination of things. I think the business models also very important. Certainly were in this recessionary environment worldwide and this is a recession-friendly product. You dont have to buy the software, the hardware, you dont have to hire the people, which is a great thing because companies dont have the money to do that. So they like this idea that they can pay by the quarter or the month or even by the year and that works for them. And were willing to work with companies to make it financially attractive for them.

Traditionally, ERP companies like SAP and Oracle and Siebel are not willing to do that. Its pretty much our way or the highway, its usually multi-million dollar transactions and that would be it. If you look at a company like Autodesk that has 500 users with us, if they tried to buy 500 users of Siebel at $5,000 a user, which would be typical [buying] the hardware, plus the software, plus everything else, it wouldnt be unusual for that to cost them anywhere between $4 million to 5 million. So what they pay with us is dramatically less than that.

eWEEK: As you expand beyond sales force automation and go into the back office, what happens to the company name?

Benioff: I like the name because right now what we do is we turn your whole company into your sales force. The name is memorable. People know the name, they like the name. And also sales force automation is still the No. 1 reason people buy CRM. Ive looked at changing the name, but you could pick a generic name like SAP and you dont even know what SAP stands for. Our name is descriptive of who we are and what we do and what were good at. So were keeping the name for now.