In just four years, Salesforce.com Inc.s high-profile chairman and CEO, Marc Benioff, has guided the upstart hosted CRM provider to 8,200 customers, more than $100 million in revenues and profitability. The San Francisco-based company, which has come to dominate the hosted customer relationship management services landscape, seems to have scaled back plans for back-office applications in favor of offering better integration with ERP (enterprise resource planning) software. Benioff recently discussed those plans with eWEEK Senior Writer Dennis Callaghan. He also spoke about Salesforce.coms latest upgrade, called Winter 04, and licensed CRM software leader Siebel Systems Inc.s aggressive move into hosted CRM.
Is Salesforce.coms Winter 04 release more about adding new features than improving on things youve done in the past?
Its really about taking on-demand computing to the next level. Were adding more base application features, but were kind of in two businesses. Were in the applications business, and in terms of the applications business, weve greatly extended the CRM applications. And were also in the systems software app platform business. Weve radically extended our platform. And [our] Sforce [application development toolkit] runs independently of Salesforce.com.
How many of your 8,000-plus customers are actively using Sforce today?
We have about 3,000 developers who are registered in the Sforce environment, and 1,000 of them are actively building applications on top of Sforce. That has been really interesting to see, all the different things people are building with the environment, a lot of stuff that we couldnt necessarily predict.
In terms of the number of customers who are now using Sforce … they all use it of course because Salesforce is built on Sforce 2.0. I would say about 20 to 25 percent are actually running on the platform itself in some kind of integrated way where theyve integrated with the API in some powerful way. It could be higher.
Theyre developing their own applications?
Right. Dont forget Sforce allows you to take your Web site and then front-end our system so you can capture leads and then use Sforce APIs to move the data through XML from your Web site to our service. So it could be something as simple as lead management. It could be something as simple as case management.
Sforce also lets you put up on your Web site self-service cases and self-service support, or self-service partner portals or whatever it is. A significant percentage of our customer base does that. In terms of more advanced Sforce stuff, I think its probably 20 to 25 percent.
Youve been talking about your Billing Edition for a while. Have you released that product yet?
Orders and invoices we have not yet released, thats our whole billing and accounts receivables capability. Weve released the first part of that now, contract management, which is a key part of getting the rest of the stuff running for our customers. We use it internally. So we demonstrated that [at Salesforce.coms user conference in November], and were getting customer feedback.
Were really looking at how we can extend and complement the Sforce environment to make customization and integration much much easier for our customers. We think the traditional software products like Siebel, their ability to integrate is actually relatively limited because they dont have the depth of Web services capabilities that we have.
-Degree View of Data”>
So contract management was the first back-office application to be released?
Thats one of the first back-office applications, yeah. But its also a CRM application. What were building is a 360-degree view of our customers data. Customers want to be able to see the contract data; theyll see it in the sales data, the service data, the marketing data. And with Sforce, they can create all kinds of new applications, too. Sforce means you can create whatever application you want and use Salesforce.com and Sforce to manage it.
We demonstrated collateral fulfillment, we demonstrated commission management, weve got all kinds of different modules and components as examples of what customers can build and run and extend in Salesforce.com. But the cool thing is that once theyve built these modules and integrated them in our database, we manage all that code for them. We host it and run it for them.
So is your back-office strategy going to be more about allowing customers to build their own back-office applications using Sforce?
We have a lot of back-office technology in our data schema already, but … the reality is a lot of customers already have their financial system. So they really want to integrate us. But there arent that many integration points between CRM and ERP.
We want it to make it so that its very easy to integrate. So we have relationships with TIBCO [Software Inc.]—we have the Salesforce.com/TIBCO integration server—so you can connect to SAP [AG applications], you can connect to Oracle [Corp. applications], you can connect to PeopleSoft [Inc. software].
We also have our ebridge adapters so you can connect to all the low-end products—the [Microsoft Corp.] Great Plainses and the Solomons and the Intuits and all them—we offer that ebridge connectivity. Also we have for back-office integration, enterprise application links, which has been very popular [with] customers that have used them. Were cautious about entering the general ledger marketplace; were more aggressive about entering the accounts receivable marketplace.
Youve been talking about offering back-office applications since at least spring of last year. Why has it taken so long to come out with these applications?
Were really spending time doing it right. Weve done a lot of integration work with customers that we havent talked about. If you go back on your notes, youll see that theres things were introducing now that are new things because customers came back to us and said, “You know what, Im less concerned about you releasing the general ledger. Were more concerned about you making sure that we have good integration with SAP.”
So, youll see us announcing more and more customers whove done deep integration with their enterprise ERP systems. And were trying to give them the capability to do that.
We want to make sure that we bring three messages across. One, you can customize. Two, you can integrate. Three, you can deploy globally. Were adding a lot of core features and functions to do that.
So when can we expect to see the order management and accounts receivable services?
Were anticipating those in the second quarter of 2004. Were running a lot of customers through focus groups with this stuff and seeing honestly how interested they are.
If you look at a product like NetSuite [Inc.s namesake hosted applications] or some of these other integrated offerings, or even Oracle itself, if a suite was the most important thing for customers today, Oracle would be the largest ERP vendor in the world. Or SAP CRM would be beating Siebel in the marketplace and in market share. But the reality is that customers look to different vendors for different kinds of capabilities. As weve talked to customers, thats become more and more illuminated.
Oracle is very brainwashed about the suite, the suite, the suite. It turns out that customers are less interested in the suite and more interested in making sure that youre running their lines of business efficiently.
UpShot Fools Them All
How has Siebels entrance into the hosted application services space as well as their acquisition of hosted CRM services provider UpShot Corp. changed the competitive dynamic? Has it made them more of a threat to Salesforce.com?
Weve always viewed Siebel as our No. 1 competitor. If you look at UpShot, they really kind of had everybody fooled that they were this successful company. Its amazing to me how poorly UpShot has done in the marketplace. Its even more interesting that Siebel said basically theyre going to turn off the service now. They have no intention of continuing the development of UpShot. Theyre moving all of the developers over to Siebel CRM OnDemand, which is the IBM offering.
That product, we have yet to find a customer with any significant number of users on. The customers that they have announced, Planitax was one, they said they had seven users of Salesforce.com, those [users] are still live on Salesforce.com.
We dont know what the status is of CRM OnDemand from Siebel. I dont know if its beta or if its alpha or what. I talked to one guy who had said hes looking at it, he has one user on Salesforce.com. I havent found any significant customer movement.
[At the November user conference] we announced a major new customer for us, [Advanced Micro Devices Inc.], whos our launch customer for the Winter 04 Edition. We signed a $2 million agreement with them. Its 800 users globally for three years. It was a head-to-head compete against CRM OnDemand, and they went with us because they said Siebel just doesnt have anything.
What Siebel has done is theyve validated the market. They bought the competitor, UpShot, but then they said UpShot is not their long-term strategy, they made that very clear. And CRM OnDemand is not available. So the market is wide open, and the customer only has one choice right now—Salesforce.com. So its a very exciting time for us, and our pipelines have never been fuller and our sales have never been better.
Didnt you consider UpShot to be your strongest head-to-head competitor in hosted CRM?
If you had asked me who our No. 1 hosted competitor is, I would probably have said to you that in most deals we dont see a hosted CRM competitor. Most deals we see a software company like SAP, Oracle, PeopleSoft, Siebel, SalesLogix, Microsoft, etc. And in maybe one-tenth of our deals, well see a hosted CRM competitor. The reality is that we win most of those deals, and these other guys just are not out there.
Would you expect other enterprise application software vendors like PeopleSoft or SAP to make a move into the hosted space as well?
I dont think that they have been injured as much as weve injured Siebel. Siebel has now had nine quarters of declining sales, and Siebel is now no longer a profitable company. And weve beaten Siebel head-to-head in large transactions like AMD and others that weve talked to you about before.
I think that PeopleSoft and SAP are so diversified that they have been insulated from our attack, honestly. But Siebel has not. I think weve significantly damaged Siebel and now theyre just reactive. Their acquisition of UpShot kind of makes no sense. And the CRM OnDemand product, it doesnt make any sense to me what their strategy is. That is, the CRM OnDemand product is not just an IBM product. CRM OnDemand is a software product and IBM is a customer of that software product. And Sun and HP are also going to sell CRM OnDemand with Siebel. And theyre going to sell to service providers.
What Siebel Is Building
But Siebel is building a piece of software, not a service. Lets be really clear about that. They are giving it to service providers around the world. And theyre going to ask them to host it and run it and compete against that little upstart company, Salesforce.com, who is doing over $100 million a year in revenue.
We think that were still a very unique provider because were a service provider, not a software company. We run the service, we take responsibility for it, we keep it secure, we upgrade, we update. For example, when Siebel starts rolling out more service providers for CRM OnDemand and they roll out a new version, [when] they update and upgrade everybody, is everyone going to be on the same infrastructure? Do you know what the security regulations are at all these different things, or is every company going to have their own brand, their own Web site?
Siebel wants to be an arms dealer, we want to be a service provider. We want to make the customer successful. That is our goal. Siebel wants to generate more license revenue. Their objective remains the same. Theyre totally different strategies. Siebel is not running their service. Theyve said that over and over again. Theyre making software, and they shipped it to IBM and IBM is running that out of their data center in Boulder, Colo.
But they already had a hosting relationship with IBM. This is a bit different from what they were doing before, dont you think?
Its different because they give the software to IBM and in return they get 50 percent of all the revenues and IBM gets 50 percent of all the revenues. Thats the deal. IBM supplies the people and the hardware and the WebSphere, the DB2 and all that. And then Siebel provides the software product, CRM OnDemand, which they have not yet provided by the way. Theres no production customers on the product.
So the idea is that they ship out to IBM and then IBM will run it. Well, while theyre working with IBM, theyve also announced that Sun is going to be reselling CRM OnDemand … and also HP and theyre building products for them on their stack of CRM OnDemand. And then theyre going to sell it to Corio, USInternetworking, and Im making these names up now just as examples … NTT, BT, Telefonica Italia, whoever and theyre gonna say, “Hey, why dont you guys set up your own data centers? You already have them. Buy some computers. Well give you the software, and you can become a hosting provider also. You can become your own Salesforce.com.”
That is a very different strategy from our strategy. Our strategy is were a service provider. Were like Amazon, were like eBay, were like Yahoo. We have our own proprietary stack of code—its open, its extensible, its customizable, its integrateable, its very feature-rich.
If you look under the covers, youll find out what I said is exactly true. Theyve taken Siebel 7.5 and UAN, built an HTML interface on top of it. Theyre going to ship it to IBM, and theyre going to expect them to host it and run it and deliver user performance and scalability and security. And theyre going to do that with a lot of other vendors and a lot of other hardware types and their software product. And … theyre going to recognize the revenue in terms of licenses, license revenue sold. Not subscription service. Because Siebel is not selling you the subscription. Its IBM.
You just announced the AMD deal. Are you seeing a shift in your business away from the small-to-medium business space and the department level and into the large enterprise accounts?
Were in a lot of large enterprise accounts now. Were closing a lot of large transactions. More than a third of our revenue is companies who have more than $500 million in sales. AMD is just one example. We have a lot of other significant customers like Cigna, who has 1,000 users on us, Nokia, who keynoted our conference, and many many other enterprises. Eagle Global Logistics gave a keynote, they have 850 users on us. These are companies who are basically spending a million dollars a year with us to manage their CRM online. So weve demonstrated small companies using our service and large companies.
Theres a big focus on dashboards in your new release. Given that Siebel is moving into the business intelligence space, is hosted business intelligence services within the realm of possibilities for Salesforce.com or is this more just about delivering dashboards for CRM applications?
Youll find that we have a complete CRM application, but youll find that we have a complete analytics environment online now also. We have all the dashboard systems, and its modularization of the dashboard, etc., but we also have complete analytics that we fully customize our reporting environment.
Reporting and analytics for us are integrated now. And dashboards are part of that overall environment. And so we have a full analytics engine as part of our service. When you get the next review of Salesforce.com in eWEEK, it will be very clear the huge depth we have in analytics. Also we have relationships with other analytics vendors.
Business Objects announced that theyve rewritten their product on top of our Sforce API. And also we have another partner called Synergex and other vendors who are doing more in analytics, and were also providing analytics capabilities. We have a very rich and we think highly competitive analytics environment.
Youre cash flow positive and profitable. Isnt it about time to take the company public?
Weve been cash flow positive for nine quarters. Weve been profitable every quarter this year. But I cant answer that question. It would be called solicitation, and you cant do that. So we have no comment on all IPO stuff.
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