Salesforce.com Inc. has had a bumpy ride in 2004. An IPO (initial public offering) of stock planned for March was delayed until June, as the company nearly ran afoul of federal quiet-period restrictions. Since turning public, Salesforce.com has been hit with several shareholder lawsuits alleging misstatement of business performance, which caused the San Francisco-based companys stock price to fall. But Salesforce.com Chairman and CEO Marc Benioff remains both bullish and defiant, extolling his companys high growth rate, increased profits and continued success with its hosted CRM (customer relationship management) application service model. Last month, Benioff discussed recent events with eWEEK Senior Writer Dennis Callaghan.
Was the IPO process a bit bumpier than you had hoped?
I think that this is a special time for business and certainly a special time for IPOs. I think its more of a reflection of the times were living in currently, especially when you have a high-profile company like a Salesforce or even what you saw with Google.
At this point, would you say going public was worth it?
Its all lemons into lemonade at this point. We are very fortunate to have completed an IPO which is still the most successful IPO of the year. We have just delivered on very strong second-quarter results—revenue gain of 88 percent and a ninefold increase in profits as well as strong subscriber and customer number additions as well as new customer editions and product editions.
One of the benefits of being public is that before I only got to talk to you, but now if people want to write about us, they write about us on a much broader basis. Theres much more transparency into our business, which builds much more credibility with our customers. Customers, the market, our competitors can see exactly how were doing.
Thats a conversation weve had, maybe what, a thousand times? Even when we were a private company, I would always tell you exactly how we were doing, the revenues, the profits, the customer numbers and the subscriber numbers, and I tried to give you the transparency and you always wrote about it.
But the reality is, on the broader stage, it wasnt as relevant to the business and financial press because we were not a public company. Now that we are, we get a broader reporting of that, and our competitors still wont say how theyre doing. … We are able to let people know, hey, the on-demand computing model looks like it has some potential. Which I think is extremely important for our industry.
Have you found the market to be overly skeptical—in particular, some of the financial analysts?
No. Most of the analysts are very, very positive. Youve probably seen the different ratings we have on our stock. Weve been on a journey. We started at zero in March of 99; we launched our product in March 2000. Today, were certainly one of the fastest-growing enterprise software companies thats publicly traded in the world. I dont know anybody whos doing more than 88 percent top-line revenue growth. So were very fortunate to be successful. Were able to promote our concept that enterprise software companies need to evolve or die.
One analyst, Donovan Gow of American Technology Research, says that you need to lower your expenses, especially your sales and marketing expenses.
I think that our top-line numbers speak for themselves. Were delivering the revenues and profits at a rate that we never have been able to before. Thats what its all about.
So with the exception of him, youre not feeling pressure to increase profits?
Is he uncomfortable that weve increased profits only ninefold?
I think hes uncomfortable with your margins.
Which are 80 percent, gross margins.
No, your net income as a percentage of revenues. He said you need to spend a lot of money to continue that top-line growth, which cuts into your margins and you cant do this forever. Thats his contention.
Were very comfortable with our revenue and profit numbers. Its growing faster than anybodys as far as I know in the publicly traded software space.
While were on the subject of analysts, Erin Kinikin at Forrester Research continues to maintain that hosted CRM [customer relationship management] services like Salesforce.com are still a department-level phenomenon and that eventually CIOs will exert control over use of them and its not going to have the growth were seeing now.
This isnt the first time weve heard this. Dont forget, a year ago, how many customers did I have with more than 1,000 users in their implementation? Zero? So in the last year, Ive been able to add five customers who have more than 1,000 users with us, and Ive got one customer with more than 3,000 users live.
Who else in the CRM space has closed five significant CRM deals that theyve been willing to talk about and put you in front of those customers? I would suggest nobody. In the last year, I think were the only ones whove closed deals of consequence that I know of. So when I look at ADP, when I look at SunTrust Bank, when I look at SunGard Data Systems, when I look at Cisco, when I look at these customers, I think its extremely interesting that these large transactions—ADP is a significant implementation. You can call [them] and ask them why would they chose Salesforce.com over Siebel or any of these other products. You could ask them if they already own the other products and could they not get them going.
My comeback is always: Talk to the customers. The analysts are always going to be having a solid view of the past. Its our job as a thought leader vendor to give you a view of what the future could look like in the technology area. And we believe in this democratization. That small companies can be successful with this, medium companies can be successful with this, and large companies. And small installations, medium installations and large installations. And weve seen that more than not, a true democratization.
How many enterprise software companies have been successful with the same product, in the small, medium and large-size space? Even in the on-demand space, we have competitors, but how many deliver true democracy in their implementations? That is what is very unique about our technology. Weve been able to have this small, medium and large success.
When you come to our analyst day and our product launches and that kind of stuff, we always make sure that there are customers there because we are constantly fighting the rhetoric from the status quo that this somehow is not possible.
Has the whole experience of going public changed the way youre going to run Salesforce.com?
Not really. Of course, we have to do more work in areas associated with being a public company like quarterly reporting and Sarbanes-Oxley. But weve already done a lot of that work. We got ourselves really public-ready over the last 12 to 18 months. Weve been running our company pretty consistently.
Has the SEC probe into whether you violated your quiet period been resolved?
Well they did make the IPO effective. The way the IPO works is the SEC has to say, OK, everythings fine. You can look at the S-1 for all the risk factors, things we had to disclose for the actual details.
Whats the status of your planned forecasting upgrade? Some customers have been telling me that its been delayed.
I dont know that weve actually talked publicly about our forecasting product. Some customers are testing different components and giving us feedback, but we havent actually announced anything in that area per se. I think you might have information thats coming from these beta testers. That is not something that we have previously disclosed.
So theres no forecasting upgrade on the horizon?
Ill have to get back to you on that. Sometimes you get a little ahead of us because you have good data.
Is there going to be a fall 04 launch, and if so, what can we expect there?
We have three new versions a year; theyre not catchy. We have our spring edition, our summer edition and our winter edition. So you can expect the next version coming up would be winter. And it would happen in the winter.
At least a high level, can you talk about what is coming in that release?
Were still working out what is in it. Youll see continued focus on customization, continued focus on integration, continued focus on global support, continued focus on our sharing model and the power of our sharing model, and a continued focus on delivering best-of-breed CRM functionality.
Salesforce.com takes advantage of Linux in its technology. Is there a competitive threat from open-source CRM?
I personally think that open source is very, very strong in the component area … but we havent really seen open source as a competitor in the enterprise applications market space.
What about Billing Edition, your planned hosted back-office application services? Is that officially dead now? Are we going to just see partnerships and API integration there?
Weve released the first component of that. We use that inside the company, and we released the contracts management module, which is also one of our unique offerings. So the contracts management capability, which is a core part of that functionality, is the first component of that to actually get released. And I believe that is production now for all customers.
But order management, for example, thats going to be at the API level only?
Order management and invoicing is actually available through [Salesforce.coms] Sforce API today. But it is not available at the user interface level, which is something were certainly evaluating. We have production code, weve demonstrated it, but we have not seen a huge interest in it from our customers who are still very much interested in that bread-and-butter CRM.
So, for now, the focus will be on partnerships for API integration with Intacct [Corp.] or [Microsoft Corp.] Great Plains or Intuit [Inc.]?
That is very much the direction our customers have driven us. We have code to do a lot of this stuff. But when we look at financials, a lot of customers have QuickBooks, they have Intacct, they have SAP or Oracle. They are not interested in those components per se from us. So weve done the relationships with companies like eBridge. So with those companies and others, we have been able to deliver a broad range of tightly integrated solutions with our products. That includes everything from Microsoft-Great Plains, which I think is very important to integrate with, Navision, Peachtree, on and on, really. That really has been more where our focus is.
We have really opened up our product a lot, and we have a huge ecosystem of partners today. If you look at Salesforce.com and you click on the Partner tab on the homepage, theres a lot of people whove built sforce technologies, including a tremendous amount of integration with the major accounting systems. Because our product is very democratized, different-size customers need different types of functionality in this area.
ADP does not want a general ledger from us. Cisco does not want an accounts receivable module from us. SunTrust Bank is not interested in our HR technology. These are big companies, but not just the big ones, the medium ones too. And a lot of the small ones are already automated with very good software products that theyve spent a lot of time customizing, like Intuit, which dominates this space. Were very satisfied with the tool offering that we can bring to a customer.
Would Salesforce.com be interested in buying a company like Intacct sometime down the road?
[Were] not looking at that company specifically, but Ive thought a lot about financials, and is that important? Ive talked to our customers, and theyve told me fairly consistently that its not. For us, were very focused on delivering the best CRM in the world; delivering strong sales force automation, customer service and support, campaign management; making it as open as possible through sforce; the best integration capabilities; the best customization of that CRM service; customize all the tabs, the fields, etc.; delivered in multiple languages, multiple currencies, and delivering best-of-breed CRM for them, and finally the focus on the sharing model, the discreet aspect of that.
Who are you seeing right now as your biggest competitor?
In the CRM marketplace, Siebel of course has the dominant market share. So youre always going to see Siebel, youre always going to see the enterprise players in the big deals. And then in different markets, youll see different competitors, and in different geographies youll see different competitors also.
Siebel claimed during their second-quarter earnings call that Siebel CRM OnDemand had more success against Salesforce.com in the second quarter than in the first quarter. At the same time, they havent really told their customers much about their new service that was supposed to combine the best of Siebel CRM OnDemand and UpShot. What are you seeing from them in the marketplace?
What are their net customer subscriber numbers? … Lets hear how youre doing in the marketplace if youre doing so good. They have all the bravado in the world, but if you cant deliver the numbers, I mean, come on, thats just silly. So what are their net customer subscriber numbers because thats what we gave [last week]: 1,300 net new customers, 21,000 net new subscribers. Over a long period of time, weve told you what our net numbers are. I cannot figure out how theyre doing in the marketplace. I have no idea.
By the way, its not new. I cant figure out how UpShots doing. I cant figure how NetSuites doing. Go to NetSuites homepage, and they say they have 7,500 customers. But theyve had 7,500 customers on their homepage for over a year. So what does that mean? Are these paying customers? Active customers? Did their customer number not grow? Why do they not update that on a regular basis? I dont know where we are in the market in terms of total market share because our competitors will not disclose their net customer subscriber numbers.
I think its totally reasonable if youre the CEO of a company that you should know how your competitors are doing. We have a CRM system here at Salesforce.com, and we track these people all around the world, and we dont see ourselves losing a significant amount of transactions to anybody. So the question is, and its not that we dont lose, everybody loses occasionally, but what are the numbers, the net numbers? Thats what I dont understand.
If they want to come out and say, Well, were this much better than so-and-so and this and that and the other thing, OK, well lets see the money. Show me the money. Thats what we need, we need Jerry Maguire in this industry to kind of hold these guys feet to the fire and say, What are your numbers?
[Siebel] putting out this kind of a press release and saying, We have 175 orders, what does that mean? Thats the press release. I didnt make that up. Were hopefully setting best practices in terms of operating a company in this industry and in terms of disclosure and also the long period of time that weve talked to you about this. Were pretty open as a company.
What do you think of the change in leadership at Siebel, with Mike Lawrie replacing Tom Siebel as CEO?
I think its really an indication of the significant trouble that theyre really in and going through. I think its been very, very difficult for them for the last several years, and now Mike has got to figure out what hes going to do. I have a lot of respect for Mike Lawrie. I think hes an outstanding executive. I think hes one of the best executives in the industry. But I dont know if even one of the best executives in the industry can rescue Siebel Systems.
Because its the end of software. Their model is really upside down.
Whats the biggest challenge for Salesforce.com going forward?
I think the greatest challenge is just continuing to manage growth. Were very fast-growing. Weve given gross guidance for the year of $165 to $170 million. We did $96 million last year. Thats significant growth. Managing that growth and continuing to work to grow the company is extremely important and to take advantage of this great opportunity in the marketplace called on-demand computing.
Check out eWEEK.coms Enterprise Applications Center for the latest news, reviews and analysis about productivity and business solutions.