INSIGHTS

Salesforce’s Golden Egg

Last week Salesforce.com marked its 10th year in business. To celebrate, the company held a conference call to discuss its earnings, and CEO Marc Benioff brought presents for his investors.

The big announcement was that Salesforce had succeeded at generating just over US$1 billion in revenue for its fiscal year — the first time in history that any on-demand company posted numbers like that. Moreover, Salesforce reported that it gained 3,600 net new customers in the last quarter. It’s hard to say from that data whether companies in these economically distressed times are opting for on-demand or if this simply represents normal growth.

Other companies like Oracle and Siebel reached the billion-dollar milestone sooner in their corporate lives, but I think that perspective compares apples and papaya. Software companies that reach the billion-dollar plateau have always done so on the basis of products on sale for considerable sums — often hundreds of thousands to millions of bucks. Reaching $1 billion based on charging by the seat every month is an entirely different matter.

So a billion dollars worth of trickle-in revenue is even more impressive, and it says a great deal about the acceptance of the business model as well as the technology. If Salesforce had a different pricing model, I think they would have gotten to this level a long time ago.

Family Tree

Critics might say that most of the seats represented by this revenue is SFA (sales force automation)-based, but that can be said about almost any full-suite CRM provider. There are many more salespeople than marketing people in a typical organization, hence more SFA seats to buy. Very large companies often have massive call centers, too. No matter, Salesforce is selling in all CRM verticals and they are increasingly selling generic seats to companies that simply want to write their own on-demand applications.

It’s worth noting that there were other on-demand SFA solutions on the market when Salesforce.com got started 10 years ago with names like UpShot and Salesnet. Each company had the same basic idea, and each was dedicated to the multi-tenant model. But neither of those other companies is a freestanding entity today. Siebel bought UpShot and integrated it into Siebel’s on-demand offering. Then Oracle bought Siebel, and Oracle CRM On-Demand traces its lineage through that line of inheritance. RightNow bought Salesnet then decided to stick to its service and support knitting.

I think a great deal of credit has to go to the CEO for Salesforce’s success. I knew the chiefs of UpShot and Salesnet at the time. Both are good people, good businessmen, and each wanted to succeed. But in my opinion, neither one really understood the disruptive innovation that on-demand computing presented. Or possibly the potential was more concept than reality and it took Marc Benioff to press the issue.

At the end of the day, you could argue that it was Benioff’s vision that made the market. Without Benioff, it is possible that on-demand computing would have remained a backwater, a cute idea for supporting salespeople the same way that social networking has pretty much remained a nice consumer idea.

Where to Next?

It is interesting to note that the rise of social networking as a business tool closely correlates with the ability to form mashups with other on-demand products, notably Salesforce.com. And Benioff is behind some of it. He shared the stage with a Facebook executive late last year to announce the integration of their products and to promise that integrations with other social media were not far off.

Benioff’s vision of on-demand computing is older than Salesforce.com. As an executive at Oracle, he championed the on-demand idea along with Evan Goldberg, founder of NetSuite. Timing is everything, and though the idea was mature enough when he was at Oracle, Benioff had to wait for a few technologies, like the Internet, to catch up.

As on-demand computing enters its second decade, it’s worth taking a moment to consider where the original invention will take us next. Social networking, handheld devices and a vastly improved wireless Internet will no doubt contribute to driving computing deeper into our lives. But the style of computing will be far different from what we see today. It will be ubiquitous for sure, but it will also be personal to an unprecedented degree and I think it will owe a lot to on-demand, platform-based applications mashed up with social networking and who knows what else.


Denis Pombriant is the managing principal of the Beagle Research Group, a CRM market research firm and consultancy. Pombriant’s research concentrates on evolving product ideas and emerging companies in the sales, marketing and call center disciplines. His research is freely distributed through a blog and Web site. He is working on a book and can be reached at denis.pombriant@beagleresearch.com.


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