Salesforce.com executives discuss growth strategy

Salesforce.com Inc. Chairman and Chief Executive Officer Marc Benioff recently upgraded the “No Software” button permanently affixed to his lapel. It now boasts a small additional logo: “CRM Listed NYSE.”

San Francisco-based Salesforce.com held its coming-out event as a public company on Wednesday, hosting its first formal briefing day for financial analysts and ushering in its latest upgrade. The sales-force automation ASP (application service provider) joined the ranks of public companies in June, when it completed a public offering that raised $110 million and gave Salesforce.com a market capitalization of more than $1 billion.

Chief Financial Officer Steve Cakebread forecast $160 million to $165 million in revenue for Salesforce.com’s 2005 fiscal year, which ends January 31.

Cakebread’s comments marked the first time company executives provided analysts with guidance on expected financial results, but several financial analysts had already calculated sales expectations based on their own models, generating a Thomson First Call consensus forecast of $175 million in revenue in 2005. News that Salesforce.com would fall short of that target sent its stock tumbling 27 percent to close Wednesday at $11.70, its lowest closing price since its IPO (initial public offering).

Salesforce.com now reports 161,000 subscribers from more than 10,000 organizations. Its business comes in nearly even thirds from small, medium, and enterprise customers, company executives said. More than 80 percent of sales are in the Americas, with the remaining sliver coming from Europe and Asia-Pacific.

Company executives said their development priority is meeting the company’s three-times-a-year upgrade schedule, which calls for spring, summer and winter editions. The latest upgrade, the Summer ’04 edition, went live two weeks ago. The version’s 100 new features include user-interface tweaks and added customization options.

Salesforce.com hosts and manages its software for its customers, so upgrades are automatically pushed out to all subscribing companies. Automatic updating has the potential to break customized systems, but several customers — including representatives of two of Salesforce.com’s largest deployments, Sungard Data Systems Inc. and Innovex Ltd.– say that hasn’t been a problem.

“There have been one or two hitches, but they’ve been quickly fixed,” said Richard Purchase, director of service development and IT for Innovex, a U.K. provider of outsourced pharmaceutical sales staff.

The biggest upgrade bug Purchase’s company has encountered in the three years it’s been using Salesforce.com was, literally, a bug: Salesforce.com’s Spring ’04 update had a butterfly as its symbol, and the update added to users’ screens an animation of a caterpillar transforming. The animation noticeably slowed Innovex’s system and annoyed some users, but a phone call to Salesforce.com got the butterfly disabled, Purchase said.

Innovex has 650 users on Salesforce.com, supported by two IT employees. One customer representing a smaller organization, New York-based staffing agency Atrium Staffing, echoed Purchase’s comments about Salesforce.com’s ease of use.

“My director of IT doesn’t even have a license or a login,” said Atrium’s vice president of marketing, Lori Blandford.

Atrium signed a five-year contract with Salesforce.com last year, and its 35 users have been very happy with the service, Blandford said. Her one wish-list item: A la carte access to features from Salesforce.com’s more expensive enterprise edition. Atrium wouldn’t use enough of the higher-end functionality to justify the price increase, but it would benefit from a few features, like a “partnering” option that lets two salespeople jointly control a prospect.

Salesforce.com’s executives fielded a number of questions at Wednesday’s event about Salesforce.com’s growth plans, particularly about its strategy for increasing revenue in an enterprise software market that a hit sudden, sharp slowdown in June, at the end of the last quarter. In response to analysts’ queries, Benioff touted the advantages of Salesforce.com’s business model. Because revenue is recognized gradually, over the life of a subscription, the company faces no urgency about closing deals at the end of quarters, and enjoys a more predictable revenue stream, he said.

He also pledged to grow revenue by adding customers, not hiking prices: “Our pricing strategy is, don’t raise the prices,” Benioff said. An attempt to do so several years ago backfired, and ever since Salesforce.com has stuck with pricing averaging around $70 per user, per month.

The company is developing deeper functionality in areas its customers cite as priorities, including customer service and analytics, but for the foreseeable future, new technology will be added to Salesforce.com’s core standard and enterprise editions. Salesforce.com doesn’t plan to push add-on modules for additional fees, according to Patricia Sueltz, Salesforce.com’s president of marketing, technology and systems.

“We’re still working through a lot of that,” Sueltz said. “We’ll listen to our customers and act accordingly.”