Salesforce.com CEO Marc Benioff hasn't seen his company hit $2 billion in annual revenue yet, but already sees $3 billion in sales happening.
How exactly will Salesforce.com get there? Big enterprise deals and establishing the company as a cloud computing platform. Most analysts buy the Salesforce argument and vision. But others are a bit reticent.
Here's a look at the two biggest items on Salesforce's drive to $3 billion in revenue.
Can Salesforce become a big enterprise player? Sure, Salesforce does plenty of big enterprise deals, but the company has 92,300 customers and 3 million users. Cowen analyst Peter Goldmacher does the math and finds that Salesforce's average customer has less than 35 seats and average selling prices under $20,000.
"Although management remains effusive about its enterprise class platform offerings, we continue to believe that Salesforce.com is primarily an SMB play," said Goldmacher.
Goldmacher makes an interesting point. The divergence comes when you project ahead. Most analysts see Salesforce as a future big enterprise player. But to get there, Salesforce needs a sales army to go against SAP and Oracle.
For his part, Benioff is undeterred. He explained on the company's earnings conference call Thursday that smaller deals lead to bigger ones. Here's the master plan via Benioff:
When we close a large transaction, it's rare that we are going into an account for the first time and closing a large deal without them really knowing us. Our philosophy has really been kind of a triad.
First of all, we go in and see the account, we look to plant as many seeds as possible. We want to nurture that success, and that could be in departments, that could be in divisions of a company. And then we want to grow that success, and that could be on mid-size or mid-market transactions that take place in the subsequent year, a couple of years following those initial seeds.
For example when the economy got very poor several years ago, we really went to an aggressive seeding program because existing customers were not adding users and for us to add additional revenue, we really just went and tried to close as many small seeds as possible. Then as that emerges or goes forward, we start to see us becoming a strong point solution in that customer.
It could be a strong sales solution, it could be a strong service solution, it could be collaboration, it could be in some cases platform. And then at the end of the day, what we move to is to our enterprise license agreement strategy, and what we want to do is we want to be able to bring those customers to an enterprise license agreement and with our largest customers, that's exactly what we are doing.
Bottom line: The road to $3 billion in revenue for Salesforce is lined with enterprise license agreements.
Can Salesforce.com be a platform? The answer to this question will emerge in the next year. Benioff said fiscal 2012 is the year of the platform. Salesforce has its own programming language called Apex, but acquisitions and partnerships will put the company on the map as a cloud platform. More than 1 billion lines of Apex code have been written, but Salesforce, which has 340,000 Force.com Apex developers, hasn't garnered the developer buzz enjoyed by other programming languages.
Benioff said the Heroku acquisition gives Salesforce access to Ruby on Rails developers, but other languages are planned too. To his credit, Benioff is letting Heroku run:
We are running that as an independent organization. We're giving them the autonomy and authority. We certainly do not pretend to be experts in managing and working with developers.
The big idea here is to make Salesforce an enterprise platform. "We see momentum building in the platform and service category as companies demand more social, mobile and open applications to serve their employees and customers. We have the only platform for building Cloud 2 applications that is a trusted proven solution for the enterprise. And with our strategic moves toward an open multi-language, multi-device strategy in the last 90 days, we believe Force.com is positioned to be the long term leader in the platform as a service category," said Benioff.
Why is the platform so important? Jefferies analyst Ross MacMillan estimates that the CRM market is roughly a $10 billion opportunities. If Salesforce can become a leading platform-as-a-service player its total addressable market is more than $40 billion.
What's unclear here is whether Salesforce can go toe-to-toe with Microsoft's Azure platform, Red Hat's Cloud Foundation and Google's App Engine. Salesforce.com's plan is to offer viral services like Chatter.com and garner more customers.
In a survey of 50 large Salesforce customers, about half of them saw the company as an important platform for third party and custom apps, according to MacMillan. "We think adoption of Salesforce as a custom development platform is set to accelerate, driving an expansion in the addressable market and the potential for higher sustained growth rates. Competition for the platform is extensive, but Salesforce looks very well positioned today," said MacMillan.
Bottom line: The Salesforce as a platform story will be told over the next year. Can Salesforce ride the Java and Ruby developer wave to dominance?