Salesforce becomes enterprisey, readies for war

Salesforce becomes enterprisey, readies for war

Summary: As Salesforce.com sheds more of its 'cool' on-demand status and transitions to looking more enterprisey, I notice it has hired Graham Smith as CFO.

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As Salesforce.com sheds more of its 'cool' on-demand status and transitions to looking more enterprisey, I notice it has hired Graham Smith as CFO. Fellow Irregular Mark Crofton muses:

...about the irony that a company whose motto is "No Software" keeps hiring big enterprise software company execs...Obviously, as an employee of a big enterprise software company [SAP], I have no problem with it. My sense that it's another data point to suggest that Salesforce.com will continue to evolve to look more like a traditional software company.

I think there is a bit more to this than meets the eye. Graham is a British Chartered Accountant and has held a succession of senior finance and CFO roles at Oracle, Nuance, Vitria and Advent. In some people's eyes, that makes him the classic beancounter. Looking at the times when he was at both Nuance and Vitria, these coincided with periods that required strong fiscal control.

A number of my colleages have been critical of Salesforce.com's GS&A spend. The last quarter's results showed these line items hovering at an eye watering 66 percent of total revenue. That's one percentage point better than the comparable period last year. While there can be no denying that Salesforce.com has done a great job driving revenue and who can deny CEO Marc Benioff's skill at talking up the numbers, there comes a point where you must drive the bottom line. I believe that will happen as Salesforce.com starts to face competition around the turn of the year.

Last month, Josh Greenbaum suggested that Salesforce.com is in a market it can lose:

With a range of offerings priced from $44 per user per month to $59 per user per month for a “professional” version, Microsoft has set the bar significantly lower for its CRM on-demand package than market-leader Salesforce.com, which “starts” its professional pricing at $65 per user per month. Do the math, that’s a lot of Benioff-bucks that Microsoft expects to head to Redmond instead.

Most analysts consider Salesforce.com's average take per customer around $73 per month so the potential price gap may be wider than Josh implies. Salesforce.com argues it has a premium platform so is insulated. Then there is the specter of SAP with its upcoming A1S offering to factor into the mix. Benioff brushes these threats aside but no-one expects that his team are ignoring them.

In these circumstances, a company can take a number of defensive measures. Price reduction is one but that can be mitigated on the top line by larger volume deals. That happened last quarter, especially in EMEA and Asia/Pacific. Cost control is another. Sales control is in the hands of the sales teams. Cost control is in the CFOs. The outcomes are yet to be determined but some clue may be found in both Marc Benioff and Graham Smith's words contained in the appointment press release:

Benioff: "I have known Graham for almost 20 years, and worked with him at Oracle for ten."

Smith: "I look forward to building on Steve's [Cakebread] amazing track record at salesforce.com as we expand and refine the business models that are changing this industry."

On the most recent earnings call, outgoing CFO Steve Cakebread said:

We hired at a slightly slower rate than in prior quarters because we're making some important organizational adjustments to enhance employee productivity and customer responsiveness. In addition to the marketing consolidation Marc mentioned, we also reduced the number of sales specialists and redeployed them as account reps. As a result of these changes, we exit Q2 with a much stronger sales and marketing organization. With a more effective organization in place, we expect to increase the pace of our hiring again in Q3 to more historic levels.

We'll see. When you're gearing up for war, you want close allies who can do the tough grunt work when it matters. Smith is one of those with the added bonus of that all important Oracle background.

Topic: Enterprise Software

Dennis Howlett

About Dennis Howlett

Dennis Howlett is a 40 year veteran in enterprise IT, working with companies large and small across many industries. He endeavors to inform buyers in a no-nonsense manner and spares no vendor that comes under his microscope.

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