Benioff scents enterprise breakthrough

It's clear from his statements last night that Benioff believes Salesforce.com's growth story from now on will be about enterprise accounts rather than the smaller companies and deals that have powered the growth engine thus far.

With sales still growing at an annual 60% clip even at the half-billion-dollar-a-year mark, is it time for Salesforce.com to slam on the brakes? "Au contraire," says CEO Marc Benioff, speaking on last night's analyst call after announcing the company's full year results. There's bound to be some loss of efficiency when an organization has doubled its staff numbers in the past 18 months while growing revenues by more than a quarter billion dollars over the same period to $497 million. A more cautious chief in more cautious times might argue that now is the moment to take a breather and consolidate. Benioff is not that person and it's not that time. This is how The Register reported his comments:

"We are focused on growth and revenue and market share in a new company. We are organized and architected around those principles. If at sometime we decide to maximize our efficiencies like you see these large players do, then that will be a sign the market is maturing or shrinking. Au contraire. We have found this is the time for on demand computing, but to do that we have to have growth in sales, service, support and development to take advantage of the opportunity. That's the company we have created and we will continue to create," he said.

Announcing Salesforce.com's largest single enterprise deployment of 25,000 subscribers, Benioff asked rhetorically the last time analysts had heard of an Oracle, SAP or even a Microsoft 25,000 customer CRM win. "To compete against them [Oracle and SAP] you need similar armies of sales people," he said.

Benioff knows that this is precisely the moment when Salesforce.com must seize the opportunity opening up in front of it, no matter what the short-term cost. The company is finally beginning to break through into large enterprise deals. Winning those deals requires a longer sales cycle, a larger sales team and more expensive sales people. Cutting back now would be like a star forward taking his hockey stick and snapping it two instead of running forward to score the decisive goal in a big match. Of course I use the hockey stick analogy with deliberate intent. Salesforce isn't about to see a new spurt of growth but it is in the midst of a hockey-stick ascent and should do nothing to impede that momentum.

Look at the detail of the analyst call and it's clear that Benioff believes the company's growth story from now on will be about enterprise accounts rather than the smaller companies and deals that have powered the growth engine thus far:

  • The number of customers with more than 1000 subscribers is up 81% on a year ago to 47, while the number with more than 500 is up 88% over last year at 150. This is almost double the 45% growth rate in the customer base as a whole.
  • The move to half-yearly updates on subscriber growth is intended to shift attention onto other metrics such as revenue per subscriber, which ought to become a bigger driver of top-line revenue growth if there's a surge in large enterprise deals.
  • Benioff believes that Salesforce.com has "cracked the code" on relationships with the big-name systems integrators such as Accenture and IBM Global Services. This is an essential ingredient of penetrating large enterprise accounts, and the company has deliberately put a lot of effort over the past year into working out how best to build these relationships.

So that's why Benioff and his CFO Steve Cakebread are quite content with a 98% slump in annual income despite posting a 60% increase in revenue and narrowly missing (by 0.6%, only marginally more than a rounding error) my forecast that they'd make sure of reporting the full half-billion. They evidently believe that Salesforce.com can afford to dip into loss in order to secure the far bigger prize of mainstream enterprise acceptance for its on-demand SaaS offering.

BTW, despite all that spend, no-one at Salesforce.com is taking the time to check up on all their website pages. I'm intermittently using my wife's laptop today as a fan has failed on my own machine and I have to switch it off from time to time to let it cool down. Her machine defaults to Salesforce.com's UK site and this is the barren screen that greeted me when I navigated to Salesforce.com's quarterly results page this morning:

Investor information pages on Salesforce.com's UK site displayed in IE6

I decided to bring up the browser version number before I took this screenshot, in case anyone asked me. None of the UK Investor Information pages are displaying correctly on her machine. Even more intriging than the "??? Row1Col1Text ???" message on this page is the small heading "Howard's page" that displays at the top of some of the other page bodies. Fortunately my wife doesn't own CRM stock (neither do I for that matter — see my disclosure page) but I'm sure she'd be cross about this if she did.