Salesforce.com: Why the model is working

Salesforce.com reported strong fiscal fourth quarter results and indicated that it is notching some wins against the large software vendors. Why are things falling in line for Salesforce.com?

First the numbers, Salesforce.com reported fourth quarter earnings of 6 cents a share on revenue of $216.9 million, up 50 percent from a year ago. For the year, Salesforce.com reported revenue of $748.7 million with earnings of 15 cents a share. The results topped expectations easily. But the real tell was Salesforce.com's deferred revenue, which indicates demand in the pipeline. Salesforce.com management said that the company hit $1 billion in on- and off-balance sheet deferred revenue. The message: Salesforce.com's pipeline is strong.

For fiscal 2009, Salesforce.com projected revenue between $1.03 billion to $1.035 billion with earnings in the range of 32 cents a share to 33 cents a share.

So what's working at Salesforce.com? Here are a few thoughts:

You can ease into SaaS. My working theory is that Salesforce.com has an edge in SaaS given that it has the ability to ease you into their on-demand model. Customer relationship management software is a no-brainer for on-demand delivery. From there, Salesforce.com can get customers to try other stuff on its platform. Before you know it, Salesforce.com has enabled a de facto ERP suite.

Salesforce.com is getting some enterprise mojo. CEO Marc Benioff noted a few key wins in the quarter on the company's earnings conference call.

We are a winning business and virtually every industry vertical in all geographies and some of the most influential companies in the world. As we announced on our last call, Citigroup that our fourth quarter is off to a fast start by signing with us in early November. They are developing a new wealth management desktop to enhance their client advisor relationships and Salesforce.com beat Oracle to be a core piece of that strategy. In all, more than 30,000 wealth managers and loan professionals at Citibank will soon be enjoying the benefits of Salesforce.com.

I'm also excited to announce today that Aon has become our seventh customer to top the 10,000 subscriber thresholds with more than 11,000 subscribers. Also a direct win against Oracle, Aon was a pioneer by becoming one of the first enterprise customers to deploy Salesforce.com at scale and today they remain one of our most sophisticated customers. It's been exciting to watch them grow. But our success in financial services was not limited to Citi and Aon.

During the fourth quarter, private financials selected Salesforce.com over Oracle and First Citizens Bank & Trust chose Salesforce.com over Microsoft. We also won significant new opportunities at Lincoln Financial, Genworth Financial and as we announced last month at AIG Casualty. In some of our largest financial services customers grew even larger this quarter with subscriber addition or upgrade activity at Mizuho, Sampo, Wells Fargo, Thompson, Hartford Life, GMAC, AmeriCredit and Alliance to name a few.

The SaaS pitch may be easier amid an IT spending slowdown. Notice those aforementioned wins. They come from financial services companies--the same ones that have been crushed amid the credit crunch. The takeaway: SaaS is an easier sell than a big implementation that may go wrong. And folks want predictable budgets.

Salesforce.com has already made its mistakes in the cloud computing game. There's something to be said for a cloud computing company that already had its outages and learned about customer transparency. "Hey, we screwed up and learned from our mistakes" isn't exactly a good sales pitch but it is a factor when selling to large businesses.