It’s been an interesting/difficult/transformative year for Salesforce - delete as applicable. The firm exits 2023 having ridden out top level exec changes, fended off activist investors, implemented painful job cuts and delivered on an operating model more focused on profits and margins.
Yesterday’s strong Q3 numbers are another indicator that the ongoing transformation is paying off. The company turned in a net income of $1.22 billion, compared to $120 million for the year ago quarter, while revenue was up 11% year-on-year to $8.72 billion.
On the post-results analyst call, CEO Marc Benioff commented:
It's more than just a great year; it's also a huge year of transformation…It's exactly a year ago, as you remember - or maybe I'd like to forget exactly how crazy that year got, it was a really unusual year - but we knew we had to change. We knew there had to be transformation. We knew there were things that [we] had to get done. We [knew] that we were going to have to restructure our business for the short and long term. We knew we had to focus on increasing profitability, productivity, operational excellence across the board. We knew that.
A number of things have emerged across this year, he added, including a return to much larger transactions. Nine of the top ten deals in Q3 involved six or more Salesforce clouds:
We have 80% growth in deals more than $1 million. That is far exceeding our expectations, that we were able to pull together all of these different clouds into this kind of what we call a cocktail. Customers were wanting to buy Tableau, Slack, MuleSoft, Data Cloud, Sales Cloud, Service Cloud, all that we're able to build [for] these big transactions. There's no question that that kind of fell off last year. Now to see that come back, that is just really exciting.
Then there’s the rise of Data Cloud, which chalked up a thousand new customers during Q3 and was part of six of the top ten deals in that period, according to Benioff:
This hyper-scale, this real-time Customer Data Platform that is performing incredibly well for us, it's the foundation of every AI transaction, but it's the foundation of every large deal that we did this quarter. That is what is so exciting. In just our third quarter, Data Cloud has ingested an astonishing 6.4 trillion records. That’s [a] 140% year-over-year increase. It triggered 1.4 trillion activations, a 220% increase year-over-year.
This is a monster product…we didn't really understand that it was going to line up so well with this generative AI revolution. It's a product we've been working on for a couple of years. Just the timing of it has been incredible because, listen, if you don't have your data together in a company, you're not going to deliver AI. It's not like companies are going to run their AI off of Reddit or off of some kind of big public data set. They have to have their data set together to make AI work for them, and that is why the Data Cloud is so powerful for them.
Benioff also pointed to the Einstein GPT Copilots that have been introduced in 2023:
This is a product we didn't really even have an imagination of around a year ago. Of course, we had Einstein [AI]. Of course, we could see the incredible growth of Einstein. Now, Einstein, with predictive and generative combined, is doing 1 trillion transactions a week. That’s amazing. But more amazing is that 17% of the Fortune 100 are now Einstein GPT Copilot customers. And this is a product that is just coming to market. Everyone is so excited about buying this product.
That 17% figure was picked up on by Chief Operating Officer Brian Millham when he observed:
It is early days…a lot of our customers are starting to trial and use this technology to see the benefits around productivity and cost takeout, leveraging the technology. But as we’ve also said, the data is an important aspect of this. How do they clean up and harmonize their data first before they start to roll out these AI technologies broadly? How do you trust the output that you’re getting from your AI investments?
So what we [have] found in conversations with our customers is an energy around and excitement around AI, but a need to clean up the data first before they can really take advantage of this. We’ll continue to see the expansion. The 17% is great. We want to continue to go faster there, and we’re going to work with our customers to go drive those outcomes.
This excitement, this energy, these ideas of innovation of AI were not in place a year ago. Because don't forget, a year ago, I don't think any of us had used ChatGPT or Bard or Anthropic or Cohere or Adapt or any of the new AI companies. None of us had really had our hands on or envisioned what it really meant to us or that we would have Copilots, and that those Copilots would give us the ability to do all kinds of next-generation capabilities. But a year later, it's a technology revolution.
But it’s also important to see AI as a driver of a productivity revolution, he argued, citing a recent experience with retailer Louis Vuitton in Tokyo as a case in point:
They use this amazing app that they've built with our platform called ICON. They've done an incredible job. They have my full customer data and buying history. The sales executives are guided on how to work with me and what kind of products I'm interested in and what I want to buy. It's a productivity revolution for them. They are able to get a lot more success with our technology.
And I walked into another store which is not one of our customers and I have to follow up still with the CEO because, wow, the customer experience was just Oracle. It was the exact opposite. They didn't know anything about me. They couldn't work with me at all. It took probably the salesperson three or four or five times as long to complete the transaction because they did not have the automation. The product revolution had not come to this company.
Millham also highlighted how the firm continues to evolve its ecosystem of ISVs and partners, citing this week’s announcement of an expanded relationship with Amazon Web Services, which sees Salesforce offering a number of its products to US customers, in the first instance, through the Amazon Marketplace:
It marks a significant milestone in the evolution of our global partnership with Amazon, deepening the integrations between AWS and Salesforce products. We're bringing together the number one AI CRM and a leading public cloud provider to deliver an open integrated data and AI platform to make it easy to find, buy and manage Salesforce products to the AWS Marketplace.
That plays into a wider goal moving forward of continuing transformation, he added:
We want to continue to simplify our go-to-market strategies, how we optimize our pricing and packaging going forward as well. We talked about some of the things that we're doing there. New channels to market. We're really excited about the AWS Marketplace as a new channel to market for us.
Coming up in 2024, Salesforce will celebrate its silver jubilee in early March. It’s a big milestone. Or as Benioff put it in relation to Data Cloud and AI:
It's a very interesting moment for Salesforce. I think the demonstrations at Dreamforce [this year] were outstanding. The demonstrations that we'll deliver in our February release will be mind-boggling for our customers [in terms] of what they will be able to get done. And I think that by the time we get to Dreamforce in September ’24, what we'll see is nothing that we could have possibly imagined just 24 months earlier before these breakthroughs in generative AI [that] have really taken hold through the whole industry.