Salesforce and the Third Chapter - on towards $20 billion, says Benioff

Do we have a winner? In what? Well, in the on/off ‘who’s going to get to $10 billion cloud run rate first?’ battle.

It was a challenge laid down by Oracle CTO Larry Ellison, who has spent several quarters now insisting that his firm’s cloud growth rate is such that it will outstrip Salesforce.

In the event though, it was Salesforce CEO Marc Benoff who declared victory yesterday, posting a triumphant boast on Twitter (see right). He later told Wall Street analysts:

Salesforce is the first enterprise cloud software company in the history of the industry to reach the $10 billion run rate. No competitor has pierced $10 billion this fast, not Oracle, not Microsoft, not SAP…We now set our sights on $20 billion.

Officially Salesforce is predicting a full year growth rate of 24%, although Benioff admitted he’s hoping for a bit more:

I have personal dreams of 25%. I think that would be amazing. No software company went through the $10.4 billion number at these rates. And so when we had a chart couple of weeks ago, Microsoft’s growth over 30 years, Salesforce’s growth, Oracle’s growth, SAP growth and wow, we really separated ourselves from those traditional growth trajectories. And I feel that that’s going to continue to happen.

Leaving aside the $10 billion hoo-hah, the second quarter numbers were solid. Revenues of $2.56 billion were up 26% year-on-year. Subscription and support revenues were $2.37 billion, also up 26%, while professional services and 'other' revenues added up to $193 million up 28% year-on-year. Net income was $17.7 million, sharply down over 90% from $229.6 million last year, the drop attributed to a favorable tax return last year.

Growth rates across the various clouds in the portfolio were healthy - Sales Cloud up 17% Service Cloud 21%, Platform up 32% and Marketing Cloud up 57%.

Not standing still, was a message that came across strongly from Benioff and Salesforce President Keith Block, with Benioff stating:

We took our whole management team offsite two weeks ago to lay out our plan for what we call Chapter Three. Chapter One for us certainly was zero to $1 billion. It’s well documented in the book Behind the Cloud, how we did it, what we did, all of those capabilities. We want to write a second book now for entrepreneurs of what we did from $1 billion to $10 billion. We think that’s an important story that needs to be told. That’s certainly Chapter Two. Now, we’re in Chapter Three, which is to go from $10 to $20 billion.

Learnings

Lessons have been learned across the first two chapters and, perhaps with that new book in mind, Benioff flagged up some of his learnings:

One of the things that we have done to…make sure that we blast through $10 billion is to focus on customer success. I think a lot of mistakes that the other entrepreneurs have made…in enterprise software specifically, it’s not to really double down at this point, again on the customer. [You] get absorbed in your own myopia, get absorbed in your corporate politics, get absorbed in your corporate bureaucracies and yourselves. [You need to] try to break out of yourself and recognize the most important thing continues to be the customer.

When you’re an enterprise software, you have to realize, it’s hard work, not everything is going to be perfect all the time, there is going to be problems. That’s why being so committed to the customer I think is more important than ever. And I think that’s why you’re going to see extraordinary growth for years to come, because of this culture that’s really driving it forward.

It’s also a culture that has remained true to its core business of CRM even while expanding its functional footprint over the years, argued Benioff:

I have to say our competitors have really done a horrible job in last few years. I just would say that a lot of them have abandoned the CRM market. If you talk to the major CRM analysts…they are shocked, we’re shocked, at how these companies have really walked out of the CRM market, companies that had huge mult-ibillion dollar positions in CRM have ceded that market to us.

Block also played up the firm’s track record to date:

If you look at the history of software, most companies are lucky to have a great first act but Salesforce is a company that’s had a great first act with Sales Cloud, a great second act with Service Cloud, a great third act with Marketing Cloud, a great fourth act with Platform, and we continue to innovate for our customers and we speak the language of the customer.

He noted that customer wins in the second quarter cited included an expansion of an existing deal with retailer Carrefour, a Commerce Cloud deal with Sephora Europe, an expansion with New York Life to roll out Sales Cloud and Service Cloud to another 6,000 agents and customer service specialists and a Marketing Cloud win with HSBC globally across its retail and wealth management divisions to create personalized banking experiences for customers.

For his part, Benioff picked out Louis Vuitton as a prime example of a customer using multiple Salesforce clouds:

I’m wearing this amazing new Louis Vuitton watch today. Tthis Louis Vuitton watch is connected to something called LV Pass, which is the Louis Vuitton app that helps me manage all of my Louis Vuitton products. That is built on Heroku.All of the CRM data for Louis Vuitton is built and managed inside our core platform, and all of it is deeply integrated. So, when I walk into a Louis Vuitton store, they know who I am, they know all the products that I bought, like the watch, or my carry-all or whatever it is that I like of their products, and I am managing it all through that Heroku app on my phone with all LV Pass.

That’s a great example of our platform strategy where we let customers build highly complex applications, like Louis Vuitton with their icon app. You can see that inside any Louis Vuitton store, when you go into work with a Louis Vuitton account executive, and you can see it yourself as a consumer, with Heroku when you use LV Pass on your phone.

My take

The problem with the $10 billion celebrations and the ‘onwards to $20 billion’ cry is that, while it’s quite undoubtedly an achievement to be marked out, it does set expectations higher and higher - and can lead to disappointment.

For all the triumphalism on the analyst call yesterday, Wall Street seems to have gone away feeling somewhat ‘meh’, with the share price actually taking a brief dip. But with the annual Dreamforce jamboree looming in November, these are second quarter numbers that send the firm forwards on a front foot.

One last thing of note. On the back of events in Charlottesville last week, it was gratifying - and entirely within character - for Benioff to pause the $10 billion fireworks and take a few minutes at the start of the analyst conference call to make a firm declaration of Salesforce’s stance:

As the world has watched with all of us the horrors of the last week taking place in the United States and Spain. The pure hatred that we have seen displayed is everything we all want to end. And I’ve been especially disheartened to see the display of symbols of hatred including Nazi flags and salutes to KKK hoods. The horrible tragic death of Heather Heyer was a senseless act of terror and this hatred must end now.

Salesforce is a company that is built on the values of love, equality and generosity. We work hard every day to improve the state of the world through our own work and promote our Company’s mission to others. We all have to recommit to our own personal acts of love and kindness as this is the only way to fight this pure hatred. We can all make our own choices between love and hate, and we can all love more. Now is the time for all of us to remember, ‘Love thy neighbor as thyself’.

 

See also diginomica/government - Public sector cloud spend is back, says Salesforce CEO Benioff