Service Cloud narrows the gap on Sales Cloud as Salesforce taps into a CEO agenda for a growth era

Profile picture for user slauchlan By Stuart Lauchlan June 5, 2019
Summary:
A strong start to fiscal 2020 for Salesforce as the CEO world drills down on growth and re-skilling.

Salesforce co-CEO
Benioff and Block

Back in October last year, Phil Wainewright posed the question - How soon will Salesforce Service Cloud outgrow Sales Cloud?  Yesterday we got a clue.

The firm’s Q1 earnings announcement revealed that Service Cloud grew 20% year-on-year to turn in $1.02 billion for the quarter. That's an important milestone as co-CEO Keith Block noted:

For the first time ever, Service Cloud exceeded $1 billion in revenue for the quarter, becoming our second cloud. That is pretty awesome, right?…it is becoming our second cloud to surpass an annual revenue run rate of $4 billion.

Sales Cloud was still ahead for the quarter on $1.07 billion, but the gap is narrowing with a lower growth rate of 11% year-on-year. As Phil noted previously:

Widespread adoption of marketing automation and digital commerce, alongside a trend towards nurturing long-term, digitally connected customer relationships, stimulates enterprise investment in customer service automation at the same time as de-emphasizing the importance of sales force automation.

Overall Q1 revenues grew 24% year-on-year to $3.74 billion, while earnings were $392 million. By cloud outside of Sales and Service, Platform and Other grew 43% year-on-year to $842 million, while Marketing and Commerce Cloud rose 33% to $561 million. By region, growth year-on-year was 25% in the Americas, 27% in Asia Pacific and 32% in EMEA, all in constant currency.

Customers

As is now the norm on earnings calls, Block focused in on some of the bigger customer wins for the quarter:

We've built and strengthened relationships with some of the leading companies around the world including Tokio Marine Holdings, one of Japan's largest insurance providers. They're standardizing sales and service and marketing on Salesforce which is very, very cool. And they also were deploying Financial Services Cloud to a million of agents in over 50,000 agencies.

We also expanded with Hera Group, an Italian utility company. This is a company that is serving over 4.4 million citizens. And we also formed a new relationship with People's Choice Credit Union, one of the largest credit unions in Australia. We can see this as an ongoing phenomenon globally. We continue to deepen our relationship with the US Federal Government. The Department of Education recently selected Salesforce as its platform to modernize and streamline the experience of millions of citizens with federal student loan.

Southwest Airlines, which has won awards for their world-class customer service, is creating an entirely new employee experience with a centralized knowledge and to build on Salesforce using certified communities. Southwest is transforming delivery of their HR services with new sales service chat and mobile capabilities for more than 60,000 employees.

CEO agenda

Digital transformation agendas are expanding and opening up new opportunities, reckoned co-CEO Marc Benioff:

I have just been really impressed with how every CEO and really C-suite [exec] that I'm talking to is actually quite obsessed with digital transformation. I think they all see the tremendous revenue growth opportunities now from these new technologies. Maybe they didn't understand what blockchain was, maybe they didn't understand AI, maybe they didn't understand some of the subtleties of mobility and all of the opportunity, but something [changed]  that in the last, I would say, 18 to 24 months.

I think that CEOs have very much become Chief Information Officers or Chief Digital Officer themselves, and we're now rolling into that level of executive. And because of that, I think they really have the ability to transform their companies. In many cases, those visions are not coming from middle managers who are obviously deeply involved, but from the chief executives or C-suite themselves.

In fact, added Block, given CEOs have to redefine their roles in the process, this is where the myTrailhead training program offered by Salesforce comes into play:

Every CEO has this something that is top of mind besides digital transformation and that is around their workforce development and their re-skilling. That's why myTrailhead is so powerful. When you think about the digital transformation that these CEOs are going through, whether it's in the United States or whether it's internationally, responsible CEOs are thinking about how do they absorb this amazing technology? How do they re-skill their workers as they think about digital transformation? How do they act responsibly from a social perspective because if you think about it, these CEOs, they're in charge of tens of thousands, hundreds and thousands of people, and they care about their people?

We have special programs with companies all over the world to talk about how they re-skill the workforce. I mentioned in the opening comments the meeting I had with the CEO of Telstra and his executive team and how concerned they were about the modern reports and what they wanted to do with our reskilling their workforce. Marc and I have the same conversations with CEOs all over the world.

Among adopters of myTrailhead, Block cited Accenture and Australian telco Telstra as cases in point:

Accenture selected myTrailhead, this is very important, [with] their culture of continuous learning and provide top talent for their clients business and leveraging custom content for re-skilling employees on topics like Artificial Intelligence, networking and leadership development….I was recently with [Telstra’s] CEO and board discussing the strategic importance of reskilling the workforce. It is the common theme and its top of mind for every CEO in the world. It comes up in every single conversation.

My take

A strong start to the new fiscal year, even if some commentators seemed down on the forward guidance. Block put the case that this is a growth era and that’s driving the CEO agenda:

When you think about what's important to a CEO besides taking care of their employees, they're thinking about growth. We're not in the age of cut your way to prosperity anymore, that's a 20-year-old phenomenon. This is really about growth.

For his part, Benioff was pretty upbeat on the macro-economy, despite detecting some nervousness among customers and prospects around the chances of a US trade war with China:

We're still in a very strong economy. Maybe this is not 2018 economy, but it's a 2017 economy. I think last year, of course, we have that radical crazy acceleration because of the tax cuts, but there's still a strong buy-in emotion by all CEOs. But I will say that I think they do all have some anxiety around what's going on with this trade situation. And even in a customer that I was with as early as last week, I think are not very happy with how that could potentially impact them. But I don't see it coming in on the economy right now.

Assuming they’re both correct, the indicators are that Salesforce remains on track to pass its next revenue milestone of over $16 billion revenues in fiscal 2020.

Now, let’s see how quickly Service Cloud does indeed overtake Sales Cloud…