There’s “tremendous appetite” for generative AI-enabled offerings, according to Salesforce execs, as the firm turned in a solid start to its latest fiscal year.
For Q1 fiscal 2024, Salesforce turned in a profit of $199 million, up from $28 million a year ago, on revenue that was up 11% year-on-year to $8.25 billion. On the post announcement analyst call, CEO Marc Benioff reminded investors that back in March Salesforce had:
...radically accelerated our transformation to profitable growth. We shared with you how we hit the hyperspace button across the key areas of our transformation, restructuring for the short and long-term, reigniting our performance culture by focusing on productivity, operational excellence, and profitability, prioritizing our core innovations that drive customer success, building even stronger relationships with you, our investors.
The Q1 results show progress, he added, but that transformation is still ongoing, with improving profitability as the main priority:
We continue to scrutinize every dollar investment, every resource, and every spend, and we're transforming every corner of our company.
While the Q1 numbers were good, Chief Operating Officer Brian Millham provided a reminder of the current uncertainties in the macro-economic environment:
Customers continue to scrutinize every deal, and we see elongated deal cycles and deal compression, particularly in our more transactional revenue streams, like SMB, create-and-close, and self-serve. Also in Q1, our professional service business started to see less demand for multi-year transformations, and in some cases delayed projects as customers focused on quick wins and fast time-to-value.
That said, there’s also expansion of the Salesforce footprint within enterprises, he added, citing a stat that more than 90% of Fortune 100 companies use an average of five of the firm’s clouds.
But it was the company’s push around generative AI that took up the lion’s share of the post-results call, with Benioff declaring:
The coming wave of generative AI will be more revolutionary than any technology innovation that's come before in our lifetime or maybe any lifetime. Like Netscape Navigator, which opened the door to a greater internet, a new door has opened with generative AI and it is reshaping our world in ways that we've never imagined. Every CEO realizes they're going to have to invest in AI aggressively to remain competitive…Every CEO I've spoken with sees AI as a revolution beginning and ending with the customer, and every CIO I've spoken with wants more productivity, more automation, and more intelligence through using AI.
Every other sales call I've made in the last quarter, there's only one thing that customers want to talk about, and that's Artificial Intelligence and specifically generative AI. Of course, we have been a leader in this area with Einstein, more than 1 trillion transactions delivered this week, but these are primarily predictive transactions built on machine intelligence, Machine Learning, and Deep Learning. But in 2018, Deep Learning evolved and became much more sophisticated and became generative as these neural networks expanded their capabilities, and also the hardware went to another level as well.
But this new wave of AI needs to be based on a foundation of trust, he cautioned:
Our customers need to understand where their data is going and they must be able to maintain data integrity and access and privacy controls. Large customers must maintain data compliance as a critical part of their governance, while using generative AI and LLMs [Large Language Models]. This is not true in the consumer environment, but it is true for our customers, our enterprise customers who demand the highest levels of this capability
Customers who have used relational databases as the secure mechanism of their trusted data, already have that high level of security to the row and cell level, he went on. Meanwhile Salesforce has built a trust layer into Einstein GPT:
The GPT trust layer gives connected LLM secure, real-time access to data, without the need to move all of your data into the LLM itself. It's an incredible breakthrough for our customers [who are] working with LLMs in a secure and trusted way. While they're using the LLMs, the data itself is not moving and being stored in the LLM. That is what our customers want. They can be sure that the customer data is where they know it is, where they can be assured that it is for their compliance and for their governance.
Benioff cited the example of the CEO of an unnamed bank, whose primary focus is on productivity:
He knows that he wants to make his bankers a lot more successful. He wants every banker to be able to rewrite a mortgage, but not every banker can, because writing the mortgage takes a lot of technical expertise. But as we showed him, through a combination of Tableau, which we demonstrated, and Slack, which we demonstrated, and Salesforce's Financial Services Cloud, which he has tens of thousands of users on, that banker understood that this would be incredible.
But I also emphasized to him that LLMs have a voracious appetite for data. They want every piece of data that they can consume, but through his regulatory standards, he cannot deliver all that data into the LLM because it becomes amalgamated. Today, he runs on Salesforce, and his data is secure down to the row and cell level…there’s all types of security provisions and regarding who can see what data about what account or what customer. And when you put it into an LLM, those permissions are not understood.
So, that is a very powerful moment to realize that the way that LLMs operate is in a way a state where they're kind of consuming all this data and then giving us that information back out. Well, that’s Salesforce's opportunity.
The Q1 numbers indicate that the promised commitment to transformation and focus on profitability is paying off, but there’s much more to come. CFO Amy Weaver emphasized that there are two stages, beginning with the initial benefits seen in the past quarter. The second, long term stage will be based around the currently ongoing operating and strategy review:
We've been doing this end-to-end comprehensive operating and go-to-market review. The entire company has been involved in that. There's really no stone unturned. We're getting close to the end of that process, and then we will be moving into the implementation. You'll be hearing more about that in future quarters.
What’s likely to emerge here, according to Millham, will be oriented around process and systems improvement:
One of the things that we're talking quite a bit about right now is pricing and packaging, bringing together logical products that we can be selling in a single motion versus our go-to-market, which is largely aligned by product, how do we focus on a larger average deal size for every transaction, and so big investments on that front, really a strong focus on productivity as it relates to moving people up market as well. We're thinking about self-serve in the bottom end of our market. How do we drive a self-serve motion, automated motion at the low end of our market to bring our account executives upmarket to drive higher productivity in the sales organization?
It's clear that a rather different Salesforce operating model is taking shape. Watch this space.