Incorporated: 1999
NAIC: 511210 Software Publishers; 518111 Internet Service Providers
SIC: 7372 Prepackaged Software; 7375 Information Retrieval Services
salesforce.com, Inc. operates in the customer relationship management, or CRM, market, providing web-based applications that allow companies to share information related to their sales efforts, such as sales leads, customer information, and customer interaction. The company's service, available exclusively online, competes with CRM software that companies purchase and install on their own hardware, as well as other on-demand CRM providers. salesforce.com charges its customers a monthly fee on a per user basis, which is typically much less expensive than buying enterprise software, installing it, configuring it, and maintaining its operation. One of the first companies to offer web-based CRM services, salesforce.com serves more than 20,000 customers representing approximately 400,000 subscribers in 70 countries. Notable salesforce.com customers include IBM, Microsoft, PricewaterhouseCoopers, Nokia, Kaiser Permanente, and Dow Jones Newswires.
Origins
No single individual had a greater influence over salesforce.com during its formative years than its founder, Marc Benioff, an impassioned pitchman for a start-up venture whose lifeblood was salespeople, or rather, the companies who employed salespeople. Described as brash, gregarious, irreverent, among a long list of other flattering and unflattering adjectives, Benioff was a showman who chased publicity, preaching the dawn of a new age in the software industry. He was initially dismissed by many of his peers, who viewed his business model as incapable of generating any sort of success. A short time later, more than a few his critics were following his lead, employing the same market approach they had earlier disparaged.
Before Benioff assumed a revolutionary role in the software industry, he distinguished himself as one of the industry's rising stars. Raised in Hillsborough, California, Benioff grew up creating computer games on his Commodore 64, making enough money to buy a car, a Toyota Supra, and to put himself through college. He attended the University of Southern California, where he earned a degree in business administration while working as a programmer and salesman for Apple Computer. After college, he joined Oracle Corp., a leading developer of business software led by industry dignitary Larry Ellison. Benioff began working at Oracle in 1986, rising quickly through the company's executive ranks. He was named the company's "Rookie of the Year" at age 22, and at age 25 he became Oracle's youngest vice-president. Benioff went on to hold a number of executive positions in marketing and development, taking a particular interest in CRM software, software that enables companies to manage every aspect of their relationship with a customer. When a friend and Oracle colleague, Tom Siebel, left the company in 1993 to start a CRM software developer, Siebel Systems, Inc., Benioff invested $50,000 in the start-up venture. Unknowingly, his investment helped launch what would be his fiercest rival.
After a decade at Oracle, Benioff was ready for a change. He took a sabbatical in 1996 and traveled throughout Asia and India. Not long after his return to Oracle, Benioff began planning the start of his entrepreneurial career. His idea was to start a CRM company, but instead of selling packaged software to businesses Benioff proposed to offer CRM services on the Internet, using central servers to store customers' data. The idea ran counter to convention, prompting many industry pundits to look askance at Benioff's strategy. "People were saying, 'This stuff will never fly. Companies will never let anyone host their data,'" an early salesforce.com executive recalled in an October 2005 interview with Technology Review. "The word 'control' came up a lot." Benioff envisioned a web-based service capable of connecting salespeople, enabling users to track contacts, conversations, and other relevant client information online, eliminating the need to pay for hardware and software, as well as the installation, customization, and maintenance of the software.
Benioff hired three programmers and formed salesforce.com in March 1999. Few in the investment community paid much attention to the start-up CRM venture that was based mainly in Benioff's house, despite the accomplishments of its founder. The CRM market was a $3.2 billion business when Benioff entered the fray, and most of the attention from industry experts was paid to companies such as Siebel Systems, whose Siebel Sales Enterprise software system had created an industry titan. Benioff was well aware of the success of his former colleague: The $50,000 investment he had made in the company in 1993 had been parlayed into more than $20 million by the time he started salesforce.com, giving him the financial resources to fund his company's development. Without his own personal fortune, Benioff would have had a difficult time establishing salesforce.com, at least in the way he envisioned the company. Venture capitalists insisted that Benioff offer his customers a choice, a web-based CRM service and a self-contained CRM software package, believing that the hosted, online version would attract customers who soon would want to purchase packaged software. Benioff steadfastly refused to alter his strategy to obtain financial backing from venture capitalists. "We've taken plenty of big bets," a salesforce.com senior executive explained in an October 2005 interview with Technology Review, "and the bet we took in 1999 was that we were not going to play that game. We were going to go whole hog into the hosted model. Marc [Benioff] felt that the control issue was just an emotional issue, not really a rational issue." Benioff used $6 million of his own money and obtained $2 million from Oracle's Ellison to start salesforce.com, wholly committing himself to hosting all of his customers' data in one place.
salesforce.com Launches Its Service in 2000
It took nearly a year before Benioff could begin pointing to the superior logic of what he called "software as a service," or on-demand software. salesforce.com officially launched its service on February 7, 2000, when small businesses, the company's target audience, began signing up for online assistance in automating their sales forces. The year also marked the launch of Oracle's on-demand CRM applications, prompting Benioff to demand that Ellison vacate his seat on salesforce.com's board of directors, not the last time Benioff would clash with former colleagues. salesforce.com, which Benioff planned to take public sometime in 2000, charged $50 per five users on a monthly basis as it started out, initially limiting its service to automating sales processes online, giving salespeople the ability to click on tabs to navigate from their contact list to account information, and to sales leads. Within four months, the company's customer base totaled 5,000, with the number of clients expected to increase to 15,000 by the end of the year, a year that would pass without salesforce.com completing an initial public offering (IPO) of stock.
As Benioff set out to prove the merits of web-based CRM services, he did so with a swagger, generating as much publicity as he could to aid in his assault on convention in the CRM industry. He had his sights set squarely on Siebel Systems, which had developed into a $790 million-in-sales company by the time salesforce.com was formed. "Our objective," Benioff proclaimed in a February 21, 2000 interview with Business Week, "is to put Siebel Systems out of business." The battle against Tom Siebel, in which Benioff went as far as to stage a fake protest outside a Siebel Systems customer conference, was a two-sided affair, with Siebel firing his own salvo at salesforce.com. "There's no way that company exists in a year," he said in a June 25, 2001 interview with Fortune. Despite Benioff's bravado, he chose to be a hands-off chairman, handing the duties of running the company to another former Oracle executive, John Dillon. Dillon, who was named salesforce.com's chief executive officer in September 1999, joined the company after leading Sunnyvale, California-based Hyperion Solutions. Under Dillon's rule, the company began expanding the capabilities of its services, developing beyond sales-processes automation to present CRM tools as comprehensive as those offered by Siebel Systems and Oracle. In March 2001, the company launched a full suite of CRM applications, including new tools for customer service and marketing that enabled it to begin targeting medium-sized businesses, companies in the 5,000- to 10,000-user range.
As salesforce.com's approach to the CRM market began to win over customers, the company gained its financial footing. The company generated $5 million in revenue in 2001, a figure that would more than triple by the next year, reaching $21.5 million. The company was losing money, however, incurring a $31.8 million loss in 2001 and a $29 million loss in 2002, which, combined with the spectacular collapse of the high-technology sector, made an IPO out of the question. Just as the company began to market its CRM services to larger companies and record its first substantial gains in revenue, the relationship between Dillon and Benioff quickly fractured, leading to Dillon's resignation as chief executive officer in November 2001. Benioff stepped in, assuming day-to-day control over the company, and presided over the jump to $21.5 million in revenue in 2002, holding the titles of chairman and chief executive officer. Under his leadership, salesforce.com recorded its first profitable quarter, a momentous event announced in mid-2003, when the company registered $188,000 in net income. A second consecutive profitable quarter followed, when the company posted $127,000 in net income in the fall of 2003. Dillon, nearly two years after he left, found the results unimpressive. "I find it hard to believe that Marc is doing a good job as chief executive officer," he said in a September 1, 2003 interview with Business Week. "He's not operational. He doesn't have the wherewithal to manage people."
Public Offering in 2004
Benioff did not lack detractors, but as salesforce.com entered the mid-2000s, the performance of his company offered a powerful riposte to those who dismissed or denigrated his actions. With profits starting to come in, Benioff could entertain the idea of completing an IPO, something he had wanted to do since salesforce.com first launched its subscription service. The financial results for 2004, announced in the spring of 2004, showed the company's first annual profit, a gain of $3.5 million that prompted Benioff to file with the Securities and Exchange Commission for a conversion to public ownership. salesforce.com completed its IPO in June 2004, selling 11.5 million shares at $11 per share, netting $113.8 million from the offering. Benioff retained a 26 percent stake in the company following its IPO, which was worth an estimated $500 million by the end of 2004.
salesforce.com was beginning to hit its financial stride following the IPO. After recording $85.7 million in sales in 2004, the company collected $157.9 million in 2005, a year that saw its net income increase from $3.5 million to $7.3 million. Towards the end of the year, during the first week of October, Benioff celebrated what he referred to as "the most exciting week of my career," according to the October 5, 2005 edition of the Financial Times. Benioff explained: "Not only have we introduced our most important product, but our top competitor just disappeared." The battle between salesforce.com and Siebel Systems ended with Benioff emerging victorious, resolved when Oracle announced it was acquiring Siebel Systems. The announcement of the $5.8 billion acquisition, which was completed in early 2006, coincided with the release of AppExchange, the product hailed by Benioff. AppExchange allowed salesforce.com users to create their own applications with the company's architecture and sell them to others. "Someone in Bangalore might go home one evening and develop an application on our service," Benioff explained in an October 5, 2005 interview with the Financial Times. "They save it to a directory and charge others. Once we had two on-demand applications and now we have 70 and soon we will have thousands."
As salesforce.com prepared for the future, the business model once dismissed as unviable stood as a model copied by a host of competitors. The company faced stiff competition not only from industry giants such as Oracle but also from other web-based CRM companies, each jockeying for market share in a rapidly growing market. Spending on on-demand software was expected to grow 25 percent per year during the second half of the decade, reaching $9 billion by 2008, or nearly three times the volume of business recorded when Benioff formed salesforce.com. As Benioff marshaled his forces to grab market share from his competitors, the release of the company's annual financial results in March 2006 provided compelling evidence that the company stood on a sound foundation. Revenues swelled to $280.6 million, up markedly from the $157.9 million generated in 2005, but the year's most impressive result was the increase in net income, which nearly quadrupled, reaching $28.4 million.
Principal Subsidiaries
Kabushiki Kaisha salesforce.com (Japan); SFDC (EMEA) Limited (Ireland); SFDC International Limited (Ireland); SFDC Ireland Limited; salesforce.com SARL (Switzerland); SFDC UK Ltd.; SFDC Luxembourg SARL; SFDC Australia Pty. Limited; SFDC Singapore Pte. Ltd.; salesforce.com Canada Corporation; salesforce.com Information Technology (Shanghai) Co. Ltd. (China); salesforce.com Germany GmbH; salesforce.com Hong Kong Ltd.; salesforce.com India Pvt. Ltd.; SFDC International Ltd. (U.K.); salesforce.com, LLC; SFDC Mexico S. de R.L. de C.V.; salesforce Spain, S.L.; SFDC Sweden AB.
Principal Competitors
Oracle Corporation; FrontRange Solutions Inc.; Sage Software, Inc.
Further Reading
Drachman, Elizabeth, "Salesforce.com Vying for Its Piece of the Industry Pie," San Francisco Business Times, June 23, 2000, p. 29.
Hamm, Steve, "Who Says CEOs Can't Find Inner Peace?," Business Week, September 1, 2003, p. 77.
Liedtke, Michael, "Salesforce.com's Stock Soars in IPO Debut," America's Intelligence Wire, June 23, 2004.
Lohse, Deborah, "CEO's Interview Leak Stalls IPO for Software Leaser Salesforce.com," San Jose Mercury News, June 5, 2004.
Panja, Tariq, "Salesforce.com Runs Up Against the Big Dogs," America's Intelligence Wire, March 7, 2006.
Roush, Wade, "The Customer Is Sometimes Wrong," Technology Review, October 2005, p. 36.
"Sales-Force.com: An Ant at the Picnic," Business Week, February 21, 2000, p. 76.
Temple, James, "Salesforce.com Hooks Big Fish with New Apps.," San Francisco Business Times, March 9, 2001, p. 6.
Wilson, Lizette, "Salesforce.com Switches from Small Fry to Big Guy," San Francisco Business Times, October 5, 2001, p. 19.
— Jeffrey L. Covell
