Salesforce’s Benioff Takes on Wall Street

NEW YORK — co-founder and CEO Marc Benioff arrived here to bring his insurgent message to the press and to Wall Street.

Speaking yesterday in a room at the Sheraton New York Hotel & Towers packed with clients, prospective customers, partners, analysts, bloggers (there was a Jeff Jarvis sighting), and press, Benioff mapped out the company’s efforts to financial analysts while — perhaps more importantly — seeking to make a case for large enterprises to shell out for his company’s services amid one of the worst economic downturns in recent memory.

As usual, there were also shots at the expense of those who compete with Salesforce in CRM, customer service automation and cloud services. One Salesforce customer told Benioff she’d used Siebel before switching to Salesforce. “I’m not familiar with it,” he quipped.

When another business owner said he had previously worked for SAP, Benioff asked, “Is that a tech company?”

And when describing companies with offerings that could rival Salesforce’s cloud platform, he said that Microsoft merely “might have something that will work,” referring to its Microsoft Azure product.

Benioff did not have harsh words for all. Describing the rollout of an app called Salesforce Genuis that helps users search the archived slide decks of their colleagues by incrementally adding search criteria, Benioff said, “we stole that idea out of iTunes.”

The aggressive performance came just a month since the departure of several key executives raised questions as to whether the company might be cutting costs in anticipation of slower future growth. In the case of Salesforce, cutting costs in earnest could mean cutting marketing.

Money where his mouth is

That’s because the competition isn’t only getting hit with sharp words — Benioff has committed cash to growth through sales and marketing. Sales and marketing expenses for Salesforce for its 2008 fiscal year totaled $534 million, according to the company’s annual report, which was released on March 9.

That’s roughly equal to half of the company’s revenues, which were $1.07 billion. There was little cash left for profit: The company reported a net income of $43 million for the year.

Subscription revenue has grown at an explosive rate, a rate that likely justifies spending heavily on marketing, and on publicity such as the day’s event. Subscription revenue reached $985 million in 2008, up from $681 million in 2007, and from $452 million in 2006. Marketing spending has grown at a similar pace, however. Still, the company has plenty of firepower in the bank, claiming $883 million in liquid assets at year’s end.


With marketing spending still sizable and the prospect of slowing growth on the horizon, it’s no surprise that Benioff found himself here, making a pitch to companies who, despite the downturn, remain some of the biggest spenders on datacenter software.

[cob:Special_Report]In particular, talking up Salesforce’s architecture was a key focus during yesterday’s event, which Benioff said marked the first time he had discussed the topic.

For Benioff’s prospective customers, the talk aimed to illustrate the security and resiliency of Salesforce’s cloud-based architecture, but also the cost savings it offers cash-strapped firms — who can outsource expenses associated with datacenter management, security and infrastructure.

Page 2: Making the case

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Benioff said Salesforce operates two datacenters — its chief one on the West Coast, a backup on the East Coast, and a third “coming soon” in Singapore. The setup is designed at least in part for compliance: Benioff said that Salesforce adheres to ISO 27001, and his presentation listed several more: SAS 70 Type II, SysTrust and FDA CFR Part 11 and Part 820. Security measures include motion detectors, biometrics, and year-round, 24-hour security staff.

Security is a big selling point. Naminder Singh of SaaS consulting firm Appirio said that the business processes his company had built in software, added to Salesforce’s security expertise, proved “accelerators to the due diligence process” when his company raised money from venture capitalists.

Salesforce also said its applications are built for speed and reliability, claiming 99.9 percent uptime and less than 300 ms latency. Craig Weissman, Salesforce’s chief software architect, said that the software runs on about 1,000 PCs worldwide running 10 databases, with about 50 servers per database, and 50 more for backup.

Its database architecture, he said, is a “flex schema on steroids,” in which everyone’s data is in one table, but each customer’s data can be extracted by referencing tables of metadata containing that customer’s custom fields and objects.

Relying on the approach can speed queries. For example, if you want to select data based on two criteria, the system uses a query optimizer to determine which of the two are more selective, thereby searching fewer records.

“We are good at loading massive amounts of data,” Weissman said.

It’s also a system built to scale, Benioff was eager to point out. When you build a custom app, add a million users to a Web site such as My Starbucks Idea, which runs on the platform, security and scalability are built in. They also mean that big projects can be built fast: With Appirio’s help, Starbucks launched the Web site in 21 days.

All that is meant to prove an irresistible selling point to financial companies now wrangling with one of the most brutal climates they’ve faced in decades — and most of whom are cutting back dramatically on IT projects.

Yet, the economic downturn could also be an incentive to explore Salesforce’s brand of software-as-a-service. At least, that’s what Benioff and company are hoping.

“We are in the eye of the storm,” said Andy Brown, managing director of Bank of America/Merrill Lynch, who took the stage on Salesforce’s behalf. “My contention is that innovation happens in tough times, with reduced budgets. When we look back in a few years, we will see that now was the tipping point.”

“Every technology has its day,” he added. “The nineties was the era of Web 1.0, and now is the era of the cloud.”

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