October 2005

The Customer Is Sometimes Wrong

Continued from page 2

By Wade Roush

The migration of a host of other businesses from Siebel and other CRM providers to Salesforce has given the company the lion's share of the market for Web-based CRM services.

The company increased its customer base by 40 percent in 2004, from 9,500 to 13,300, according to Forrester Research. Quarterly revenues almost doubled between its first quarter of 2004 and the same quarter a year later, from $35 million to $64 million, with profit margins hovering at about 5 percent. And Wall Street has rewarded the company handsomely, pushing its stock price from $11 per share at the time of its June 2004 initial public offering to about $24 per share in July 2005.

Siebel Systems still sells more CRM software overall but is struggling. Founded in 1993 by another Oracle alumnus, Tom Siebel, the company was initially dismissive of Salesforce.com's chances. Lately, however, the company has been following an "if you can't beat 'em, join 'em" strategy, purchasing a hosted-CRM company called UpShot in October 2003 and rolling out an on-demand version of its own CRM software. But it may be too little, too late: Siebel's stock has plummeted from more than $100 per share in late 2000 to less than $10 this summer, and the company posted a $50 million loss for the second quarter of 2005.

Now that the market has validated Benioff's original bet, the company has begun encouraging customers to develop their own complementary programs. It's already given them a software tool called CustomForce, which ensures that their custom modules will run on the operating system underlying Salesforce.com's entire product line, called SForce. Then there's MultiForce, a user interface improvement that lets customers toggle between Salesforce.com's sales and support software, their own in-house applications such as e-mail and spreadsheets, and new applications developed by Salesforce.com partners.

If that combination sounds familiar, it's no accident. Clarence So likens Multiforce to Microsoft Windows and CustomForce to Visual Studio (Microsoft's tool for developing Windows programs). In fact, Benioff has made no secret of his ambition to build Salesforce.com into the Microsoft of Web services. "Our big bet now is that this is really going to be as big as Microsoft was in the client-server world, and as IBM was in the mainframe world," says So.

Salesforce has attracted believers who say that as long as Benioff is in charge, the company has a shot at the big time. "Without question, his personality and his will to make this company grow and validate this space have been absolutely critical," says Nick Blozan, a senior vice-president at OpSource, a Santa Clara, CA-based company that manages software delivery for software-as-a-service providers. "He's the right guy at the right time. He's pointing out that there are fundamental dissatisfactions with the old model, and I think you'll continue to see all of this accelerate."