Business Tech

This was originally published at ZDNet's Between the Lines.

Salesforce.com delivered strong second-quarter results and upped its financial targets for fiscal 2010.

The software company on Thursday reported net income for the fiscal quarter, which ended July 31, of $21.2 million, or 17 cents a share, on revenue of $316 million, up 20 percent from a year ago. Wall Street was expecting earnings of 15 cents a share on revenue of $312.7 million.

In a statement, Salesforce said that it added 3,900 net paying customers to hit a total of 63,200. Net paying customers are up 32 percent from a year ago.

In addition, Salesforce's financial targets were in line with estimates or better than expected. To wit:

• Salesforce is projecting third-quarter earnings to be 15 cents a share to 16 cents a share on revenue of $323 million to $324 million. Wall Street has been looking for earnings of 15 cents a share on revenue of $319 million.

• For the fiscal 2010, Salesforce sees revenue between $1.27 billion and $1.28 billion. Earnings will be 60 cents a share to 61 cents a share. Wall Street has been expecting earnings of 60 cents a share on revenue of $1.265 billion.

By the numbers:

• Deferred revenue in the second quarter was $549 million, up 14 percent from a year ago.

• The company had $1.03 billion in cash, cash equivalents and marketable securities as of July 31.

• Salesforce ended the second quarter with 3,653 employees, up from 3,607 in the prior quarter.

This was originally posted at ZDNet's Between the Lines.

Updated: Salesforce.com on Thursday delivered a strong fiscal first quarter, but delivered a mixed outlook where it raised its earnings projections based on cost cutting yet pared its revenue forecast. Meanwhile, Salesforce.com's deferred revenue tally was lower than expected.

Salesforce.com reported fiscal first quarter earnings of $18.4 million, or 15 cents a share, on revenue of $304.9 million, up 23 percent from a year ago. Wall Street was expecting earnings of 11 cents a share on revenue of $304.7 million.

The company said in a statement that it added 3,900 new customers in the quarter to bring its total to 59,000. Meanwhile, the company raised its outlook for the second quarter and fiscal 2010. Analysts had expected a rocky first quarter. For instance, Piper Jaffray analyst Mark Murphy wrote:

We suspect business activity improved in April, offset by overall sluggish demand in February and March, and occasionally lower pricing for contract renewals.

Indeed, Salesforce.com's outlook portends some choppiness ahead. For the second quarter, Salesforce.com projected earnings of 14 cents a share to 15 cents a share with revenue of $312 million to $313 million. Wall Street was expecting earnings of 13 cents a share on revenue of $319 million.

However, Salesforce.com cut its full year revenue forecast from February. It projected revenue of $1.25 billion to $1.27 billion. Earnings will be 59 cents a share to 60 cents a share. Wall Street was expecting earnings of 55 cents a share on revenue of $1.3 billion.

There was more at work in Salesforce.com's quarter than just the outlook. One of the more closely watched figures for Salesforce.com is its deferred revenue line. That figure for the quarter was $549.4 million, down from $594 million in the previous quarter. Wall Street was expecting deferred revenue of $565 million. Salesforce.com's fourth-quarter to first-quarter deferred revenue totals have become more seasonal.

Piper Jaffray analyst Mark Murphy handicapped the deferred revenue line for Salesforce.com ahead of the report.

The Street expectation of $565M deferred revenue represents a $30M sequential drawdown; this would represent a drawdown 3x larger than CRM has ever reported in its history. On a percentage basis, this 5 percent sequential drawdown would be 2.5x larger than CRM has ever reported. While a spate of very weak recent results from other SaaS vendors warrants considerable caution, and any decrease in invoicing duration could cause an adverse oscillation, we believe the bar has been set at a relatively lower level for CRM. Furthermore, whereas Q4 was an extremely difficult y/y comparison for billings growth, Q1 represents the beginning of a period of much easier y/y comparisons; in our opinion, it is not inconceivable that billings growth could accelerate above last quarter's 16 percent even if conditions remained challenging during Q1.

On a conference call, Salesforce.com CFO Graham Smith said the company trimmed its revenue outlook due to an uncertain IT spending environment. Smith said the company will save money by:

• Significantly paring back hiring plans;
• Cutting marketing costs, notably conferences;
• Using video conferencing instead of travel.

Smith said that Salesforce.com's deferred revenue totals will remain highly seasonal in future quarters. In addition, smaller businesses are upgrading less, sales cycles are taking longer to close and attrition may tick up. Deferred revenue will be flat to slightly down in the second quarter relative to the first quarter.

By the numbers:

• Salesforce.com had first quarter revenue of $220.6 million in the Americas, up from $178.4 million a year ago. Europe revenue was $51.6 million, up from $45 million a year ago. Asia-Pacific revenue was $32.7 million, up from $24.08 million a year ago.
• The company ended the quarter with 3,607 employees, up from 3,566 in the fourth quarter.
• Cash from operations was $98 million, up from $76 million in the fourth quarter.
• Salesforce.com ended the quarter with $984 million in cash, equivalents and marketable securities.

This was originally published at ZDNet's Between the Lines.

Salesforce.com turns 10 Monday and in the last decade it has cemented its standing as a leading enterprise software vendor and leader of the software as a service and cloud computing charge. However, the next 10 years may be much more interesting.

Salesforce.com, officially launched in a San Francisco apartment March 16, 1999, finds itself at an inflection point. The company is posting solid financial results, saw fourth-quarter sales jump 34 percent from a year ago and continues to poach customers who are sick of high maintenance costs. And the company is the first of its ilk to hit the $1 billion revenue mark.

The big question: Where does the company go from here? It has developed Force.com, a platform for on-demand applications and a marketplace for software, but is largely a software-as-a-service (SaaS), customer relationship management software firm (its ticker is "CRM"). Salesforce.com is increasingly targeting large enterprises--the playground of Oracle and SAP, two companies with a lot more sales resources. Here's a look at my five top unresolved issues for Salesforce.com in the years ahead:

Can Salesforce.com continue to grow at its current pace?
Here's a look at the company's financial results going back to 2005:

(Credit: ZDNet)

As you can see the company has been growing at a rapid clip and it is projecting fiscal 2010 revenue of $1.3 billion to $1.33 billion. But it remains to be seen whether that pace can continue. Ultimately, the laws of large numbers catch up with companies. And while Salesforce.com isn't to the point where the growth figures will slow too much, the trip to $5 billion in revenue will require different techniques. The company currently has about 55,400 customers worldwide.

Salesforce.com's regulatory filings tell the tale (albeit in a boilerplate fashion):

Our recent revenue growth rates may not be sustainable and may decline in the future. We believe that period-to-period comparisons of our revenues, operating results and cash flows may not be meaningful and should not be relied upon as an indication of future performance.

In addition, SaaS purchases are becoming more scrutinized. In fact, some enterprises have determined that SaaS wasn't the way to go, according to a Forrester report:

Does Salesforce.com need to develop a suite?
To date, Salesforce.com's success can largely be attributed to focusing on commodity software markets that lend themselves well to the on-demand model. The primary example of one of those commodity software markets is CRM. Salesforce.com has tried to expand its service via AppExchange, a marketplace for cloud computing apps that run on the company's Force.com platform.

However, it's unclear whether that will be enough to build out a full enterprise suite.

A Forrester report recently highlighted bevy of enterprise software categories moving toward an on-demand model. Forrester handicapped what categories would be successful under the SaaS model:

Clearly Web conferencing and CRM are leading in adoption and growth. That's the good news. The bad news is that these two categories are the closest to hitting equilibrium and their eventual decline. The challenge for Salesforce.com is finding that new category before on-demand CRM growth slows.

Simply put, Salesforce.com needs to find a few new software categories. Does it need a suite? Forrester's data is mixed on the subject.

Human resources, collaboration and IT management have a high degree of success under the SaaS model. But ERP and supply chain management only has a moderate degree of success under SaaS, according to Forrester. Meanwhile, business intelligence--arguably the most important category in enterprise software--has a low chance of SaaS success.

Add it up and it's possible that Salesforce.com goes for the suite much like NetSuite has, but a far better option would be to develop HR, collaboration and IT management apps.

Here are the leading players via Forrester in each category where Salesforce.com could tap into new growth:

• Human resources: ADP, Plateau, SuccessFactors, SumTotal, Ultimate Software. Takeaway: Could be fertile ground for Salesforce.com to buy or build software.

• Collaboration: Atlassian, Cisco (WebEx), Daptiv, Google, IBM (LotusLive Engage), Microsoft (SharePoint). Takeaway: A very crowded space and few companies Salesforce.com could acquire.

• IT management: HP, Service-now. Takeaway: A possibility for Salesforce.com, but large players-HP and IBM-may wind up dominating.

In any case, Salesforce.com's mission will be to build new areas beyond CRM.

It's hard to box the big boys
One of the larger issues for Salesforce.com in the next few years will be competing with established rivals, notably Oracle and SAP, with more resources.

Salesforce.com CEO Marc Benioff noted that the company was poaching customers from its largest rivals. On its last earnings conference call, Benioff said:

In face-offs with Oracle, Microsoft, and SAP, customers moved to the cloud in record numbers in FY '09.

Meanwhile, Oracle CEO Larry Ellison also has Salesforce.com in its sights. In December, Ellison said:

When we compete head-to-head with Salesforce we win more deals then we lose and that's new in the last couple of quarters.

Toss in SAP and its BusinessByDesign SaaS effort and you have a multifront war. The problem for Salesforce.com: This war is fought on the sales front lines and Benioff's army is outnumbered by a wide margin. Salesforce.com has 3,566 employees as of Jan. 31 and plans to expand sales and marketing activities. Oracle has 86,657 employees and SAP has 51,536.

Indeed, Oracle and SAP dwarf Salesforce.com. In fact, Salesforce.com would be a fine subsidiary of either enterprise software giant.

SaaS vs. cloud-computing platform
Salesforce.com may be able to avoid a lot of the Oracle and SAP pyrotechnics if it can position itself as a cloud-computing platform. There was a not-so-subtle change during Salesforce.com's last fiscal year as it began referring to itself as a cloud-computing company instead of an on-demand software outfit.

See Feb. 25's earnings report:

Salesforce.com Announces Record Fiscal Fourth Quarter Results

First Enterprise Cloud Computing Company to Achieve Fiscal Year Revenue of One Billion Dollars

And the report from Feb. 27, 2008:

Salesforce.com Announces Record Fiscal Fourth Quarter Results

First Ever On-Demand Software Company to Exceed $850 Million Annual Revenue Run Rate

Salesforce.com's messaging points to the future, but in the present it's an on-demand software company. In its annual report, Salesforce.com acknowledges that "substantially all of our subscription and support revenue comes from subscriptions to our core CRM application services."

How that balance changes may dictate how the next decade goes for the company. The problem is that many other companies--Amazon, Google and Microsoft to name a few--are positioning themselves as cloud platform companies. Salesforce.com said in its annual report:

We believe that as enterprise software application and platform vendors shift more of their focus to cloud computing, they will be a greater competitive threat.

The other wild-card is enterprise demand for cloud computing. According to Forrester, only 5 percent of large enterprises have deployed cloud computing applications.

It's no wonder that Benioff is welcoming Microsoft to the cloud: The Windows giant could validate the movement.

Salesforce.com: A fine subsidiary of...
Given all the moving parts associated with pondering the next 10 years for Salesforce.com, we'd be remiss if we didn't ponder the company as a takeover target.

Google could be a candidate to acquire Salesforce.com. The two companies are long-time partners and Salesforce.com could give Google some enterprise credibility.

Other potential buyers could also emerge, but Oracle would be among the most obvious choices to acquire Salesforce.com. Just the fact that Ellison mentioned Salesforce.com so much on the company's December conference call may indicate interest. He used to beat up BEA too--right before buying it.

Meanwhile, both Benioff and Ellison share a passion: They both like to give SAP hell. If you coupled Oracle's Siebel on-demand unit with Salesforce.com, you'd have the SaaS CRM market locked up to serve as a hedge to Ellison's more lucrative on-premise software business. At the very least, it wouldn't hurt to own your biggest threat.

So happy 10th birthday Salesforce.com. Now get back to work. Your next 10 years are going to be quite eventful.

See also:
• The three routes to cloud computing's future
• Cloud computing: How we got here

Salesforce.com CEO Marc Benioff

(Credit: Stephen Shankland/CNET News)

Salesforce.com showed Wednesday that cloud computing can produce serious money--but also that it's not immune from the current unpleasant economic climate.

For its fiscal 2009, which ended January 31, the San Francisco-based company reported revenue of $1.08 billion, a 44 percent increase. But for fiscal 2010, it lowered its forecast to a range of $1.3 billion to $1.33 billion.

In November, the company had forecast $1.35 billion to $1.36 billion, and analysts surveyed by Thomson Reuters expect on average $1.325 billion for the year.

"We've slightly lowered the guidance range. There's increasing uncertainty out there," Chief Financial Officer Graham Smith said on the company's conference call.

For the company's fourth quarter, Salesforce.com reported net income of $13.8 million, or 11 cents per share, on revenue of $290 million. That compared with $7.4 million net income and $217 million revenue for the year-earlier quarter, and it was better than the 7 cents per share on $285 million in revenue analysts expected.

In after-hours trading, Salesforce.com's stock rose $1.50, or 5 percent, to $29.60.

Salesforce.com's core service lets customers track and analyze customers activity; its online approach also features alliances with some other high-profile Internet sites, including Amazon Web Services, Google Apps, and Facebook.

Salesforce.com's mascot advocates cloud computing over in-house software.

(Credit: Stephen Shankland/CNET News)

The company competes chiefly with Oracle's Siebel software for customer relationship management, which typically is run on massive computers a company runs on its own.

Salesforce.com has been branching out, though, offering its Force.com system to let companies build their own custom Web-based applications or third-party programmers offer their own extensions to those customers. And in December, the company launched Force.com Sites to house customer's Web sites.

In the fourth quarter, Salesforce.com's technology overall completed more than 12 billion transactions, the company said. The total of more than 1,500 Force.com Sites received more than 15 million page views in the quarter, and there are 166 applications available in the Force.com AppExchange.

"The numbers for the fourth quarter clearly demonstrate increasing adoption of the force.com platform," Chief Executive Marc Benioff said in the conference call.

Spring has come early at Salesforce.com.

The hosted enterprise-applications company on Tuesday unveiled Salesforce CRM Spring '09, offering up such customer relationship management features as content assembly, content delivery, content tracking, and "Opportunity Genius."

Opportunity Genius aims to connect a company's sales representatives who are working on similar deals.

Salesforce has also added three content features to its CRM Spring '09, one designed to let people create new sales and marketing materials by bringing together a variety of existing presentations from across a company.

CRM Spring '09 also adds a feature that enables sales representatives to send presentation packages as a collections of URL links, rather than a large attachment for download. Via the hyperlinks, companies can track actions taken with the links, such as who viewed the materials and the amount of time spent viewing the content.

Steve Cakebread

(Credit: Salesforce.com, via ZDNet Germany)

Salesforce.com this week disclosed that Steve Cakebread, its president and chief strategy officer, has left the company.

The departure, effective February 1, was for "personal reasons" and to allow Cakebread "to pursue other professional opportunities." The news came in an 8-K filing with the Securities and Exchange Commission on Thursday.

Cakebread had been with Salesforce since May 2002, serving as the chief financial officer for six years. He became president and chief strategy officer in 2008.

The Wall Street Journal reported, citing analyst reports, that two other high-level executives may also have left the company.

This was originally published at ZDNet's Between the Lines.

Salesforce.com has unveiled its Service Cloud, a customer service application that's designed for cloud computing and plugged into conversations that occur on Google, Facebook, and Amazon.

The effort is built on the Force.com platform. In a statement, Salesforce.com said that "two-thirds of all service conversations will take place in the cloud."

It appears that the Service Cloud is a part of the InStranet integration. While the details of the Service Cloud seem a bit fuzzy -- Dennis Howlett will dissect later -- the main pitch here is that Salesforce.com is trying to link up social networking and customer service. The idea isn't exactly unique as Oracle and SAP have similar efforts underway. In general, customer service reps will be better able to monitor feedback from customers wherever they go -- including Facebook.

However, Salesforce.com is more likely to provide these linkages quicker given that it's a software-as-a-service vendor.

Key components include:

• Customer communities for interaction not just posting. Salesforce.com wants to host corporate communities.
• Social networking connections. Salesforce.com said its Service Cloud will connect to Facebook, forums, and blogs. The goal: Absorb information into a corporate knowledge base.
• Search ranking. Salesforce.com promises that Service Cloud results will be ranked near the top of Google results.
• Partner information sharing via the cloud.
• Multichannel -- phone, e-mail and chat -- support hosted in the cloud.

Thousands of businesses were left without access to their applications Tuesday after Salesforce.com's servers suffered a service disruption.

The problem affected all of the software-as-a-service vendor's data centers for at least 40 minutes.

According to a Salesforce.com status page, the problem occurred at 12:40 p.m. PST Tuesday when a core network device failed, stopping all data from being processed in Japan, Europe, and North America.

When the system failed to trigger a failover to redundant systems, Salesforce.com staff had to carry out a manual recovery.

Most of the services were restored in about 40 minutes, according to Salesforce.com, and all services were back online about two and a half hours later.

"While we are confident the root cause has been addressed by the work-around," the company said, "the Salesforce.com technology team will continue to work with hardware vendors to fully detail the root cause and identify if further patching or fixes will be needed."

Freeform Dynamics senior analyst Tony Lock said that "having a service interruption like this one is certainly noticeable when you have a vendor like Salesforce.com that has been delivering pretty good service over the course of the last five or six years."

Lock added that as long as software-as-a-service vendors continue to deliver good service levels and availability, the occasional interruption is acceptable since "nobody expects IT to be perfect."

"It will not have a major impact on organizations' plans for the adoption of software as a service. I think that software as a service will continue to grow as it has been doing over the course of the last few years," he said.

Tim Ferguson of Silicon.com reported from London.

Update at 11:01 a.m. PST, with historical information on the alliance.

Salesforce.com and Google announced on Monday an expanded alliance, aiming to offer a set of developer tools and service around cloud computing applications.

Force.com for Google App Engine is designed to enable developers to create applications in the cloud. Here's how it aims to work:

Force.com for Google App Engine is a Python library and test harness that lets you access the Force.com Web services API from within Google App Engine applications. Once it is installed in your Google App Engine application, that application can start to (seamlessly) make callouts to the Force.com Web services API. This API lets you query and manipulate data in your Force.com environment - effectively letting you tap into the Force.com platform from within the application.

Marc Benioff, Salesforce.com CEO, noted in a statement that Salesforce and Google are on the same page when it comes to cloud computing and an open environment.

"We have an open vision for cloud computing," Benioff said. "Developers now can take advantage of the easy to use and rapidly scalable cloud computing infrastructure from Google and Salesforce.com to build and deliver powerful business applications."

This arrangement is the latest expansion of a deal Salesforce and Google struck in April, which called for linking Salesforce's customer relationship management software with Google Apps.

And in June, the companies expanded that initial deal with Salesforce creating the Force.com Toolkit for Google Data APIs, allowing developers to connect to data in Google Apps via the Force.com development platform.