Acquisitions have helped Salesforce.com maintain its dominance in
the customer relationship management software market. But there's
plenty of competition.
More than 70,000 will be at its Dreamforce cloud computing event
later this month. Colin Powell, Jeff Immelt and the Red Hot Chili
Peppers will be on hand.
) has come a long way since its start in a Bay Area apartment
during the height of the tech bubble. In 2000, it rolled out its
first customer relationship management or CRM service. A dozen
years later, the legend grows.
Today, the company uses the cloud to deploy applications that
let businesses stay connected with their customers and employees.
Its model is cashing in on a global trend.
"The whole world is moving to the cloud," said Piper Jaffray
analyst Mark Murphy. "You have large organizations committing to
wholesale replacements of their IT infrastructure."
A formula that embraces shared infrastructure and open standards
has led Salesforce.com to cast a wide net. It now has more than
"For people who want to know what it's like when you're
witnessing the ascendancy of a giant, this is what it looks like,"
Murphy says. "They are closing deals worth over $100 million at a
Murphy notes that keeping customers happy has been a key to this
success. "It has a level of customer satisfaction that we've rarely
if ever come across in the software industry," he says. "Its
partner ecosystem is convinced that it has the platform of the
Whether it's an app that helps track sales leads or one that
promotes file sharing, the theme of social networking is common
across the Salesforce.com portfolio.
"Salesforce.com is leading customers in their transformation to
become social enterprises," said CEO Mark Benioff in his Aug. 23
earnings call. "Social enterprises are able to connect with
customers, partners and employees in entirely new ways."
The breadth of the lineup driving this shift has been met by a
warm welcoming. "Markets always move to suites," says William Blair
analyst Laura Lederman. "You are quite isolated if you only have
one product or service."
Salesforce.com has been making a bold push to shore up its cloud
marketing offerings. Last May, the company completed its
acquisition of Radian6, a social media monitoring company, for $326
million in cash and stock. In June, it signed an agreement to buy
Buddy Media for $689 million. Buddy Media assists clients in
gauging the effectiveness of social media marketing programs.
These additions give Salesforce.com more firepower, but it may
still be looking to add to its arsenal. "If you combine Radian6 and
Buddy Media, you have components of a marketing cloud," Lederman
says. "Whether through additional acquisitions or internal
development, they'll add to that."
Murphy believes the Radian6 deal was a major score. "Customers
have the ability to praise a brand or slaughter it," he says.
"Radian6 is the number one technology for a business to monitor
what's being said about it across all social channels," he
Salesforce.com has built an impressive track record of growing
both organically and via acquisitions. Lately, the growth rate has
been burning white-hot. During its previous four quarters,
year-over-year revenue growth has checked in at 34%, 38%, 38% and
The top-line gains have translated into healthy profit expansion
and a surging stock price. Year-over-year earnings per share were
up 24%, 32%, 39%, and 6% in the company's trailing four periods.
Shares of Salesforce.com have risen 42.7% so far this year.
These results have led Salesforce.com to surpass consensus
estimates in each of the last four quarters. Analysts are now
calling for the company to post EPS growth of 7% for the current
fiscal year. Next year, Wall Street is forecasting a 33% pop in EPS
and a 26% jump in revenue.
One of the immediate challenges Salesforce.com may face is
keeping these expectations in check. "The comparisons for Q4 and Q1
will be difficult," Lederman says. "Analysts are notoriously
To sustain revenue growth, Salesforce.com is ready to fight back
competition on a number of fronts.
The HR cloud, in particular, has become a hotly contested
battleground. The company acquired the social performance
management company Rypple in December to break into the arena.
Since then, it has been "game on" as companies known for their
enterprise resource planning (ERP) platforms have been shelling out
sizable sums of cash to establish a presence in this area.Oracle (
) andSAP (
) are two of the more notable names that could give Salesforce.com
a run for its money.
In January, Oracle ponied up $1.5 billion for the cloud-based
CRM provider RightNow Technologies. The following month, it
unveiled plans to buy Taleo for $1.9 billion. Taleo uses the cloud
to aid its customers in performing a number of HR functions.
Not to be outdone by Oracle, SAP made a big play of its own when
it bought SuccessFactors for $3.4 billion in February. Included in
the SuccessFactors suite are solutions for talent management and
Murphy acknowledges that competitors are taking aim at
Salesforce.com in other areas of the cloud as well. He points to a
very familiar combatant. "Their single biggest challenge is going
to be fending off some of the ankle-biter products," he says. "I
think chief among them is going to beMicrosoft (
) in a very small business space."
Microsoft's Office 365 platform lets small businesses access
e-mail, instant message and file share over the cloud.