Salesforce.com All Grown Up

[Brian.oco]

Salesforce.com is one of those companies that business writers and Wall Street investors refer to as an “upstart” or a “growth” company. But those days may be over.

The company pioneered the concept of software-as-a-service, which enables companies and individuals to access software over the Internet via a web browser. Now it looks like the new kid on the block is all grown up, with analysts pegging Salesforce.com’s value at close to $1 billion.

But the company hit a speed bump this week when it announced its third-quarter revenues would clock in at around $274 million. That’s up from $263 million in Q2, but it’s also below that Wall Street had expected from Saleforce.com in terms of sales and revenues. The Street struck quickly, with PiperJaffreey first cutting its advisory on Salaesforce.com from “buy” to “neutral”.

I don’t think the Salesforce numbers were that shabby. Net income for Q2, after all, was 167% higher than the same period in 2007 – a year where the word “recession” wasn’t yet on everyone’s lips. Piper Jaffrey is probably accurate in pointing out that the company’s stock price, which fell to $55 from $65 in a single trading session this week, was too high and unsustainable. Salesforce stock has been trading at 200 times the company’s forecasted earnings per share, so keeping the stock price lifting skyward was too much to ask.

Still, company CEO Marc Benioff is tamping down expectations so analysts aren’t always disappointed about the company’s guidance picture. But he wants to frame that discussion so that Salesforce.com is seen as being on the right path. “We want to demonstrate the validity of the (business) model,” he says. “We’re setting the stage for others that are behind us.”

One key move that the company is making this week is its imminent acquisition of InStranet, a Chicago-based maker of call-center software, for $31.5 million. Salesforce plans to use InStranet's technology both internally, and as a new software-as-a-service offering expected to launch within 18 months. The acquisition provides Salesforce.com with new knowledge-based software technology that helps companies run their own business software programs. T-Mobile and Comcast are already InStranet customers.

Software-as-service is here to stay and so is Salesforce.com. It might be a good addition to your autumn portfolio.

[brucearnold]

Is Salesforce.com the new ADP ... or the next Datapoint?
What will happen if blue sky clears the cloud?

***

This headline recently appeared in several places across the Web:

"Salesforce.com Passes $1 Billion Annual Revenue Mark"

THIS IS NOT TRUE. I don't know whether this material misstatement arose from media manipulation or an honest mistake, but it's genesis is most likely this 20 August 2008 press release...

"Salesforce.com Announces Record Fiscal Second Quarter Results"
http://tinyurl.com/5m5mea

...the subheading of which claims:

"First Ever Software as a Service Company to Exceed $1 Billion Annual Revenue Run Rate"

THIS IS NOT TRUE, EITHER. "Software as a Service" is marketing technospin for "service bureau". And payroll processing giant ADP--another service bureau--exceeded not only a "run rate" but actual annual revenues of $1 billion in 1985:

"The original outsourcer, Automatic Data Processing..."
http://tinyurl.com/56y5tx

Yes, SalesForce.com did report revenues of $263 million for their most recent quarter. And yes, they have raised "FY09 Revenue Guidance to $1.070 - $1.075 Billion". But NO, Salesforce.com has NOT passed the "$1 Billion Annual Revenue Mark". And despite Cheerleader/CEO Marc Benioff's effusive exuberance, some like Tiernan Ray do not share his enthusiasm:

"Salesforce's Deferred Revenue Debacle"
http://tinyurl.com/6oagtp

Perhaps in an effort to meet ever-inflating investor expectations--a fire they themselves have fueled--Mr. Ray notes that Wedbush Morgan analyst Michael Nemeroff "...thinks Salesforce may be pushing customers to sign more multi-year subscription contracts by lower prices, which could be hitting deferred revenue." And reading that, for me, brought on a disturbing case of Datapoint deja vu:

http://tinyurl.com/gk77r

"By the early 1980s, Datapoint was a Fortune 500 company. Under immense pressure to increase sales figures, its sales representatives encouraged customers to place large orders at the end of the fiscal year, permitting the company to count the orders as revenue even though the money had not been received and, in some instances, the sold equipment had not yet even been produced.... When some of the customers went broke before paying their bills, Datapoint had to reverse sales or record substantial bad debts, which caused the company to lose $800 million of its market capitalization in a matter of a few months in early 1982. The U.S. Securities and Exchange Commission (SEC) ordered Datapoint to stop this practice."

Is Salesforce.com the new ADP ... or the next Datapoint? Some say their business model is to take your watch and then bill you for the time. If so, what will happen to all those watches if blue sky clears the cloud?

Bruce Arnold, Web Design Miami Florida
http://www.PervasivePersuasion.com

[amuletc]

By Dan D. Gutierrez
CEO of HostedDatabase.com

Although Salseforce.com is arguably the best known SaaS vendor, it is inaccurate to say that they pioneered the SaaS concept. My firm launched the web's first Database-as-a-Service offering in 1999, years before Salesforce came onto the scene. Maybe you can say that Salesforce.com brought forth the view of SaaS as a commodity, but their on-demand software solutions were not unique.