Salesforce.com Is Profitable

Salesforce.com had good reason to celebrate last Friday during its fourth annual Freedom From Software Celebration, at Carnegie Hall in NYC, as it closed its first profitable month, in February. The event, which celebrates "the end of software" (a maxim coined by Salesforce.com CEO Marc Benioff) is held the evening of the annual Tibet House benefit concert also held at Carnegie Hall. (Tibet House is one of the organizations Salesforce.com/Foundation supports.) So Salesforce.com customers and prospects were invited after the Freedom From Software Celebration to enjoy the concert performed for Tibet House supporters by musicians including David Bowie and Ray Davies. According to analysts, there was good reason for the celebration this year. "Profitability announcements like these with new and radical business models are very important. Companies can tell you backward and forward how many customers they have, but demonstrating profitability is a very important step for Salesforce.com," says Amy Mizoras, program manager of AppSourcing at IDC. The news makes Salesforce.com "the first profitable ASP," says Benioff, who also expects to record the company's first profitable quarter through the months of February, March, and April. Salesforce.com is not the only company doing well, he says, referring to ASP competitors NetLedger, Salesnet, and UpShot. "We are all doing extremely well--they are four very successful companies." Benioff credits the decreasing attrition rates for the market's success. "We feel really good about where our customers are. The attrition rates have fallen over the past three to four months. They're not firing salespeople. They're not hiring, but they're not going through the unbelievable firing rates of a year ago," he says. This naturally bodes well for Salesforce.com, which targets sales professionals for its products by providing them with a lower-cost alternative to large software implementations. "On the whole the market Salesforce.com is appealing to is an underserved small- and medium-business market, or divisions of larger companies where it makes a lot more sense to take a lower-risk, high-reward model versus a large software implementation," Mizoras says. Fueling sales at the company are some recent, large corporate-customer wins, such as AOL Time Warner, which will use the Salesforce.com Enterprise Edition for online management of advertising and commerce partners. Under the agreement hundreds of sales and marketing professionals at America Online's Interactive Marketing group will use Salesforce.com's contact management capabilities, according to a company statement. Other recent enterprise customers include Avis, GE Capital IT Solutions, Eagle Global Logistics, and Electronics For Imaging. Another recent milestone for Salesforce.com is its partnership with PricewaterhouseCoopers' consulting arm. Under the agreement PwC's consultants, trained and certified on Salesforce.com, will implement Salesforce.com for customers in 30 days or fewer. "PwC is the first of the big consulting firms to partner with an ASP," Benioff says. IDC's Mizoras maintains that a partnership of this magnitude with PwC is an important one, but she is still not clear on PwC's commitment to Salesforce.com. Partnerships with large consulting firms will likely bode well for Salesforce.com, especially as Microsoft is competing in the online CRM space. Microsoft already announced its partnership with ManagedOps.com to host its Microsoft CRM product. Yet, Benioff is not stirred. He says Microsoft will not affect Salesforce.com's commanding market share, which he says is already at 65 percent. "Microsoft's product is not designed to be a hosted solution. It is a single tenant architecture on a single stack, requiring you to put a single PC in each customer implementation." "I don't think companies should have to be held to the shackles of Microsoft proprietary software," says Benioff, referring to all the software required to make the Microsoft solution work, such as Active Directory 2000, Microsoft IIS integration, BizTalk, SQL Server, and others. "Why can't there be a democratization of CRM?" "ManagedOps.com is not motivated to make Microsoft work. If we succeed, their entire model is disintermediated fully." Benioff says the online CRM market will jump from $100 million this year to $250 million next year. Despite competitive forces, he says, "We feel very good about where we are and where the market is today."