Salesforce.com on the Prowl for More AcquisitionsBy Renee Boucher Ferguson | Posted 2006-08-23 Email Print
Re-Thinking HR: What Every CIO Needs to Know About Tomorrow's Workforce
News Analysis: CEO Marc Benioff says he's keeping an eye out for other companies to buy as he looks to top the billion-dollar revenue mark.
NEW YORKShortly after announcing on Aug. 21 that Salesforce.com had acquired the small software development company Kieden, CEO Marc Benioff confirmed that he is indeed on the lookout for additional acquisitions.
"We're paying attention to what customers want us to do," Benioff said during an Aug. 22 interview with eWEEK at a Salesforce for Google AdWords kickoff luncheon here. "Kieden was really the only company that had Google AdWords," software that enables marketers to track the success of their Google advertising campaignsand track down leads generated from ad clicks.
Kieden is Salesforce.com's second acquisition. In April it bought Sendia, which makes wireless software delivery tools.
While Benioff did not specify which software areas he would look to for potential acquisitions, he did say what he is not looking for: a large acquisition that will require a lot of integration to Salesforce multitenant CRM (customer relationship management) software, and an acquisition in a market where there is already a lot of competition.
"If there are lots of players we may not want to go in there," said Benioff.
Kieden is a good example of what Benioff is looking for. The San Francisco-based company is a startup in the true sense of the word; its first day in business was last January. The company was started by three partners (two are veterans of Salesforce.com rivals Oracle and SAP) who had met at webMethods, an application integration company that has just the sort of capabilities Salesforce is looking to tap with its AppExchange platform.
By the time Kieden was acquired by Salesforce, it had racked up four employees, 730 test drives of its software (on AppExchange), and 170 registered users45 of which became customers. Its software, which tracks the efficacy of Google advertisements for Salesforce.com customers, has been in "public" beta since May 24, according to Kraig Swensrud, the founder of Kieden.
More importantly, what attracted Kieden to Benioff is that the company has its roots in Salesforce.com. It developed its Google AdWords software on AppExchangea software development, integration, runtime and trading community platform for third-party companies.
"We prototyped two versions [of our software] in the first couple weeks, one on AppExchange and the other on our servers," said Swensrud. "As a small business, AppExchange was extremely important to us. It was a platform and software stack that was already there."
AppExchange, announced just 11 months ago, is equally important to Benioff. It's where he found Kiedenand where he is looking for other companies that might be a good fit for Salesforce.
"We're not trolling AppExchange," said Benioff. "We're watching what the customers are using."
For a company that started out with a lofty goal 10 years agoto end the software model as we know it, one based on license revenues and on-premise implementationsSalesforce.com's aims don't seem as far-fetched as they once did.
Major software developers Microsoft, Oracle and SAP (particularly Microsoft) all talk about beating Salesforce.coma fact that demonstrates the company's impact on the market and on the growing acceptance of software delivered as a service. At the same time, Salesforce reached 500,000 subscribers for the first time in its second quarter, reported Aug. 16, and revenues rose 64 percent, to $118 million. AMR Research released a report Aug. 22 pointing to Salesforce as a leader in the on-demand CRM sector, with 44 percent market share.
And while the mantra at Salesforce is still akin to "the death of software," Benioff has set a new goal: $1 billion in annual revenues and 1 million customers. While he declined to outline a timeframe for reaching the goals, the company has a good chance of getting there, according to analysts.
"The bottom line is their core SFA [sales force automation] product is still firing on all cylinders on a quarterly basis. Within the next two to three years alone they should be able to [reach] a million subscribers," said Michael Nemeroff, senior vice president of research at Wedbush Morgan Securities.
Nemeroff predicts that it will take a million subscribers for Salesforce to reach $1 billion in revenue. "Last quarter, their average revenue per subscriber was $75.25," he said. "That average has been going up for the last two quarters, where previously it was declining. It's an important metric [showing that] the company has a lot of levers to pull with the existing customer base."
Next Page: The tripping point.
The billion-dollar mark is a huge milestone for any software company, let alone an on-demand pure play vendor like Salesforce. It's one that few companies have achieved (SAP, Oracle and Microsoft are there).
"The billion-dollar mark is also a tripping point for a lot of companies," said Nemeroff, in New York City. "They get really closereally closeand then they trip over it. It's a psychological point. It's a very difficult task to get there and maintain it. A lot of companies fall short."
Asked how he plans to double his business, Benioff said it's more of the same, rather than new technology.
"It's more of what we're doing," said Benioff. "More AppExchange, more Salesforce, more CRM, more PRM. All the things we're doing now, we think are the things to get there. We don't think there are any missing pieces. It's all about execution. That's what we have to do every day."
Salesforce will lean heavily on its heritage as a multitenant SAAS (software as a service) providerboth in providing software to customers and in enabling users to develop their own multitenant applications through AppExchange.
Multitenancy is the practice of running every customer's software on the same server, with upgrades occurring frequently (about once a quarter) and implemented simultaneously.
But Salesforce isn't the only company beating the multitenant drum. Microsoft announced Project Titan in July, its plan to add multitenant capabilities to its CRM software. Earlier this year SAP announced a "hybrid" brand of CRM software, one that promises multitenant capabilities but loads each customer's installation on a separate server. Oracle, too, is heavily invested in on-demand (though no word yet on multitenancy plans) with its $5 billion acquisition of Siebel earlier this year. Then there are pure-play on-demand companies like NetSuite and Sugar CRM (which is open source) that offer comparable functionality in a multitenant model.
NetSuite develops on-demand CRM and ERP (enterprise resource planning) software. On Aug. 22 the company announced its NetSuite Keyword Marketing module for sussing out the efficacy of Google advertising.
"We obviously didn't write this code overnight and we have released announcements about our earlier versions of this technology last year," said Zach Nelson, NetSuite's CEO. "Salesforce.com's acquisition is an attempt to catch up with NetSuite in this space. Ultimately the fact that NetSuite has order management [functionality] integrated in its system will always give us a better solution as we can track word-to-close."
Nelson pointed out that NetSuite Keyword Marketing Module also supports Yahoobetween 20 and 30 percent of all keyword purchaseswhile Salesforce.com is limited to Google. Kieden founder Swensrud confirmed Aug. 22 that the company had planned to offer AdWords for both Google and Microsoft adCenter, and will continue down that path if customer demand is there.
"When we started we had plans to do Google and Yahoo," said Swensrud. "But the response from customers was so much toward Google, to focus on doing that right."
Benioff said he's not too worried about the mounting competition from bigger software companies making a play in the on-demand worldparticularly Microsoft.
"Microsoft ought to change the [multitenant project] name from Titan to Titanic," said Benioff, with obvious glee. "The issue is that they've made a number of statements that indicate they have no idea what multitenancy isthat customers, partners and Microsoft will all run the same code. It's not about customers running multitenant code, which is why Microsoft has no clue."
Benioff also points to the venture capital industry as a sure sign the Salesforce strategy is working. "You talk to [venture capitalists] and they're going to tell you they're not funding software companies, only service companies. And only those companies that have multitenant capabilities," he said. "I don't care what SAP and Oracle have to say; the venture capitalists have spoken."
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