Why Salesforce Is Soaring In The Cloud: 20 Eye-Popping Numbers
by Bob Evans
CLOUD WARS - On the verge of topping $10 billion in revenue this fiscal year, Salesforce.com CEO Marc Benioff has laid out four key drivers that he believes will extend his company’s astonishing growth rate and push it past the $20-billion mark within the next few years.
On last week’s earnings call—during which Salesforce announced that it beat earnings forecasts by 2 cents a share, and beat revenue estimates by $40 million—while Benioff did not specifically enumerate these four engines of growth, he came back to each of these themes multiple times during the call:
- Vertical Industries: from public sector to retail to the new “Wealth Cloud” for wealth-management services, Benioff hammered home the power of applications and sales teams brimming with domain expertise.
- Expanded Suite of Apps: Benioff said its becoming increasingly common for customers across a wide range of industries to start with Sales Cloud and then expand deeply across Service, Marketing, and more.
- CEOs’ focus on Digital Transformation: While every enterprise-tech company is fixated on this phenomenon, Benioff believes Salesforce’s obsession with customer success and customer value gives it a huge advantage over its competitors.
- Artificial Intelligence via Einstein: Benioff unconditionally called it “the next platform” and said it has made him “a better CEO.”
Before taking a closer look at each of those strategic drivers of Benioff’s proposed next $10 billion in revenue, here’s a quick recap of a few highlights from the Q1 earnings call late last week:
- Q1 revenue was up 25% to $2.39 billion, which Benioff said “is the fastest growth of any Top 5 enterprise-software company”
- Deferred revenue grew 26% to more than $5 billion
- Benioff said that CRM is not only currently the fastest-growing enterprise-software category, but also that Gartner predicts that by 2021, it will be the single largest revenue area of spending in enterprise software
- In the past 3 years, Benioff said, Salesforce has doubled its revenue and tripled its free cash flow
- Each of Salesforce’s major product categories showed significant revenue growth in the quarter: Sales Cloud 14%, Service Cloud 21%, Platform and Other 32%, and Marketing Cloud (excluding Demandware) 32%
Here’s a closer look at the rationale cited by Benioff and Salesforce president Keith Block for why Salesforce’s ongoing hypergrowth is being driven by vertical industries, a much broader product suite, customers’ passionate focus on digital transformation, and Artificial Intelligence.
Vertical Industries. “As we start to look at eclipsing $10 billion and moving into much higher numbers going forward, it's exciting to have that $20 billion in sight,” Benioff told the analysts. “And I think that you're going to see the transformation of Salesforce” make its mark within the public-sector market, Benioff said, as well as in financial services, retail, healthcare, and others. “These major verticals, that's a major focus for us.”
President Keith Block added this: “This industry strategy is really, really paying off for us” in the company’s go-to-market strategy and in how Salesforce has assembled its greatly expanded product set. Last year, Salesforce launched its Financial Services Cloud and its Health Cloud via the acquisition of Krux and Demandware, which is now the company’s Commerce Cloud. Emphasizing Salesforce’s creation of a “highly compelling B2C story,” Block said that customer Ralph Lauren’s extensive transformation “is an incredible story” with Salesforce being the “growth platform for B2C. We see tremendous opportunity and tremendous upside, and we continue to focus on speaking the language of the customer” and also leveraging the Salesforce platform, expanding the partner ecosystem and investing in industry-specific solutions.
Expanded Suite of Interconnected Products. With Sales Cloud frequently being the entry point for customer engagements, Block said, Salesforce’s expanded product line—and both he and Benioff specifically cited the acquisition of SteelBrick and its CPQ (configure-price-quote) product as particularly relevant in these cases—has allowed customers to tie together contiguous and/or adjacent processes in ways that map to customers’ digital-transformation initiatives. “As we bring new innovations to the table…that allows us to go back into those large customers and bring new points of innovation to them,” Block said. “So that huge deal or those large deals really create a platform and an opportunity for us to innovate and continue to attach…. We're growing at significantly more than the rest of the market, so we're taking market share, which means we're taking wallet share, and that translates to IT budgets. And it translates into the mind share of the CEOs we're trying to do business with.”
A bit later in the call, Benioff prodded Block to talk about the deal sizes involved in Salesforce’s “Top 10 Club”—the 10 companies spending the most per year with Salesforce. The threshold for getting into the Top 10 Club this year, Block said, is 2.5x what it was just four years ago, with new members coming displacing incumbents each year.
Block went on to tie the expanded product suite directly to Salesforce’s increasing ability to become primary enterprise-tech suppliers for businesses undergoing digital transformation, which is another of Salesforce’s strategic growth drivers.
“We initially engage with a customer and drive value, typically with Sales Cloud,” Block said. “Then we’re able to say, ‘Okay, now the walls between sales, service and marketing are coming down.’ So we then have an opportunity to provide a 360-degree view of the customer with Service Cloud and with Marketing Cloud. And take that now one step further, as we've moved from systems of record to systems of engagement to what are now systems of intelligence, and that’s where Einstein comes into play, and that’s something our customers are very excited about.”
Digital Transformation as CEOs’ primary goal. Block was emphatic throughout the discussion with analysts that this is the absolute top priority for CEOs—and Block did his best to make the case that Salesforce is uniquely positioned to turn that objective into a reality. “When you think about the compelling reasons why businesses are undertaking these transactions and establishing these relationships, at the top of the list is that the CEOs of these companies are very forward-thinking and they want to bring their companies into this age of digital transformation because they have an imperative for growth. And these CEOs believe strongly that we’re the only technology platform out there that can enable that.”
Artificial Intelligence: Salesforce Einstein. As pumped-up as he always is on earnings calls, Benioff was even more passionate and effusive in his comments about AI in general and Salesforce’s Einstein product in particular, and he made two striking observations about the scale and scope of the AI revolution:
- AI is becoming fully mainstream much more rapidly than almost anyone realizes.
- AI will become the centerpiece for all future applications—not some, but all.
“And I can tell you that I do believe that Salesforce's enhanced performance has been greatly attributable to our ability to have Einstein on board and as part of our team,” Benioff said after recounting in detail how he will ask the AI tool a series of detailed questions starting with, “Okay, Einstein, what do you think?”
And have those conversations with Einstein paid off? Benioff says the answer is a resounding and unconditional yes: “That ability to consult with Einstein has made me a better CEO.”
Final thought: I’d strongly urge anyone interested in AI and specifically how Benioff thinks about and engages with Einstein to read the Seeking Alpha transcript of the earnings call—Benioff waxes at length about how he uses it, what he thinks of it, and how in his view it’s been a deeply transformative factor in Salesforce’s runaway success.