Salesforce.com Q2 Fiscal 2018 – Sights Set on $20B in Annual Revenue

Salesforce.com (“Salesforce”) this week announced its second quarter results.  They not only beat analyst revenue expectations, but they also, once again, raised guidance.  As a clear indicator that Salesforce is not just in the business of selling CRM solutions, their impressive Q2 revenue growth was not tied to the success of one product offering.  Each of Salesforce’s Clouds (Sales Cloud, Service Cloud, Marketing & Commerce Cloud and Platform and Other) had quarterly subscription and support revenues that grew significantly year-over-year (y-o-y).

Q2 Highlights

• Revenue of $2.56B, up 26% y-o-y
• Subscription and support revenues of $2.37B, up 26% y-o-y
• Sales Cloud revenues up 17% y-o-y
• Service Cloud revenues up 21% y-o-y
• Platform & Other revenue up 32% y-o-y
• Marketing Cloud & Commerce Cloud revenue up 57% y-o-y
• Deferred revenue of $4.82B, up 26% y-o-y

Key Takeaways

Salesforce has surpassed the $10B annual run rate milestone

Two and a half years ago, when Salesforce had a $5B revenue run rate, Benioff started talking publicly about his dream of surpassing $10B in revenue.  Salesforce has not only doubled its annual revenue run rate in a very short timeframe but they are the fastest growing enterprise cloud software company to reach the $10B milestone — this includes juggernauts like Oracle, SAP and Microsoft.

Salesforce and Benioff have now set their sights on reaching $20B and effectively doubling the company again

Benioff characterized this as “Chapter 3” for Salesforce.  Given Salesforce’s demonstrated ability to consistently post significant growth across all its go-to-market cloud solutions it is understandable why Benioff has such aspirations.  It also doesn’t hurt that Salesforce’s standard master subscription agreement includes obligated 7% price increases upon renewal.  In my recent CIO article, “3 keys to negotiating successful cloud agreements,” I note that it is extremely important to address this price increase during your upcoming negotiations with a cloud vendor like Salesforce.

Salesforce’s ability to cross-selling is strong

Vice Chairman, President and COO, Keith Block, mentioned during the recent earnings call that most software companies would be lucky to have a great first act like Sales Cloud was for Salesforce.  He went on to point out that Salesforce also had a great second act (Service Cloud), a great third act (Marketing Cloud) and a great fourth act (Platform), whereby each of these clouds by themselves would be the largest cloud company in the world or at least amongst them.   This level of adoption and market share success has given Salesforce the opportunity to cross sell and up sell their current customer base.

Given this, we fully expect Salesforce’s account executives to frequently and aggressively push for time with the appropriate line of business executives to discuss how an expansion of the current Salesforce portfolio will be most beneficial to them and to the success of the organization itself.   This will be especially the case when Salesforce is provided the opportunity to drive digital transformation.  As Block pointed out, when this happens and when it is at the CEO level, the walls between sales, service, and marketing come down.   When this occurs, Salesforce will be right there with a market leading solution for the customer to adopt that (incidentally) comes with an increase to the annual spend derived from that customer moving forward.

Clearly times are good for Salesforce and they understand why they are doing well and how things can be even better moving forward.  Given this, it is critical that all Salesforce customers (and there are many out there) appropriately navigate their discussions with Salesforce and empower themselves with the right strategy, levers and market intelligence to have any chance at success trying to negotiate come renewal time.