This week, I provide my perspective on Salesforce’s recent Q2 FY20 earnings report and what enterprise customers need to pay attention to. I also provide my thoughts around Google Cloud making G Suite “stickier” through Hangouts changes.
Salesforce Q2 FY20 Earnings – Strong Growth and Raised Guidance
Salesforce reported its Q2 FY20 earnings on August 22nd and not surprisingly, they once again reported revenue above what was expected, posting impressive growth. Total Q2 revenue came in at $4B which represented 22% growth. Analysts were expecting total revenue for the quarter to come in around $3.95B. It is also worth noting that Salesforce’s impressive growth spanned across all of Salesforce’s “clouds”.
Sales Cloud: $1.13B (+13%)
Service Cloud: $1.09B (+22%)
Salesforce Platform & Other: $912M (+28%)
Marketing and Commerce Cloud: $616M (+36%)
Beyond the impressive continued growth and raised guidance, the fact that Service Cloud revenue has pretty much caught up to Sales Cloud revenue is very interesting and telling. From my perspective, this development is directly tied to the increased spending enterprises are making tied to improving their customer’s experiences. Enterprise executives steering the ship know that their company’s ability to deliver an improved customer experience will be the determining factor to their customers. In many cases, it will determine whether they will succeed moving forward, and in some cases, whether they even exist as a company is on the line.
Customer experience is now — and will be for some time — the differentiator. This is not going away and Salesforce knows that investments are going to continue to ramp and dollars will become increasingly more available. This is especially the case when it comes to giving deskless workers (like field service employees) the digital tools they need to ensure enhanced customer experiences through their direct interaction with customers.
Based on the conversations and interactions I am having with many of Salesforce’s enterprise customers, Field Service Lightning (part of Service Cloud) is being aggressively pushed by Salesforce and they are successfully driving adoption. During the recent earnings call, Co-CEO Keith Block pointed out that Field Service Lightning “is growing at nearly 100% year-over-year.” When discussing the importance of Service Cloud and Field Service, specifically, Block also stated, “A critical part of customer service for many of our customers is also field service. It is incredibly strategic to their operations and differentiates them.”
The recent acquisition of ClickSoftware (if integrated well) should also strengthen Salesforce’s offerings and allow them to grab more market share and continue to increase their Service Cloud revenue. Block said, when talking about the recent ClickSoftware acquisition and what it could mean, that Salesforce will “be able to deliver even greater field service innovation to our customers, so that’s very, very exciting.” Through Salesforce’s increased attention, concerted efforts and acquisitions, like ClickSoftware and MapAnything back in April, I would not be surprised if Service Cloud revenue eclipsed Sales Cloud revenue sooner rather than later. In fact, I could see this happening as soon as Q4 FY20.
In addition to the impressive revenue growth, Salesforce also raised FY20 revenue guidance to $16.9B which would represent roughly 27% year-over-year growth and would surpass Wall Street’s forecasted $16.63B. Salesforce pointed out that this raised guidance accounts for (and is dependent upon) about $600M, $25M and $200M in expected revenue from recently acquired Tableau, ClickSoftware and Salesforce.org, respectively.
It is very clear (and not just to me) that Salesforce’s Customer 360 Platform and Salesforce’s ability to continue to land and expand within their current customer base is going to be the key to attaching themselves to the wave of enterprise digital transformations that are going on right now or inevitably will start soon enough. It is this attachment that will determine whether Salesforce is able to achieve their raised FY’20 revenue guidance and the longer term, publicly announced target of $26B to $28B in revenue by FY23.
Chairman and Co-CEO, Marc Benioff, mentioned during the earnings call that “all the customers that we work with around the world realize that behind all of that fourth industrial revolution is their customers so they need to build that Customer 360 platform.” If you are an enterprise customer, it is critical that you prepare yourself for Salesforce’s full-court press to get you to adopt more Salesforce products and attach yourself to Salesforce’s Customer 360 platform. Salesforce’s efforts and tactics to achieve this goal is only going to ramp up.
Google Cloud Making G Suite and Hangouts More “Sticky”
Google Cloud enterprise G Suite customers got good news last week, especially those that are currently using classic Hangouts and are not ready to migrate to Hangouts Chat and Meet. Up until the recent announcement, and per an announcement back in January, enterprise customers were working with an understanding that classic Hangouts was going to start being retired in October for G Suite customers. Google has pushed back the October migration deadline, now giving enterprises until next June to make the move.
So why is Google retiring classic Hangouts and forcing a move to Hangouts Chat and Meet? To answer this question, you need to go back to their March 2017 announcement introducing the new Hangouts. Through a Google blog post, Google announced that classic Hangouts will be split into two parts, Hangouts Chat (think Slack messaging) and Hangouts Meet (think Skype or Zoom video conferencing). Google proclaimed that Hangouts Chat and Hangouts Meet will be the next generation of Hangouts that will focus on team communication. In the announcement, they pointed out that more than half of the workforce will contribute remotely by 2020 so enterprises will need purpose-built tools to help their employees be successful.
Google heard from their enterprise customers and understood that to be successful, these enterprise employees needed an ability to effortlessly connect over video and chat to be truly collaborative. It is from this that Google was going to evolve Hangouts into Hangouts Meet and Hangouts Chat. Google was going to provide enterprise customers with collaboration offerings that map best to the stated needs of the enterprise’s employees so that they actually use the tools available to them and perhaps even enjoy using them while increasing their level of productivity and success.
Google’s approach to force enterprise customers at some point to migrate away from classic Hangouts and to Hangouts Chat and Hangouts Meet is a very smart move if it, in fact, results in more actual use of the collaboration tools by enterprise customers. As I have covered before, “use” is one of the things cloud vendors want from their customers and the reason is that cloud vendors, like Google, know that use is perhaps the best way to keep competitors out. Use of Hangouts Chat and Hangouts Meet not only makes the collaboration tools sticky and less susceptible to competitor takeover, it also makes G Suite more sticky.
The approach Google is taking is very similar to the approach Microsoft is also now taking to motivate (or force) current enterprise Skype for Business customers to move to Microsoft Teams. The reasoning behind the approach is also very similar. It all comes down to stickiness.
The battleground is only going to intensify between Microsoft and Google as they compete for enterprise customers and in the collaboration space, the battleground includes other strong competitors like Slack and Facebook (Workplace by Facebook). If you are an enterprise customer, you should have a significant amount of leverage if “use” has not started and if you effectively navigate and prepare for the various discussions leading up to (and during) any ensuing negotiation. If “use” has started, there is still an opportunity to be effective, the job just got more difficult.
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- HEAD IN THE CLOUDS: Google’s Cloud Outage and Google’s Effort to Land Enterprises