Salesforce.com FY 2014 Q3 Results Beat the Street: Can Salesforce.com’s Growth Goals Represent an Opportunity for Customers?

Kicking off Dreamforce 2013, Salesforce’s 11^th annual conference in San Francisco, CEO Mark Benioff announced that Salesforce.com achieved a $1B quarter just four years after delivering its first $1B year.  Salesforce.com’s  third quarter revenue of $1.08B represented a 36% year-over-year increase that benefited greatly from the acquisition of ExactTarget, an email marketing services company that Salesforce.com purchased for $2.5B back in July.  The majority ($1B) of the quarterly revenue comes from subscriptions and support which is the core of Salesforce.com’s business.

Salesforce.com raised its fiscal 2014 revenue outlook and is now expecting annual revenue to fall within a range of $4.050B to $4.055B which represents a 33% increase year over year.   In addition, Salesforce.com made a bold statement to the market and their primary competition (Oracle, SAP, Microsoft…etc.) by stating that it expects fiscal 2015 revenue to be in the range of $5.15B – $5.20B.  Salesforce.com is planning to increase its annual revenue by $1B which represents approximately a 27% increase from fiscal 2014.  How is Salesforce.com able to make such a bold statement?  According to Benioff, it comes down to “the strong customer response to our next generation social and mobile technologies.”  In addition, Salesforce.com announced a formal relationship with HP to jointly develop and market the “Salesforce Superpod” (a dedicated instance in the Salesforce.com multi-tenant cloud, which will run on HP’s Converged Infrastructure for enterprise data centers).  Salesforce Superpod will specifically be marketed to large enterprises and has the potential to significantly impact Salesforce.com’s revenue while further accelerating its move from small to large enterprises.

Whether you are an existing customer or a new prospect, expect an opportunistic sales force that will aggressively look to close larger deals as well as incremental add-on deals, all within a shorter sales cycle.

If you are an existing customer, expect the following from Salesforce.com:

• A push for an early renewal with a “one time offer” of a deep discount to sweeten the pot.
• A bill of materials that includes additional solutions that were not originally contemplated or part of your existing agreement.

UpperEdge recommends you evaluate the pros and cons associated with either scenario before bringing pen to paper.  A deep discount may not offset the cost implications of signing an early renewal that will lengthen the term of the relationship and increase the payments you are obligated to make to Salesforce.com.  Also, without the advice and market intelligence of an independent advisor, how can you be certain the deep discount is in fact extraordinary?  “One time” special discounts often come with a price such as the bundling of add-on solutions that Salesforce is hoping to seed more broadly in the market.  Customers must properly vet the solution and validate the need for the add-on capability as Salesforce’s agreements typically do not permit product termination during the term.

If you are a new prospect, expect the following from Salesforce.com:

• A sales force that works to circumvent the evaluation and negotiation process by selling directly to the key business decision makers without getting into the details on price, flexibility and downstream protections.
• A push to jump right to redlining and legal review of contractual documents with the hope of closing a deal quickly.

UpperEdge recommends new prospects employ a competitive approach to the selection and negotiation while fully understanding the market value to Salesforce of securing a new customer in a tight market.    Signing a new prospect is highly valuable to Salesforce.com because it grabs market share from competitors and secures a long term revenue stream with the new customer.  If done correctly; these net new initial transactions represent tremendous opportunities for Salesforce.com prospects to negotiate highly compelling deal constructs with Salesforce.com.

If you would like to learn more about how UpperEdge has helped companies negotiate with Salesforce.com, or if you have any comments and questions, please do not hesitate to contact amansfield@upperedge.com