Salesforce.com’s Strong Growth and Raised Expectations Puts Customers in the Driver’s Seat

Salesforce.com (“Salesforce”) finished fiscal 2016 strong and reported exceptional revenue growth across all of their cloud service offerings while beating analyst expectations.

Here are some of the financial highlights:

• Q4 revenue grew 25% year-over-year, reaching $181B and beating expectations of $1.79B
• Full year revenue grew 24% year-over-year, reaching $6.67B and moving closer to their goal of $10B
• Full year deferred revenue and unbilled deferred revenue reached $4.29B and $7.1B respectively

Here are some of the key takeaways:

• Raised revenue guidance for fiscal 2017 and demonstrated an ability to achieve double-digit revenue growth will place a significant amount of pressure on Salesforce. This pressure presents customers (new and old) a considerable amount of leverage during their negotiations with Salesforce.
• Gaining an audience with customer’s executives will be a focus for Salesforce and their sales teams as this has proven to be an effective strategy for being best positioned to close large deals that include an expanded portfolio of Salesforce’s cloud service offerings.
• Demonstrated success in growing their market share in the Analytics space will be a focus area for Salesforce moving forward. They will look to move beyond the Analytics platform (Wave) and into the Analytics applications space.

Given their need to continue to demonstrate strong revenue growth and not fall short of their raised guidance for 2017, Salesforce will need to close more large deals, add additional cloud service offerings to each customer’s portfolio and gain further adoption of their Analytics platform.  In order to do this, Salesforce will be motivated and willing to offer incentives to their customers, especially if the environment is competitive or there is an opportunity to bring in an early renewal.

Salesforce has already begun offering customers one-time upfront discounts as a motivator to getting the deal done and off the street.  We fully expect Salesforce to remain aggressive in their approach to the market and existing customer base.  Don’t let the one-time discount cloud your judgment though.  Once Salesforce has adequately demonstrated the value of their proposed cloud offering,  it is important to ensure the offered one-time discount is actually market competitive.  It is also critical to put in place the proper price protections to ensure Salesforce is not in the position to make up for the one-time upfront additional discount (i.e. revenue hit) at a later date.  They will most likely attempt to do this upon renewal where your leverage will be significantly diminished.