In summary: Salesforce.com, Salesforce.com, more Salesforce.com, and is IBM shaping up to buy SugarCRM?
I imagine the conversation in most CRM companies went something like this: ‘well, it’s the Olympics and people will be away on holiday, so let’s keep new announcements on ice until September’. But in a conference room in San Francisco, the conversation was clearly a little different: ‘well, it’s the Olympics, and people will be away on holiday, and other CRM companies won’t be doing much, so let’s use the opportunity to dominate the headlines for the month’.
And so Salesforce.com did. In no particular order, the company announced its Q2 results, which topped analyst expectations with revenues of $731.6 million, and a net loss of $9.8 million, up from revenues of $546 million, and a loss of $4.4 million in Q2 2011. The company trimmed its guidance for Q3 however, which sent shares sliding by 5% in after-hours trading.
Interestingly, while sales were up 34% year on year, sales and marketing expenses were up 65%, research and development up 44%, and general and administrative costs up 40%, which led some commentators, at least, to question how sustainable the current business model is. My personal take is that Salesforce’s recurring revenue model, which isn’t beholden on selling a bunch of new licences every quarter, means that it could switch into profitability pretty much anytime it wants. At the moment it sees an opportunity for huge growth and is clearly going for it – hard.
While it may not be beholden to big new licence deals, it doesn’t mean that it’s not getting them. The company also announced that it had landed one of the single biggest transactions in its history. Since the previous largest was believed to be State Farm Insurance for $140 million, this clearly wasn’t a minor transaction. While the company wasn’t naming names, it certainly seemed to be giving a few hints, with Marc Benioff indicating it was a large networking technology company.
Coincidently – perhaps – Cisco – a large networking technology company – also announced in August that Marc Benioff was joining the board as a non-executive director.
With Salesforce.com’s flagship Dreamforce event coming up in September, Marc Benioff used the Q2 earnings call as an opportunity to provide some glimpses of forthcoming announcements. This will include the unveiling of Work.com, which looks like it will be a combination of Rypple’s performance management capabilities that Salesforce purchased last year, and the corporate perks functionality from ChoicePass, acquired a few months ago.
Some commentators were suggesting that Salesforce would launch a full on assault on the HR software market, but with Workday Co-CEO Aneel Bhusri due to speak at Dreamforce about the new integration between Workday and Salesforce, this would seem unlikely. Whether that position is maintained over the long term, as Salesforce inevitably looks to broaden what it can offer its customers, is another matter.
The other area we can expect to see announcements is the marketing cloud, building on the back of Salesforce’s Buddy Media and Radian6 acquisitions. With some analysts suggesting that the chief marketing officer will be responsible for more IT budget than the chief information officer, Marc Benioff, as ever highly attuned to emerging trends, has identified this area as ‘the next $1 billion product line in the making’.
Salesforce.com also unveiled a refresh of its do.com capabilities, adding contact and opportunity tracking capabilities to its, currently, free task manager application, built on the back of its 2011 Manymoon acquisition.
And finally, to round out the month, Salesforce published 197 pages of releases notes for its Winter ’13 release. This will include the extension of Chatter to include polls and new functionality to help integrate third party applications. The notes also included the pilot of the new communities capabilities, which were also announced earlier in the month, and allow users to create their own private social networks which can accommodate employees, partners, customers and other stakeholders.
Elsewhere on the Salesforce.com front, plans to trademark the term ‘social enterprise’ in the US, EU, and Jamaica, started to ruffle a few feathers among organisations that consider themselves social enterprises by virtue of their focus on contribution to the community and environment in preference to pure profit. Peter Holbrook, Chief Executive of Social Enterprise UK, in a letter to the Guardian newspaper, said the ‘The move is wholly misleading and threatens the real social enterprise sector’s future’.
Finally, in other – non-Salesforce.com – news, IBM announced it was purchasing Kenexa, the developer of HR applications. Where this becomes potentially more interesting to the CRM market is whether this marks a shift in strategy for IBM, to a greater focus on business applications. If so, the question arises as to who it might target in the CRM space. Some pundits had suggested Salesforce.com, but with a current market capitalisation in excess of $20 billion, this looks a touch unlikely.
SugarCRM, who have made huge strides forward in the last few years – progress attested to by their August Q2 financial update showing billings up 36% year on year – would seem a much more likely proposition, particularly given the close existing relationship between the two companies.
That concludes my take on the news for August. If I’ve missed or misunderstood anything significant please feel free to comment!