Salesforce.com continues to defy downturn

Salesforce.com has announced a set of quarterly results that suggest the software-as-a-service model is more resistant to the current economic downturn than the traditional software business model.

The company grew revenue by 20% in its third financial quarter, ending July 31 2009, to $316 million. To put that in context, the Information Age Index, which collates the revenue growth rates of the top 200 companies in the IT sector, fell to -7.8% in August 2009.

Salesforce.com added 3,900 new customers during the quarter, taking the running total to 63,000. The company processed 15 billion customer transactions, up 30% from the same quarter of last year.

More importantly for the company, net income rose 110% from $10 million in the same quarter of last year to $21 million. That pushed the company’s operating margin up to 9.3% from 6.1% in the third quarter of 2008.

That alone is unlikely to persuade its doubters, which include Oracle CEO Larry Ellison, that the SaaS model can generate the kind of profitability to which the software industry is used. Still, the upward trajectory of its profit marks Salesforce.com out from the majority of IT companies – including Oracle, whose net income fell 8% year-on-year to $1.8 billion in its most recent quarter.

On a conference call for investment analysts, CEO Mark Benioff gave some indication of where margin improvements came from. “I am excited to report that our transition from proprietary Unix servers to open, standard Dell servers, is yielding some pretty amazing efficiency improvements,” he said. “Today all of our application servers and roughly half of our database servers are now running on Dell, and they are delivering price performance improvements of roughly 20 times versus our previously-installed Sun Solaris servers.”

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media (now Bonhill Group plc) from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The...

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