Salesforce.com on track to break $1 billion barrier

For most companies, becoming one of the largest operators in their sector usually means saying goodbye to the dramatic growth rates often seen among fledgling businesses

But right now, pioneering on-demand CRM provider Salesforce.com seems to be enjoying the best of both worlds.

In late February, the company reported its fourth quarter and full-year results for the financial year ending 31 January, and those numbers made compelling reading. Quarterly revenues grew 50% year on year to reach $217 million, while the yearly total reached $749 million – up 51% from fiscal 2007.

These figures helped Salesforce.com to take second place in Forbes magazine’s list of the fastest-growing major technology companies, only pipped to the top spot by Google.

But Salesforce.com can no longer be thought of as the upstart entrant to the software business. Despite proclaiming an ‘end to software’ in its marketing material, Salesforce.com recently became the 14th-largest software company in the world by market capitalisation.

And given its current rate of revenue growth, the company’s forecast that revenues will exceed $1 billion in 2009 is easy to believe. Its customers now number over 41,000, paying subscriptions of nearly 1.1 million.

Harder to divine is whether the company’s loftier ambitions to become the world’s first platform-as-a-service company are gaining traction. The company does not break out the relative revenue contributions of its AppExchange application marketplace, Apex development platform and other offerings from its popular sales force automation tool – instead lumping them together under ‘subscriptions’ revenue.

But it does provide technical data. Speaking on the earnings conference call following the results, Marc Benioff, Salesforce.com’s CEO and founder, revealed that developers have written 1.1 million lines of code on Apex, Salesforce.com’s specialised programming language that executes on the company’s on-demand platform, Force.com. Over 5,800 unique user interfaces have been built using VisualForce. The utility database service has seen transaction volume at over 160,000 SQL server statements per second.

It is difficult to assess the popularity of the Salesforce.com platform as no like-for-like comparisons can be made – no other company has built a similar ‘platform-as-a-service’ offering.

Arguably the closest comparison is with online retailer Amazon.com’s AWS, used by more than 330,000 developers – nearly five times the 68,000 that use Force.com – but it was launched five years earlier. During the most recent financial quarter, the AWS user base grew by 30,000 developers. Given that Force.com has only been available for two quarters, it is reasonable to assume that Salesforce.com will overtake quickly.

Salesforce.com investors will hope that the company is rather better at converting usage into revenue than Amazon.com. Staggeringly, AWS now consumes more bandwidth than the company’s book retailing site – one of the world’s most visited websites – but contributes less than 2% of the company’s $5.7 billion revenues.

In Salesforce.com’s favour, its platform connects developers directly to paying customers via AppExchange, so it can expect a professional, and therefore more lucrative, user base than the Web 2.0 start-ups typifying the AWS user base. However, Force.com is a closed, proprietary platform, the likes of which are frowned upon by many developers.

Divergent paths

The contrasting fortunes of computing giants Dell and Hewlett-Packard (HP) continued to diverge in February.

Affluent HP reported first-quarter revenues of $25.8 billion, up 13% from the same quarter in the previous year. Operating profit grew 31% year on year to reach $2.8 billion.

An especially strong performance was seen at HP’s personal systems division, where revenue (largely from PCs and laptops) grew by 24% to reach $10.8 billion, with a 27% rise in growth in units shipped. The division generated robust profits of $628 million, more than 50% more than in the same quarter the year before.

HP’s imaging and printing arm, although overtaken by the personal systems group as the largest by revenue in 2007, is still the most profitable for the company. It generated $1.2 billion of operating profit on revenues of $7.3 billion. The enterprise storage and servers division, meanwhile, grew revenues by 9% year over year to reach $4.8 billion.

CEO Mark Hurd, every IT industry executive’s current role model, was calm in the face of upcoming US market worries, observing in a call with analysts that 69% of the company’s revenue comes from outside the US. “I think that’s probably an asset,” he said.

Meanwhile, Dell managed revenue growth of 10% in the fourth quarter of its fiscal 2008. Net income shrank by 6% to $679 million.

Contributory factors to this margin drop included $83 million in write-offs relating to acquisitions and discontinued research projects, and $53 million due to ‘business realignment’, also known as lay-offs and facility closures.

If the much-predicted US downturn does come to pass, Dell is in a more vulnerable position than HP, deriving almost 50% of its revenue from the North American market.

Further reading

BlueWolf brings SaaS consultancy to Europe

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...

Related Topics