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Salesforce.com, Inc. (NYSE:CRM)

Pacific Crest Click to Compute Conference (Transcript)

September 12, 2013 12:00 PM ET

Executives

Mike Rosenbaum - EVP of Salesforce Platform

Analyst

Brendan Barnicle - Pacific Crest Securities

Operator

Welcome to the Pacific Crest Click to Compute Conference Call with Salesforce.com. My name is Christine and I'll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note this conference is being recorded. I'll now turn the call over to Brendan Barnicle. You may begin.

Brendan Barnicle - Pacific Crest Securities

Thank you, Christine, and thank you all for joining us. I am Brendan Barnicle from Pacific Crest and thanks for joining us on our Click to Compute Conference Call series, in which we’re examining the ways in which enterprises are moving to the cloud. Today we're joined by Mike Rosenbaum who is the EVP of Salesforce Platform business. We had the benefit of hosting Mike at our Boston Conference in March and we're pleased to have him back with us today.

I am going to start by asking Mike some questions and then we will open it up to questions from our listeners towards the end of the call. Mike, since we saw you last in March, what do you think has been the biggest changes in enterprises in terms as they move to the cloud?

Mike Rosenbaum

Hi, everybody. Thanks a lot for the opportunity to talk today. Since March, I think we touched on a little bit in March, but this idea of mobile applications and also sort of thinking about how applications built in the cloud are integrated into other back-office systems. Both of those things are really taken off in our customer base. And so now as opposed to thinking about sort of standalone applications, we are increasingly seeing people thinking about how to build applications at such other systems and integrate into other systems and how they take that data in those application and put them on into their employees’ mobile devices and sort of mobile engage their work forces.

Brendan Barnicle - Pacific Crest Securities

How those things now set in the platform business? Are you seeing that in different, I mean I guess you mentioned in used cases, but are you seeing any different, I believe the people are subscribing or how they are using or what they are looking for?

Mike Rosenbaum

Yeah. I think we made a decision at the beginning of this year to think more about the platform business. At Salesforce in terms of outcomes we can help our customers to achieve as opposed to sort of generic technology platform and that’s really resonating with our customers.

And also those two things mobilizing their work forces and delivering mobile applications to their customers as well as integrating and thinking about applications as an integrated suite that help them deliver value to their customer, those are -- they are very aligned I suppose in terms of how we’re thinking building the platform application and building the platform business.

As opposed to trying to just save money about running infrastructure, more business applications more efficiently, I think more and more people are thinking about how they can use the cloud as a strategic driver, how they can drive transformation in that business and use technology in ways that help them grow faster and mobile and integrated systems are two real drivers of that.

Brendan Barnicle - Pacific Crest Securities

And what do you as you talk to customers, what are still home enterprises back from moving to the cloud?

Mike Rosenbaum

I don’t know there is probably 100 different reasons. I would say that the most common thing that I hear from people is skills and expertise and are far more, I always ask people what I can do to help them go faster and they say help me find more people with the expertise in helping them architect and develop systems around cloud infrastructure, around cloud platforms and around Salesforce and that I think speaks to just the growth in the cloud echo system overall and that demand for this expertise is outstripping the supply of the folks capable of helping these company architects, these sort of next generation systems. There is absolute demand out there for this and for this transformation and what we are seeing when we talk to people is just that evolution of thinking through the next generation enterprise architectures.

Brendan Barnicle - Pacific Crest Securities

That’s come up with several companies this where they had to slow down revenue growth or something because they didn’t have the people to do the implementation work we saw with couple of different pretty high profile things earlier in the year. What do you think the industry needs to do to kind of build to accelerate the training and so that we have we don’t enter this kind of personnel bottlenecks?

Mike Rosenbaum

Well, certainly Salesforce is very, very focused on working with systems integrators and helping to ensure that we have the greater managed capacity universe, sort of as much capacity as we put at their customer demand in terms of doing these sort of implementations. I think the industry is to recognize these changes happening and there is still some legacy, momentum around the legacy systems, and as we push through this transformation, you are, I think, just going to see in general the transition to cloud accelerate because like I said, there is one of those market dynamics time to think, the demand is out there and there are going to be developers who jump on board to fulfill that demand.

And when that starts to happen, it will just continue to accelerate, but it’s the companies like Salesforce we work very actively with companies like Accenture and Deloitte and Capgemini and many others systems integrators to help ensure we have got that bench of expertise. And then we are also doing tremendous amount of grassroots of angelism and training to make sure that we are making available all to start information education material about how to build on Salesforce so that we get as many people train on this possible.

Brendan Barnicle - Pacific Crest Securities

Switching gears a little and some survey work that we’ve recently done, enterprises said that that they maybe 10% of their software apps to the cloud and that they moved about 1% so far. First, is that [Staten] expense deal? Second, what apps are you guys seeing people move? And third, which apps are enterprises most frequently using Salesforce Platform where they are making a move?

Mike Rosenbaum

So a couple of questions there. So the first thing that I would think about in terms of thinking about the cloud, this is a factoring a lot into how we think about the platform in Salesforces, is it -- there is going to be enterprise applications that move. If you talk to a CIO, when you look at the portfolio of applications that they support, you can get better functionality and efficiency and better service, better application by moving an application.

But increasingly what we're seeing are companies thinking about net new applications that are going to help them grow, that are going to help them differentiate themselves, that are going to help the employees connect to their customers more effectively. And so this is net new applications that don't exist today, because honestly, mobile phones, social networks and cloud computing didn't exist 10 years ago, when the modern set of enterprise application were installed.

And so, there is a migration aspect to this, but there is also a net new application development cycle that's happening right now on mobile and social applications. And that's really the driver and that's really where I think the real opportunity is for CIOs and businesses to take advantage of the opportunities that this new technology affords them, right.

So, that's number one, right. So is it 10% or 1% or 12%, I don't know. But when you look at it, when we look backwards five years from now, I think we're going to say, hey, there were a whole bunch of net new mobile applications that were developed right now. And so the overall landscape is just going to look very, very different than it does right now. The other thing just thinking about Salesforce platform and what we see in the sales force ecosystem; we're obviously very, very successful, the CRM applications company and we’ve get lots and lots of customers who are using our sales cloud or our service cloud or marking cloud products and that has caused an ecosystem to evolve around those CRM products built on or around the Salesforce platform and so we get tremendous energy in that ecosystem.

So if you look at our app exchange, you will see lots of applications that revolve around CRM, maybe product configuration, field service and things that sort of augment the net value to the CRM applications, but also a lot more, right and we're seeing increasing numbers of more back office focus systems, the ERP systems, manufacturing systems, financial accounting systems. There is sort of taking advantage of the opportunity that, that the benefits of a cloud delivery model.

Brendan Barnicle - Pacific Crest Securities

Your point about sort of the new used cases, is that really interesting one because early days of Salesforce and people thought, well, Salesforce can only be as (inaudible) as they can see SSA market and obviously Salesforce is able to get deployed way larger than anybody had thought about it before. So you had sort of this multiplier effect that calls for demarketization of software that Salesforce is able to do. So it sounds like you are seeing, as you think about kind of platform moves forward, it’s sort of expanding you out in to kind of whole new use cases.

Mike Rosenbaum

Yes, absolutely right. When we talk to our customers about what we can help them achieve, we really don’t even talk about technology. We talk about business strategy and the opportunities that they have to transform our business. You hear Salesforce saying, we are trying to help our customers become customer convincing and he said what does that mean? And it means is how do we allow them to establish one-to-one relationships with every single one of their customers through technology, right. And if you think broadly about this, we think about the internet of things, think about connected devices and these are applications that are going to be built in order to support the idea that your car is connected to your company and is connected to a support process, is connected to your customer in a way that even right now is not really the case.

When you see watches coming out that are connected, and just all of those things that sort of explosion in the hardware and the connectivity around mobile devices is going to create a whole new set of business applications that are designed around enhancing that customer experience. And so those are kinds of conversations we have, and what we hear from our customer is how can we help, how can Salesforce help us to go faster, right?

How can we keep help them keep pace with this business transformation because technology and information technology should not be the bottleneck, right. So the goal in the division of the Salesforce platform is can we build, how do we deliver a cloud platform that allows our customers to go faster because such that they are not having to think about these things as IT projects, but they are able to execute them as fast as their business needs.

Brendan Barnicle - Pacific Crest Securities

So when you are talking about the way you guys view it, its like you guys have the ultimate customer record and lots information around that customer what they do, can that ultimate, can that customer record be used in way that we historically thought of as where we would have had like a accounting system of record, or are we just looking more like new used cases as oppose to taking over a transaction system or financial system or other components of that, that we would kind of assume underneath the customer record. I guess it’s more so a business model question of where you can blend this to?

Mike Rosenbaum

Now I think that’s a really good question and I can only answer it this way. Having a conversation with the CIO at it’s a very large enterprise company and he’s talking about these enterprise architecture and if you look at everything all of our business applications today are architected around the idea of executing processes efficiently and there is almost no sense of the actual customer around which we are executing those processes on behalf of.

But if I rethink the way that my enterprise needs to be architected and all the applications needs to be architected around the idea of putting the customer, putting the consumer at the center of those processes in order to deliver more value to that user, then you still need those accounting and those transactional systems, they are still going to exist but they need to integrate to a system like Salesforce where you do have that master customer record that master consumer record and you are able to build all of these what I guess people are starting to call systems of engagement that revolve around that customer and revolve around the products and the service that you deliver to that customer. So I completely agree with sort of the theme of your question and that’s absolutely what we are driving with the Salesforce platform

Brendan Barnicle - Pacific Crest Securities

And so when you are talking about customers increasingly integrating with their back offices or with other apps, are they starting to do some of that or they are taking things outside of kind of customer realm and linking them in or is that just where you think people are wanting to go?

Mike Rosenbaum

We are absolutely seeing people do that. We recognize that we are not out to say hey, Salesforce is going to become one stop shops for every enterprise application that you use, but in order to be able to deliver the value to our customers, we’ve got to be able to allow them to integrate the back office of systems like Oracle and SAP. These are one of those things that our customers brought to us and so we are absolutely seeing that. A great, great, great example this is Kelly Services who integrates their SAP order or management information into Salesforce applications and they’ve mobilized and put out to all their employees, all their service sales employees.

To your question before about creating a customer master record and being able to attach to that or integrate to that, all of the relevant information from whatever system back office systems, front office systems, point-of-sales systems that help employees and help build applications that make a better sort of customer experience, that’s absolutely the case and it’s absolutely what we are seeing people do.

Brendan Barnicle - Pacific Crest Securities

So you guys, I wouldn’t imagine are sort of facing of this internally as you look at exact target and all the customer data there, because that was a system that’s build entirely on DotNet, and you guys obviously aren’t. How do you guys think about that kind of the challenge as you look at it even internally?

Mike Rosenbaum

Well yeah ExactTarget it’s been very interesting for me, personally just learning more about what they offer, and what’s been really exciting is seeing the extent to which they have developed their fuel platform, and so I think some people might think of ExactTarget as a marketing automation company or maybe a messaging company. But really it’s a one to one customer platform. But because they have invested in what they call their fuel platform, which is a rich set of APIs that allow you to build applications around connecting with customers and using interaction data around everything that's going on with that customer to drive targeted interactions. They basically could give you the same answer as I did about integrated systems right.

In order for you to be able to use, ExactTarget effectively and get the most value from it, you got to integrate it into all the other systems that you're using to do transactions or interact with customers. That's the richness that allow, that rich data allows you to have that better connection with customers, and so their fuel platform sort of provides that support and we're all certainly on the platform side of Salesforce very excited about the kind of applications that we're going to be able to build together with our customers as we integrate them into the company.

Brendan Barnicle - Pacific Crest Securities

That's great. As you think about the platform and acquisition, within the platform you guys did Heroku a couple of years ago. Are there other things that you see adding into the platform or an acquisition side that would kind of build out an area that you would like to take it or technology that you’d like to augment?

Mike Rosenbaum

I can't obviously talk in detail about acquisition strategy, but we have done like you said a number of sort of platform centric acquisitions and we'll continue to look at that as an opportunity to provide more value to our customers. You mentioned Heroku, which is doing phenomenally well and in some ways helping drive some of those net new customer engagement applications that I am talking about.

We see tremendous growth in the sort of what I sometimes say the mobile application is the modern marketing campaign and CMOs and large companies are looking at agencies that they work with and cloud platforms like Heroku to deliver those scalably, but we've also done other acquisitions around the work flow and also around what essentially has become our, what we call [site.com] which is actually the foundation of our communities and portal product now. And so we will continue to look at technology, we're always looking and trying to provide a platform that’s going to help the customers grow faster.

Brendan Barnicle - Pacific Crest Securities

Great, Mike I am just going to open it up for some questions. Christine, could you remind folks of the instructions for queuing up for questions?

Question-and-Answer Session

Operator

(Operator Instructions).

Brendan Barnicle - Pacific Crest Securities

And if you would also like to send with your email, be happy. To internally email me here at Pacific Crest, that's bbarnicle@pacific-crest.com and I'll be happy to ask any questions that come in that way also. Maybe while we're waiting for those questions to queue up, Mike, I know you already spent a lot of time with CIOs, but I am guessing probably CMOs as well. Marc says a lot about the increasing role of the CMO and IP spending, are you starting to see the shift to CMOs and kind of what situation be it typically find yourself out into CMO more than a CIO?

Mike Rosenbaum

Well, so what has been interesting from me is seeing that partnership start to evolve on I mean increasing numbers of conversations in which CIOs and CMOs come to talk to Salesforce together which is really, really interesting and started to recognize that this partnership between the technology organization to marketing organization is incredibly important.

Obviously much more important going forward than has in the past, so that’s really the difference may be in the last year. I suppose if the number of what we call the EVCs or executive briefing center meanings that we have, it’s a partnership of the CMOs obviously on the sort of demand side and the idea side, and the CIOs coming and working with Salesforce to be able like I said to provide a platform that’s going to allow them to execute on these ideas as quickly as possible.

Certainly the technology has become already critical to the success of any CMO, any marketing organization and so you are seeing that increase in technology spend, but as for the complexity immigration requirements behind some of these really robust consumer facing applications, you are seeing the recognition I suppose that the IT organizations, the CIOs really need to help deliver that kind of stuff.

Brendan Barnicle - Pacific Crest Securities

Some of you talked about the emergence of sort of a new C level executive, some call it a Chief Digital Officer, somebody that fits between the CMO and the CIO kind of fill that role. Have you seen that often?

Mike Rosenbaum

I have certainly read about it and definitely understand the philosophy for it, and I think there are probably pros and cons and when it comes to customers going have to make the decision about what the best way to organize this. My philosophy on this is that technology is just going to become an increasingly important to every business function and you can’t ignore it right, technology expertise and it’s just going to become part of the toolkit for every C level executive in every department in the company.

I think you could have the same conversation about HR and how you are using technology to run a more effective efficient HR organization. Marketing certainly at the forefront of that because of the changes in our private consumer lives about how we interact with brands and get messages and marketing is delivered, but I think it’s going to spread throughout the entire company and I think just technology expertise is part of all of our jobs now.

Brendan Barnicle - Pacific Crest Securities

So do you think that as we think about the CMO budget, or CIO versus CMO that it’s incremental spend that the CMOs are having or is it anyway sort of cannibalizing the CIO budget?

Mike Rosenbaum

It’s a good question and I spend some of my career managing marketing budgets and so I guess one of the things I would say the CMO typically has probably one of the largest sort of discretionary budgets in the company because of the advertising budget and the marketing budget. And so often it’s easy for them to earmark percentages of that towards technology and as technology becomes more and more important and relevant to the performance in marketing campaigns becomes, it’s a very easy math for the CMO to do to say from spending X on marketing campaigns, then some percentage of X spent on technology to make those marketing campaigns more effective and efficient is an obvious positive ROI.

And so in that case you are not really, is not taking anything away from the CIO, it’s just sort better up margin in your marketing spend. What I think like I said increasingly what we are seeing is this drive towards integrated systems, which I don’t know whether it takes away from the CIOs budget or it just earmarks the greater percentage of a CIOs budget towards integration and delivering integrated applications that will help propel a company.

My sense on all of this is that we are in a little bit of a transition phase here and what we are really getting towards is IT projects that drive incremental revenue for a company and will be funded based on that you know IT spend being considered looked at as part of strategy investments in product delivery in the company and not so much thinking about sort of the keeping the lights on, keeping the IT systems running budget but instead as an incremental mechanism to grow a company. And that’s how I think that ultimately this whole thing will grow.

Brendan Barnicle - Pacific Crest Securities

I had a question coming on the web, as Salesforce goes to a more vertical sales approach in it's enterprise sales team, are there specific ways to [prioritize] the platform for each vertical that could help drive increased usage or adoption especially within large enterprise deployments.

Mike Rosenbaum

Yeah, absolutely right. I mean, because it's when you think about the platform in Salesforce, it's spectacularly it's an enabler for expansion in customization right. So to the extent that we approach markets more vertically and there are specific application requirements for vertical market that is just automatic, we are going to create more opportunity for the platform in each of those spaces. I talked at the beginning of the call about how we started to think about sort of solution base approaches to platform selling that's really driven around outcomes as oppose to just technology, for technology sake and verticals focus in specific solutions are just going to accelerate that I think.

Brendan Barnicle - Pacific Crest Securities

Terrific.

Mike Rosenbaum

Gives us more opportunity for you to basically find used cases for the platform.

Brendan Barnicle - Pacific Crest Securities

Yeah. Make sense. Christine do we have any questions in the queue?

Operator

We do, we have a question from Eric Yoon of Pacific Crest. Please go ahead.

Erica Yoon - Pacific Crest

Hi, thanks for joining this call. I was curious, because you mentioned a few things. Is the one thing that would keep applications from accelerating further being developed on your platform, the lack of expertise, technical expertise to implement these or is that company’s step back sort of holistically and trying to figure out what it is they want to do and who is going to implement it. Could you refer to having work with a size and I am just trying to figure out what would be or would help really accelerate, and as you look at all the numbers of applications that you have currently developed, how do you track them, just to kind of see which handful might be really big accelerators?

Mike Rosenbaum

So, two parts to the question, I'll answer the first part. So, first, we're in a phase right now in the evolution of sales force, maybe we’ve always sort of been in this space since the company has grown, where the growth of the demand for developing our platform is very high and it's creating a large demand for expertise in our platform and in Salesforce.com. It's the same pattern I think that we've seen in many other technology shifts.

If you think of, networking or SAP or Siebel as companies go through this phase of great adoption, you create a demand for the expertise to be able to do this implementation and we work really hard to educate as many people as we can about the technology, but also educate them about the opportunity. We're constantly doing programs to help enable and certify developers and large system integrators and also like I said evangelizing opportunity and educating the masses and anybody that wants to learn to develop on Salesforce.

The other side of your question, yeah absolutely we are constantly, I am constantly working with our sales teams and our customers to identify the used cases in, what I call used cases, maybe you call applications that are interesting to them. A really good example of this, I’ll tell you the story is what we call company communities. So we basically saw our customers and our account executive identify this opportunity in our customer base for saying, we can take the Salesforce technology and basically create a new kind of internet instead of a static webpage with old content that’s not mobile or social.

We think put together the pieces of the Salesforce platform including chatter and our by getting management, and our knowledge management, and case management solutions we can create a really robust modern internet and that caused us. That would be recognition of that pattern that application in our installed base, in our customer base caused us to create the product and put some, put energy behind marketing it. So we are constantly doing that and we are constantly talking to customers and our account executives about finding these patterns. And to the other question about verticals, I think that as we get more vertical specific we are going to see those used cases really just multiply.

Brendan Barnicle - Pacific Crest Securities

Thanks Erica. Christine any other questions?

Operator

We have no further questions at this time.

Brendan Barnicle - Pacific Crest Securities

We are just about out of time. I did want to ask you one final thing Mike before we go. Veeva yesterday filed to go public, its the first force.com companies to go public, already has a $200 million run rate. Are there other companies like that, that you guys are seeing on force and on the platform or are these a bit of an anomaly?

Mike Rosenbaum

No there’s many other applications that are in our (inaudible) system and on our app exchange in our program that are just following just along in this pattern of how you start a SAS or cloud application business and how you get that started and how do you build the distribution, first you build the product and you build the distribution, then you start marketing and growing the company and we’ve got a whole portfolio of applications on our app exchange that are following along sort of this track. So we’re very, very excited about the future of the app exchange and the ecosystem of cloud applications that are build on our platform.

Brendan Barnicle - Pacific Crest Securities

Great and I guess since we have no further questions we will end the call. Mike thanks so much for taking the time to join us today this has been incredibly helpful. Thank you all for listening and we look forward to speaking with all of you again in our next [compute] call. Have a great day and goodbye.

Mike Rosenbaum

Thanks very much.

Operator

Thank you. And thank you ladies and gentlemen, this concludes today’s conference. Thank you participating, you may now disconnect.

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