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salesforce.com, inc. (NYSE:CRM)

JMP Securities Technology Research Conference Call

March 3, 2014 1:30 PM ET

Executives

Parker Harris - Co-Founder

Analysts

Patrick Walravens - JMP Securities

Patrick Walravens - JMP Securities

All right, why don’t we go ahead and get started? So we’re just delighted to have Parker Harris from Salesforce, the Co-Founder of Salesforce, sitting to my left. Thank you, Parker so much for coming.

Parker Harris

Yeah, no problem.

Patrick Walravens - JMP Securities

So one of the promises that I made at the beginning of this conference was that I would try to let investors get to know the people just a little bit – not a lot, just a little bit. And so like a very basic thing, which is nice to know about someone is where are they? Where are you from?

Parker Harris

So I am from Greensboro, North Carolina, actually I’m from the East Coast. So yes, they get late [inaudible] East Coast.

Patrick Walravens - JMP Securities

And you went to Middlebury, right?

Parker Harris

Yes, I went north, went to college in Vermont and followed my then girlfriend, now wife, to Montreal, Canada. Yes.

Patrick Walravens - JMP Securities

Oh, really, all right. And you were an English Litt. major at Middlebury?

Parker Harris

I was. I was. It helps in situations like this to be able to talk. Middlebury [inaudible] school and didn’t have computer science at the time and I’d always loved computer science but also wanted to exercise that other part of my brain.

Patrick Walravens - JMP Securities

Yeah, but so were you one of those kids I mean were you coding when you were...

Parker Harris

Yes, I had an Apple IIe when those were coming out and did a lot of early programming on those in 8th grade, long time ago.

Patrick Walravens - JMP Securities

Okay, all right, good. And then we’re going to skip a couple things and then you worked for one company and then three of you, Lee and you found Left Coast Software –

Parker Harris

That’s right.

Patrick Walravens - JMP Securities

Presumably referring to the West Coast. Clever, and what year are we in?

Parker Harris

So that was ’96.

Patrick Walravens - JMP Securities

Okay. That’s 1996. I am a second year attorney at Cooley Godward, San Francisco, that’s what I was doing.

Parker Harris

That was when Java was getting started and they had the [inaudible] early web, Netscape.

Patrick Walravens - JMP Securities

And you meet this guy Marc Benioff. This is ’96 or a little later?

Parker Harris

No, we started Left Coast in ’96. We met Marc in the fall of ’98.

Patrick Walravens - JMP Securities

Okay. How did you meet him?

Parker Harris

We were doing a job down at a company called Saba Software, are you familiar with it?

Patrick Walravens - JMP Securities

Yeah, I think most people –

Parker Harris

Bobby Yazdani was the CEO and he was ex-Oracle. And he had asked us to stay on on a contract and – but we said we wanted to go off and do something else. And he introduced me to Marc. Marc was an investor in Saba and we had lunch at a restaurant called Kinkaid’s. [Inaudible] right there Saba, and that’s where Marc and I started the conversation and he had had his sabbatical in Hawaii where he wrote kind of the vision of what he wanted to do, it was really like a 3-page email basically, his vision for the company. And it was kind of a perfect meeting because we had background in software automation, we were doing web services, because we’d dealt with automation prior to Left Coast.

And Marc knew a lot of people but was invested in just about every company where he knew people, so it was a bit complex for him to go grab people. And he was still at Oracle at the time.

Patrick Walravens - JMP Securities

And what was he doing at Oracle?

Parker Harris

He was doing a lot of things. He was doing – as everyone is aware, Oracle was going to be the complete file system, I forgot what they call that, basically you would store everything, it was going to be the backing for the OS. He was also doing Oracle’s Promise which was Oracle’s non-profit work. And so he was kind of doing a bit of both. We left the [inaudible] we started the company up right next to [inaudible], those are early days...

Patrick Walravens - JMP Securities

In an apartment next to this apartment?

Parker Harris

In an apartment, yeah, the one-bedroom apartment next to his, convenient for him.

Patrick Walravens - JMP Securities

All right. And the original idea is what?

Parker Harris

The original idea was really inspired by Amazon.com which was sales force automation. Marc had been an early investor in Siebel Systems and had originally thought about doing HR first actually but then he was looking at [inaudible], looking at the success of Siebel and the idea was let’s build sales force automation but make it as easy as Amazon – as easy as buying a book on Amazon.

Patrick Walravens - JMP Securities

Okay. So if I go back, I count – I mean there must be a dozen people at Salesforce who had the title of President. And they just - keeps rolling through and you’ve been there whole time, right? So what’s your secret, in terms of your relationship with Marc and I had other Saleforce executives by the way, I told him I was going to ask this question like, oh, good, good, when you find out tell me what it is?

Parker Harris

Marc has a few common sayings, tactics dictate strategy, you overestimate what you can do in one year and underestimate what you can do in a decade. And so you have to be – if you take those, you have to be very iterative. You have to have a real sense of urgency. You have to be able to take – he likes, he talks about the zen garden is not complete till you remove everything. Those are all examples of where everything gets questioned and re-questioned, and you have to be open to changing directions, questioning some mission that you are on but also defending it. And you also have to be able to translate -- Marc operates at a very high level, you’ve got to translate that to something that’s operational, that can get done.

Patrick Walravens - JMP Securities

The big thing for you guys right now is Salesforce1, right, which I have on my phone by the way – which actually, when I was at Dreamforce and maybe I just noticed this at that time but it seemed like is it possible that right when the keynote went my icon changed on my phone? Because I opened my phone and all of a sudden I had Salesforce1 on my phone.

Parker Harris

So we did this really cool thing where we were releasing Salesforce1 pretty much every month before Dreamforce. But it wasn’t called Salesforce1, it was the previous client and so we didn't change the logo or the icon or the name of the app until the night before Dreamforce. And so your phone was probably was being updated as you are in the conference. And that was a way for us to get a lot of feedback from customers early on and really try to shift - we do 3 month cycles or 4 month cycles or 3 times a year of our major releases and really in the mobile world, you need to kind of go for more frequency and get more feedback. And so that’s something that we really shifted to with that shift to Salesforce1.

Patrick Walravens - JMP Securities

And so walk us through a little bit because the path up to Salesforce1 is littered with bodies, right? It wasn’t easy getting there. So walk us through sort of over the years, how your thinking evolved?

Parker Harris

So I think it was 2006 we acquired a company called Sendia that was doing mobile computing and that team is still with us. They are based in Santa Monica. And from that became what we call now Salesforce Classic, it was a very heavy native client with mainly a synchronization based engine. So data was local and synchronized, which was a more traditional architecture many, many years go and over a period of years we started to move to building a lot more in HTML5 and that’s religious debate in the industry as well as even within Salesforce. We built the libraries that took us many years to complete. So you saw the first version of those come out with Salesforce Touch which we actually were not happy with, as an application, as a mobile application, but it was a first incarnation of those libraries – we had to rewrite our entire UI just the widgets that you use to interact...

Patrick Walravens - JMP Securities

Touch came out in ‘12, ‘11 –

Parker Harris

Touch came out in ’12 I believe but - so it’s been a few years. And Marc was not happy with touch at all – he was very dismissive of it. I needed to get that out. And I think the mistake with me there is, we were very, very focused on the platform because we are at heart a platform company and we did not put enough focus into what this application need to be. And so all of that technology is what is behind Salesforce1 and we really took a hybrid approach with Salesforce1 to an industry – we use both native code and HTML5 in that and we just choose where the best technology is. And I had to basically take my entire development team for the year leading up to Dreamforce and across all product lines and make that the top priority. It’s kind of destroyed some of their individual plans for Sales Cloud, Service Cloud platform Chatter but it unified to get kind of that V1 as I would call it, that came out at Dreamforce.

Patrick Walravens - JMP Securities

And how happy are you with it?

Parker Harris

I'm thrilled with – well in Saleforce we’re never happy with anything. I am thrilled with what we got out as a baseline and we got it out on iOS and Android. It is a V1, there is a bunch of things we’re working on right now to come out with the next versions, we want it to be productivity items like task management, calendaring, note taking, log-in calls, just kind of things that you want to do especially focused on the sales use case, because we have so many sales reps that are – and sales managers that are users, performance will always be top of mind, we can never have very fast enough analytics. So we have dashboards in there but we know the first request is once you have dashboard, you want to get reporting and drill through the report. Findability – how do I find things, searching, sorting list, lot of stuff in there.

And then we also want to take that user experience and bring it from the phone to the tablet and to the desktop, so that it starts to kind of reinvest our experience.

Patrick Walravens - JMP Securities

Now it's funny because – it’s only like in the last 6 months I started really looking at the – because it’s such an easy thing to do, all investors should be doing it, is look at the reviews of Enterprise Mobile app on the Android store and on the Apple Store and you have, you always see those, mobile, mobile, mobile and you read the reviews, it’s like 1.4, 2.5. You guys – the Classic was basically like a 2.3, and now you are in the 3 range. But is there a real disconnect between what you see the users saying on there and what you hear from the companies – is there a sample bias in the reviews you think or are their expectations too high because they are used to everything being Apple, what’s going on there?

Parker Harris

Yeah, I think there is a high bar for mobile applications and I think we have the best mobile enterprise application. But it can still be better and we are light years ahead of our competition in terms of technology, we are using the platform support. But there’s things that are missing and there is things that – some of the things I mentioned are coming out in those reviews. I think we have a very, very loyal customer base and they are very vocal back to us and they say, -- instead of saying what they love – they say well, this is what I need, this is part of our internal culture. We have, what we call the MVPs, group of our administrators that we flew them out before Dreamforce, get feedback from them for a day. They gave us this kind of feedback.

The challenge for me is I have to balance that direct feedback which is super important with the strategic because they weren’t saying go build Salesforce1 prior to its existence. They weren’t telling you to go build Chatter and bring in Social. So some things we have to drive strategically and balance that with the end-user feedback and then what the feedback of the customer is. And so there is this juggling act, I think prior to Salesforce, in traditional enterprise computing you’re really listening to management of your customer base and doing what they want, which is not always exactly what drives adoption for those end users.

Patrick Walravens - JMP Securities

Right, the customers can’t sort of see past that next level. So there is one more big area that I really want to touch on and then we will see what questions we get from the audience. The big question I want to know is – does Marc ask you before he makes an acquisition?

Parker Harris

Marc asks everyone before we do acquisitions. And he re-asks and sometimes acquisitions come from various people within the company, getting excited about something – something we should do, sometimes it’s coming from Marc, I would say we are a collaborative culture to a fault where we are constantly second guessing ourselves, saying is this right, is this right? I would say that probably our best acquisition today has been ExactTarget and Marc was a very vocal proponent and really drove that personally, and I think that was part of what made it so successful.

Patrick Walravens - JMP Securities

Can we hold on a sec. Could you find out what’s going on back there and have them stop doing it whatever it is. Thank you.

So for example, ExactTarget, he came to you at some point and he said, hey, Parker, I think we might buy this. What do I need to know?

Parker Harris

Well, it wasn’t exactly that. We were talking them directly and we were flying out in Indianapolis and we were talking with each other about feedback about it. That was a very big deal for us. It was a big step for us to something of that deal in that magnitude. And we knew we were going to have competition as well. But we went for it and looking back we don't know how we could have ever thought otherwise. That’s been great.

Patrick Walravens - JMP Securities

So one other thing I noticed that Dreamforce was all about Salesforce1 and then I went to the ExactTarget booth and it didn’t work on Saleforce1, right, this is what the demo person told me? Is that true?

Parker Harris

It’s coming out shortly and we're going so quickly and I have been building in my core team all that technology. It is a platform. So we do have pieces of ExactTarget now within development our group working in Salesforce1, it will come out some time this year.

Patrick Walravens - JMP Securities

So that will be cool, so sometime this year what we could be able to do or what will I be able to do on my Samsung?

Parker Harris

So there will be a lot of ways to just understand what's going on with your marketing campaigns. You have to be careful from your phone of launching a campaign of millions and millions of emails. But you can follow your journey, what’s going on in my marketing campaign, you could get down to the individual record level and see what kind of touches have been happening with that person. And we’re exploring what’s the relationship between something that’s really high volume interaction based ExactTarget with some of the stuff we have in our core technology. Great example of that is high-volume out to a consumer base but then from an automated sense with computers, but in some point you may end up having a call center want to engage with that customer whether it’s an inbound or outbound call center, having that kick back into our core services with service cloud and then leverage Chatter to have the collaboration across the company.

Patrick Walravens - JMP Securities

Do we have any questions from our audience here?

Question-and-Answer Session

Unidentified Analyst

[Inaudible]

Patrick Walravens - JMP Securities

Let me just repeat that for the webcast. So the question is Salesforce must collect massive amount of data and what are you doing with it?

Parker Harris

So first of all, you have to understand that our customers put a lot of data into our service but it’s not our data, it’s their data and we do not have access to it. So it’s not something that we analyze or monetize. We do track a lot of usage data that we use to understand what products are being used, what’s not being used in terms of click tracking so that we can build better products. And that’s really the extent of it, it’s really just to understand adoption and usage to drive greater, greater adoption but we don't touch our customers’ data.

Unidentified Analyst

[Inaudible]

Patrick Walravens - JMP Securities

So the question was cloud security both inside and outside of the US?

Parker Harris

Yeah, we have a number of efforts on that front. We did acquire a company called Knowledge [ph], it does essentially – a company about an encryption proxy where data is flowing at the network level, it’s encrypted at the point of that encryption boundary and that could be in someone’s data center, it could be in a country. We also have great partners like CyberCloud that are also in perspective, they are also doing some other things and we are not looking to necessary compete, we are looking to solve the problem. We have a lot of work within Salesforce on encryption and we’re doing some interesting things with some of our top customers looking at things with encryption at rest and key management and then finally we’re also pursuing data center strategy. As you might have seen in the press release where we announced doing some data centers in Europe, where we are doing in the UK, France and Germany. So where we have a large presence we’re doing a lot of work to have various solutions. Because it is very important I think – sometimes it’s emotional for customers. Sometimes there is real policy work, sometimes it’s countries not totally agreeing but they don’t have policies. So you have to kind of navigate through all of that and there is not one right solution to it.

Patrick Walravens - JMP Securities

There is one more I want to ask and then we will go back to the audience. So let’s talk about local a little bit. And in particular I think when I go out and I market, I think the most commonly held view I think that I get from portfolio managers is – well, we don’t want anything to compete against Amazon. We just a conference – that guy is a machine. We saw what he did to the retail industry, I mean the same thing to IT. What points would you make?

Parker Harris

Well, first of all I would say we greatly admire Amazon, we look at what they're doing at the low level of stack in terms of structure of service. And it’s just amazing, and they keep coming out with new APIs. I do think that in terms of people who choose to compete with them, I think that’s the tough place to compete because Jeff will always be looking at the lowest margin possible to deliver his services. We as a company are – is not looking to compete with Amazon, it’s looking to provide a higher level of service to Salesforce, the core of Salesforce is in even higher level of traction in terms of providing solution. So we actually look at how can we partner with Amazon and one of things that I'm encouraged by it is Amazon works more and more on compliance. Our customers over time will trust data on Amazon more and more and that’s good for us because then we can start to look at solutions that may use some of Amazon, some of Salesforce, some of Heroku, that’s a nice mixture because -- Amazon provides a different type of service than we do. And so there’s some compute jobs you may want to run on Amazon. And Heroku for that matter runs on top of Amazon. So we certainly are competing there.

Patrick Walravens - JMP Securities

So I had CIO recently say – and I know [inaudible] do you guys use any big, big media company, are you guys using Amazon internally – anyone is doing that in the company like mine is out of their mine –

Parker Harris

It’s not secure, it’s not operationally stable – it’s not secure and by the way it’s not secure.

Patrick Walravens - JMP Securities

So what do you think of that?

Parker Harris

Amazon just watch them, they keep knocking things down over time and I wouldn’t bet against them. They did that deal with the CIA, that’s a different type –

Patrick Walravens - JMP Securities

If they will do a deal like that for me, I am all over it. They will build a private cloud for me –

Parker Harris

The companies we talk to, we are seeing more of those companies actually through the ExactTarget relationship we are seeing them actually look at Amazon for various categories of data and I think it’s only a matter of time that Amazon will work to solve those compliance gaps, and they have to solve it in a fairly generic way because that’s kind of the way they think and whether it’s at the isolation of the network level or encryption at rest, I am sure there will be more coming from them as well. But I would not bet against it. I think right now most of our customers look at us and they say we trust you more with our enterprise data but I think it’s an evolution.

Unidentified Analyst

[Inaudible]

Parker Harris

Can you repeat that?

Patrick Walravens - JMP Securities

No, I think he is good.

Parker Harris

So it’s similar to the previous question. So we have different solutions, you can do encryptions. So there is an encryption proxy solution that we have and some partners have where you could put computing within country and track and would flow through it and it would be encrypted once they go through that and when it’s stored in our file [ph], all data would be totally encrypted. That satisfies some concerns, we also are doing encryption at rest. So data being stored in our service but encrypted at rest, that satisfies other concerns, and then finally data centers, we are pursuing a data center strategy as well, that’s why we have data centers in Tokyo, we have data centers, one coming online this year in the UK, and a few more next year coming online in France and Germany.

And I think it’s not clear right now where this is headed other than it’s getting more and more complex. And I think Salesforce as a company at our scale we are definitely prepared to tackle this, we’re going to tackle it from a variety of fronts. We are also tackling it frankly at the policy level to also go speak on Capitol Hill and understand where it’s headed, help influence other countries. Some of that is not helping the industry in my opinion. But we have to – we can’t just say we don’t like it and do not think about it. So we are tackling it on all those fronts. I do think it’s a challenge for new companies coming into the space to operate globally and my hope is over time we get some global regulation where countries start to agree well, how should we help protect information? Because at the end of the day it’s about protection of customer information and personal information. So there are some good standards out there, as we start to collaborate, I think we can solve those.

Patrick Walravens - JMP Securities

Wonderful, we are out of time. So we’ll stop there. Parker, thanks so much for your time today. I appreciate it.

Parker Harris

Yes, thanks for inviting me.

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