Salesforce.com Becomes First Billion Dollar SaaS Company
Salesforce.com unveiled its year-end 2008 financial results earlier this week and, as the company had predicted, it passed the billion dollar mark, reporting total revenues of $1.077 billion, an increase of 44%over the 2007.
This milestone event, combined with the company’s rising earnings per share growth, are clear indications of the overall strength of the Software-as-a-Service (SaaS) market despite the challenges of today’s tough economy.
In fact, Marc Benioff, the company’s Chairman and CEO, is quoted in the company’s press release as saying, “At a time when capital is precious, big-ticket software purchases just don’t make sense.”
I am also a firm believer that Salesforce.com’s continued growth, and that of the overall SaaS industry, will be fueled by today’s economic crisis. IT and business decision-makers are increasingly recognizing not only the economic advantages of SaaS, but also the fact that SaaS represents a more effective method of supporting a more dispersed workforce and leveraging the latest innovations in software and technology than legacy applications.
However, Salesforce.com’s financial results from last year can’t hide this year’s additional challenges.
Salesforce.com and other established SaaS companies may experience warmer customer receptivity in the coming months, but they will also face greater than normal ‘churn’ as a result of employee layoffs, especially in the financial services sector and other industries hard-hit by the economy.
This is one of the downsides of the SaaS model from a vendor perspective–subscription fees based on number of users are vulnerable to cutbacks despite contractual obligations. Back-filling these lost seats (i.e., revenues) could take more effort and greater sales costs.
I attended Pacific Crest’s 4th Annual Emerging Technology Summit this past week where I met with a series of institutional investors as a part of Pacific Crest’s Mosaicprogram. They were all trying to determine if SaaS is a viable business model long-term, which I assured them it is.
They were also looking for the next big public company in the SaaS market. I told them to look beyond today’s pure SaaS companies at other key players in the broader ‘cloud computing’ market–Amazon, Apple and Google in particular.
These companies have capitalized on the success SaaS to create their own development and delivery platforms. All of them are still in the experimental stage with their services, happy to let early-adopters help them fine-tune their capabilities. But, ultimately they all want to penetrate large-scale enterprises and disrupt the established order of Microsoft, Oracle, SAP, etc.
Meanwhile, the consensus among the CXOs of SaaS/cloud computing companies attending the Pacific Crest conference was that the first half of 2009 will be tough, but they are hopeful that things will settle down in the Spring when IT/business decision-makers have greater visibility into their own situations and will be able to make purchase decisions with greater confidence.
In the meantime, today’s economic challenges will weed out those SaaS companies which lack the leadership, solutions and go-to-market strategies to survive.
Salesforce.com lacks none of these ingredients for continued success and can be expected to continue to invest heavily in building on its momentum and reinforcing its position as the “800 pound gorilla” in the SaaS/cloud computing industry.