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Salesforce.com Riding High on Cloud's Success

Salesforce.com Riding High on Cloud's Success

Salesforce.com's cloud has floated into the stratosphere, lifted by a stellar earnings report and a bright forecast. It's success is certainly due in part to the enterprise's growing comfort level with cloud computing, but it's also indicative of the company's capable execution of its strategies. "They've been making some good moves," said ITIC analyst Laura DiDio.

By Rob Spiegel
11/19/10 12:14 PM PT

Salesforce.com stock shares soared 17 percent Friday morning to an all-time high in response to its fiscal third-quarter earnings report released Thursday afternoon. In the report, Chairman and CEO Marc Benioff said he believes the company will reach US$2 billion in revenue in fiscal 2012, making it the first cloud computing company to achieve that mark.

Total third-quarter earnings were $429 million, an increase of 30 percent over last year's third quarter. Salesforce.com's customer base rose by 4,800 during the quarter to 87,200 worldwide. The company added 19,300 customers since last year, a 28 percent increase.

Salesforce.com's forecast predicts high clouds and sunny days for the current quarter. It expects to land in the range of $447 million to $449 million, 5 percent above the $424.6 million average estimate of analyst predictions complied by Bloomberg.

In response to this robust growth, the company is expanding its facilities. On November 1, it announced it had purchased 14 acres of undeveloped land in the San Francisco Mission Bay area for $278 million with the aim of building a new headquarters.

Salesforce.com was unable to provide comment for this story by press time.

Cloud Computing Comes Into Its Own

Cloud computing -- the basis of Salesforce.com's Software as a Service model -- has come into wide acceptance in the past couple years. You can see TV ads with Microsoft touting the cloud. Much of this acceptance has been attributed to Salesforce.com's penetration into marketing groups worldwide. Executives look at the use of Saleforce by their sales group and say, "Why aren't we doing this in other areas of our business?"

Did Salesforce.com hit it's stellar third-quarter performance because of the acceptance of cloud computing or because of the company's excellent execution?

"I think it's both. Salesforce.com was an early mover in what people are calling 'cloud,'" Charles King, principal analyst at Pund-IT, told CRM Buyer. "When the company first hit the ground, I thought they were more of an application service provider, the old 'ASP.' They're careful to insist they're not an ASP."

Salesforce.com has carved out a niche by providing software that can be a challenge to manage in-house.

"The company has been at the forefront of cloud evangelism. They're a good example on how a company can execute the cloud for the customer's benefit," said King. "Salesforce.com is doing well because they're hosting what can be complex and expensive application as a service. It's gaining resonance in the marketplace."

Unloading sales software to a cloud computing company reduces headaches and typically saves on cost.

"Business has been under pressure to reduce IT expenditures even while they're managing more data and business processes, so the idea of outsourcing more of the tedious and difficult-to- manage applications makes a lot of sense," said King.

Good Sales All Along

Salesforce.com has been making some real strides all year along. Part of it comes from its push outside North America.

"They've had good sales for some time. They've been making some good moves," Laura DiDio, principal analyst at ITIC, told CRM Buyer. "They're branching out of North America. When you expand into an international market, that certainly helps to buff up your revenue."

Not all of the company's success can be attributed to the wider acceptance of cloud computing. A good part of the market is still skeptical about the cloud.

"When you're an end-user and you want to outsource to a public cloud, you have a lot of questions. What about security? People are not going to stray into the woods," said DiDio. "No, Salesforce.com built their reputation early on. This will give a boost to cloud providers out there and drive people to the cloud model."


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