SaaS Drives Sizzling Q2 for Salesforce.com

Software as a Service (SaaS) pioneer Salesforce.com exceeded analyst expectations for its second quarter, registering net income of US$3.74 million — a 3 cent per share increase — and revenue of $176.6 million. The Street had been expecting it to bring in just $174 million in sales.

By all measures, Salesforce.com performed well. Total revenue for the quarter rose 49 percent on a year-over-year basis and 9 percent from the previous quarter. The company posted subscription and support revenue of $160 million, an increase of 50 percent on a year-over-year basis and 8 percent from Q1.

Revenue from professional services and other sources came in at $16.6 million, an increase of 45 percent on a year-over-year basis and 13 percent from Q1.

SaaS Reaches the Enterprise

CEO and Chairman Marc Benioff attributed a growing portion of the company’s revenue pie to large-scale seat deployments by enterprise customers — a corporate constituency that has only recently embraced SaaS.

“Our business continues to show incredible momentum,” Benioff crowed. “A year ago, our largest customer had roughly 7,500 subscribers. Today, our installed base includes two customers with more than 30,000 subscribers; four customers with 20,000 or more subscribers; five customers with over 10,000, and a remarkable 68 customers with more than 1,000 subscribers — a greater than 40 percent increase in the number of customers with 1,000 or more subscribers versus six months ago.”

Some recent Salesforce.com wins include Japan Post (30,000 users), Merrill Lynch (25,000), Cisco (15,000) and Dell (15,000).

SaaS Bandwagon

Given SaaS’ overall market traction, Salesforce.com’s momentum is hardly surprising. “Some 70 percent of companies are using some form of SaaS,” Yankee Group analyst Sheryl Kingstone told CRM Buyer, referring to unpublished data the Yankee Group is set to release.

“Now, if you take that slice of corporates that are using SaaS and ask what is the most strategic application — the number one response is ‘CRM,'” she said. “So, am I surprised that Salesforce.com is doing so well? No.”

Moving Forward

“Now, with an annual revenue run rate of more than $700 million, our company is well positioned to take on-demand even further into the enterprise,” Benioff remarked.

Indeed, the company has been positioning itself to cement its place not only in the enterprise, but also across entire supply chains and industry verticals. Both the AppExchange release and, more recently, the incorporation of source code in its Summer 07 release, dubbed “platform as a service,” support this strategy.

Salesforce.com has also joined forces with Google, combining its Web-based CRM product with Google AdWords to create a single Web interface that allows businesses to buy AdWords advertising and use Salesforce.com tools to track results, refine campaigns and follow up on leads.