Salesforce, Inc. (CRM) Earnings Call Transcript & Summary

Good morning, and thank you all for tuning in here for a special P.S. Friday keynote. Really pleased to have the original godfather, OG of SaaS here, Parker Harris, who co-founded Salesforce. So Parker, thank you so much for joining us.

Thanks, Brent. I think we got to give Marc Benioff the OG. I'll be his consigliere.

Well, listen, we really appreciate it. It's been some journey. We actually just kind of went through framing the overall kind of state of cloud software. And it is interesting, looking back 20 years, to think about being one of the pioneers of a market that's kind of gone from really nothing into now what we think will cross into a $200 billion industry this year. So certainly, I appreciate your time.

I guess, maybe we'll start out as you think about the opportunity, what was the original kind of idea, going back 20 years ago, behind kind of salesforce.com? And how much of it -- has it changed in 2020?

Yes. Well, I met Marc Benioff in '98. We have been doing cloud compute -- early cloud consulting, and the idea was, let's do sales force automation. So not full CRM, just sales, and just make it really easy. Our model is as easy as buying a book on amazon.com. This was on Amazon. It was a bookseller and a CD seller when that has existed. And it was really just about speed and simplicity. We had one of our original investors, Magdalena Yesil, from USVP, she invested personally, and I asked her before we even started the company what's defensible. And she said, "Nothing, you just got to go fast." So it's just all about making something simple and usable and getting it out there. And we had some early dot-coms as the original users that used it for free, and we just started from there, starting from small companies and built up.

Is that kind of move fast model still kind of an important part of kind of what you think is the culture there?

Yes. What's interesting is we have found as a company, even though we're over 50,000 employees now, that during this crisis, we actually have gotten a little bit more scrappy, a little bit more kind of focused on now. And it has helped us somewhat get back to our roots that we had when we started the company. It's been great. Yes. So speed and scrappiness, I think, are definitely important of any company, and you want to make sure you don't lose that.

Absolutely. And I think it is interesting to think about how our lives have changed, right? As we all think about this, it's amazing 4 months now into quarantine. But there's been some good things, I think, that come out of it. We'll maybe go into that a little bit later. But as we kind of maybe start with this whole state of the cloud kind of past tense theme, one of the 2 big kind of technical premises that I know Salesforce was built on is this idea of multi-tenancy, right, and then obviously, this no software mantra, right? We're going to move away from installing software and just using it, right, on an Internet connection like buying a book. One of the things that I find that's surprising 20 years after this multi-tenancy mandate to be a cloud company, you still see a lot of legacy companies that are hosted, right? They have a single-tenant hosted model. So my question for you is from a technical perspective, is it hard to create a multi-tenant model? Is it -- why are other companies still not fully kind of walking down this multi-tenant kind of path?

Yes. Well, it's very hard to take an on-premise piece of software that was meant to be shipped that a customer had full control over the code that they could change the actual code of that signal implementation. Take that and move it to the cloud and turn it into a multi-tenant model where that same piece of software serves many, many customers. When we started the company, we were building a piece of software that we're thinking, okay, how many companies would this ever serve at once. And it's all the way down to first principles of the architecture on how would you multiplex a piece of software. Multi-tenancy in and of itself is, I believe, was important for us when we started the company. I still think it's very important. There are new models now with cloud computing, with Infrastructure as a Service, where Kubernetes has taken over the world by storm, a lot of people are using containers. You could take a piece of software like an on-premise software, and you could scale it out millions of containers, and they all have the same piece of software. And you could run that one piece of software and maybe get away with it for a while. The complexity comes in innovation. How do you do that and then innovate? How do you do -- at Salesforce, we do 3 major upgrades a year, a lot of functionality. How do you then upgrade all of those things and make sure that the quality exists on all of those single containers and that the security exists and that the performance exists, and that's -- it's all what I'm thinking of. People thinking multi-tenancy, single versus multi-tenant and they oversimplify it. You have to think about what does the customer need. They want the trust, security, compliance, availability, performance. They want the innovation agility. They want great solutions. And you've got to figure out how to do that, and it's a juggling act. And I think multi-tenancy is a key piece of that. I think where Salesforce is headed for some of our largest customers, it is multi-tenant, but we dedicate a lot of infrastructure to them. And so it's -- everything is not exactly the same. And we would have competitors say, "Oh, if they're multi-tenant, you're not going to provide that same isolation and quality of service." I disagree. I think it's important to be able to do both. But how do you, like Salesforce, serve the mass of customers that we do, the small customers, the medium customers, the large customers, that's been important for our business since day 1, and our revenue is nicely split across all of those segments.

Clearly, the multi-tenancy architecture is validated, obviously, by the success you've had. So congrats there. I guess, maybe from a personal perspective, if you just kind of go back, anyone that's attended a Dreamforce is certainly aware of the Ohana value and culture. And I guess maybe bring us back to the roots of that and how important and why do you think it's stuck over the course of the last 21 years.

Well, I have to credit Marc for that. When he was at Oracle, he was -- Oracle had -- he started early, big success there. And late in his career at Oracle, he was working not only on innovation but on something called Oracle's promise. And that was about Oracle giving back. He was putting computers in schools. At the time, it was thin-client computing. So that was like the thin-client computer, putting them in schools. That was when he started a relationship with General Colin Powell. He had a school where he was -- couldn't get the computers into the school. He told General Powell his problem. General Powell said, "I can help you. Got a bunch of soldiers to come help actually get those computers in the school." And so this radically influenced Marc in his thinking about giving back that why should you wait to be successful. Why should you wait until you're the size of Oracle or bigger, like us right now, and give back then? Why can't you give back all along? And so we created our 1-1 model, our philanthropy. General Powell was there at the very beginning with us helping with schools. We were helping him with schools, frankly. And that basically was the seed of our culture in terms of the importance of doing more than just being a successful start-up, a successful economically that as Marc would say or we say, business-to-business is making the world a better place. That gave really our culture a much greater mission, and then it just gets back to the people. And what takes us places in what we do in terms of doing good in the world is not just at the top, where we have ideas of where we want to do good. It's all over the world where our employees care, and it's never been more important during this crisis. We -- the first thing we did during the crisis is we focused on our employees. We focused on their mental health. We were doing webinars with meditation and wellness and health and sleep. And then we moved pretty quickly, ironically, to trying to help get some PPE to various parts of the country that needed it. UCSF reached out to us. We have a close connection to them, as you know, and that kind of blew up into something more. We were getting, through a partnership, PPE from China and getting airplanes and trucks and stuff. And it's just part of kind of who we are, makes me proud to be part of Salesforce, that Ohana is not just our employees. It's our employees. It's our stakeholders. It's our shareholders. It's our customers. It's our partners. And so that's kind of what has made us a great company, I believe, what brings customers to us, brings partners to us, brings shareholders to us. And now more than ever, companies have to lead this way or I think they'll fall behind.

Right. The culture is a very, very, very clear differentiator. You said one thing early on, and I'm asking a little bit more because from the onset of the company, as you're meeting early days with Benioff and kind of mapping this opportunity out of what it could be, was there a goal? Was there aspiration? Could we someday be bigger than Oracle?

What's funny is, early on, I think at the very, very beginning of the company, it was about a small business. And I remember this was when Hotmail was bought by Microsoft. I think it was $400 million, something like that. We were 4 people in an apartment in Coit Tower who thought, "That's pretty cool." Marc said, "That's pretty cool, but we're going to be much bigger than that." But at the same time, we didn't have our sights early on, on Oracle. We had our sights on Siebel. And we were saying, "Wow, maybe one day, we could compete with Siebel, and we could beat Siebel at what they're doing." And I think being tactical and being focused has always -- scrappiness has always been part of our culture. So I would say, as a company, we market far ahead of what we're doing. We do have long-term aspirations and visions, but the way we work is very tactical. We're month-to-month to 12-quarter close at Salesforce for our salespeople. It's -- when we were doing events, it's events all the time, plus the big Dreamforce. And so no, we didn't really think about that. But certainly, as we kept growing, and you see our charts that we put out in our ads about #1 CRM and we look at our competitors, certainly, we're keeping an eye on them. But -- and it was quite a moment when, at least at one point recently, our valuation was bigger than that of Oracle. And that was a bit of a shock for me. I was like, wow, that's definitely a milestone.

Sure. Absolutely. I would agree. So let's just go back maybe as you just think about kind of consumer kind of digital trends, enterprise digital trends, it does feel like there's a different governor here, right, in the enterprise. It did take you kind of 10 years, almost 10 years to kind of scale to that first $1 billion. What are some of those governors as you think about what investors should think about as they look at some other small, young Internet companies? What are governors to growing faster in kind of this digital enterprise space?

Yes. Well, I think in enterprise especially, something that we have always prized, and it's ironic that I'm saying this, is the go-to-market and the sales function is just so critical. When we went public, I don't remember how many people we had, but our tech team was very, very small. And so we've always -- we've -- we invest a lot in tech. But when we -- when we're running the business and when we look at smaller companies that we want to invest in, smaller companies that we might look to acquire, we often will see a company that is led by technologists that has prized technology. And I'm the first to say, technology innovation is the lifeblood of these companies. But what they miss is they go to market, and they think that building the IP, build it and they will come. And with enterprise software, you got to sell. You got to market. You got to sell and you got to hire those salespeople, and building up a sales army and training them and getting them -- getting the pipe to them and getting them able to be productive takes time and takes a lot of money. And it's like a big flywheel for the company, and we've built ours, obviously, over 21 years. That's the first thing I look at when we look at smaller companies. Obviously, we want to know they've got great IP that is defensible in some way, that the team has high quality. But usually, with every acquisition or every investment, the first thing we do is we say, "You've got to invest more and you got to market." And so that would be my first bit of advice is that is an obstacle to growth for sure.

Surprise me as a technologist, the first governor you talked about was go-to-market. But which I think it's a powerful statement, right? It really does show, right, even with your technology architecture bias, acknowledging that, that go-to-market engine is a critical, critical path to success. I think that's helpful to understand from an investor perspective.

Yes. And I think there are definitely companies that are trying to figure out how to do enterprise with a consumer model, and it's hard. You can definitely -- at the low end of the market, if you can do it with enough automation and enough training, enough of an ecosystem, you can potentially grow a really nice company. But as you go upmarket, you can't replace -- you can't have technology replace that relationship focus, the sales focus and even post sales, that customer success focus.

Super helpful. Before we maybe shift gears to kind of the present kind of state of cloud, I thought it might be interesting to kind of go back and just think about what's unique a little bit about Software as a Service. And if I look at the S-1 filing back in the day, 2003 to '04, $7 billion TAM, that was the CRM TAM. Today, I think Gartner sized that at close to $50 billion today. So there is this notion that a lower cost, lower friction software product can actually expand the TAM. I mean, walk me through how much of that TAM expansion is kind of tied to just that lower cost SaaS model.

Well, it's kind of funny that I was doing sales force automation before Salesforce and at a company called Metropolis Software, then a company called Clarify that became Nortel, Amdocs, and we started Salesforce, and it was focused only on the sales part of the CRM. And as we grew that, and it's definitely a large part of our business, investors and a lot of pundits would come to us and say, "You're tapped out." This was like 15 years ago. There's only so much room you have for sales force automation. And I think it's not just the unit economics, I think that's your question, at least in our category. The world has moved towards customer centricity because of the Internet because of consumers with cell phones where your connection to the brand is more direct than ever. Even if it's like Michelin tires, Michelin is trying to connect to you, the driver, owning the tires, not just through their distributors, that has made CRM more relevant. And so that's definitely been, I believe, what's fueled Salesforce's success as the market came to us as we grew. In terms of unit economics, I think that what I love about Software as a Service is you can provide a better quality offering at a lower cost, and in business terms, if you can do something better at lower cost, you're definitely going to have a better business and grow it more. It's just too expensive to ship software to create success when the software is sitting behind someone's firewall in their office with their IT department. I have no idea what's running, why it's working or why it's not working. I -- to help them, I have to get people to go physically to that office and go figure out what's going on. With Software as a Service, if somebody -- if a customer has a problem or they have a question, it's right there for me, obviously, with all the security controls, but I can have people go understand, well, what's going on for this customer, how can I help them? And I can put the best people in the entire company out to help that account really, really quickly. Kind of like this. We're -- right now, we're bringing people together and everybody who's listening, you're all over the world, and we're just leveraging simple technologies in to make that happen. This is much lower cost to do this event than it would be to have people fly somewhere, come to an office, take however they got there, come in, the amount of time to get there, have this meeting then leave. So even right now, we're seeing the efficiencies of cloud. So I think that there's a lot more opportunity out there. Frankly, for those investors out there, I think this space that we're in right now around collaboration tools, and obviously, Zoom's hugely successful IPO, but I just look at the innovation, we were just in a little breakout room in Zoom. That is a very simple piece of technology that's part of Zoom. What more will happen in the space of collaboration and what more will happen in how we work? We just launched an offering called work.com focused on employees, focused on helping companies get back to work. There's a huge opportunity in that space as well.

Absolutely. Now I think that really leads into kind of the next discussion, like the present tense of cloud and this idea that the world is different, right? And listen, I think I'm a little surprised, full disclosure, that investors were quick to go to the end game, were quick. And then I think you've seen enough signals, right, there's enough digital signals out there that there could be an acceleration. But my question for you as you think about the post-COVID era, where investors are certainly getting excited about this idea we can accelerate digital adoption in the enterprise, cloud adoption in the enterprise, SaaS adoption in the enterprise, what's your take? What's your view? As the godfather of SaaS with the 21 years of expertise, do you think the world has temporary changed? Or do you think there's some permanent changes here that could drive an acceleration in cloud adoption?

Yes. I think that something significant is happening to us right now. I look at -- certainly, we all were shocked when we went shelter in place and the whole globe shut down. And I think we were all like, "Okay, at Salesforce, what's going on with our employees? What's going on with our community?" You see we had to like do that first. But what I've been amazed with is the willingness of customers to have conversations during this time. And we're having kind of -- and they're very intimate, like this is my home. I'm talking to you probably in your home. Everyone listening, probably in your home. It's very personal and it's very intimate, and you're not coming into some large office building, for example, in New York City in a suit, and they're in suits and there's this formality, which kind of slows down the actual conversations that you want to have. And so I think this crisis is creating a lot more trust in digital. And so it's moving more people to accepting that digital is super important. Transformation is super important, and our customers are seeing that. They saw it before, but then they're like, "Oh, wow, I need to connect and understand all of my customers now more than ever because they're all over. And I don't know where they are. I need to connect with them in digital ways, not physical because we're not going to see them." And so I think it makes this transformation all the more important. We're having some amazing conversations with our customers. And I find it incredible and they're not in their offices. And we're talking about how can we help them connect with their customers, how can we help them? And it's not different. It's still the same conversation. It's just there's a greater acceptance and a greater urgency.

The change, it sounds like, it was around just the urgency and, I guess, acceptance and trust. I think that's a really important point, the trust in these digital tools. I mean, just for me personally, I used to have a virtual background, right? And then not only virtual backgrounds, but what I've kind of noticed in doing these kind of P.S. Friday events, it feels really authentic, right, to be in whatever setting you're in, right? And again, back to that digital trust, I think it is different. So that's certainly good to hear. Let's shift to internal changes at Salesforce post COVID because you think about it internally. How much -- so you're talking about external changes around digital. What about the internal changes at Salesforce post COVID? I mean, how meaningful -- what are the biggest kind of most difficult things that Salesforce had to do internally to adjust to this new world?

Yes. So I think the first thing that we had to do, at least -- I mean there's 2 questions there. What did we do coming into this? And then I think we also -- we should talk about what do we see, where are we going. But coming into this, I think one of the biggest things that we saw, ironically, we talk about connection and connection to customers, connection to employees, we saw such a huge need for us to connect even more to our employees. And so you're asking about speed and scrappiness and being small. We feel more scrappy and smaller now because we invested an incredible amount of time and energy to connecting with our employees and our customers. So we now have, every week, an all-hands call for the entire company that the entire management team is on, and we're bringing in speakers to it. We're bringing in customers. It started out very much as a way to listen to our employees. We've also -- it's also become a tool of enablement to talk to our team to re-explain who we are and what our products do, why they're important, to help enable the sales team. And so communication and connection has become even more important during these times. I think if we hadn't leaned in, that was a huge, huge change. And then, as you know, Salesforce is a very big event culture. We do a lot of events. And the events we used to do pre-COVID were physical in-person, large events. The last one we did, I think, was a Sydney World Tour. We did it just at the cusp of COVID. We're not doing those anymore, right? We're not -- we didn't do one -- we have a Paris World Tour, which is my favorite, we did not do. Dreamforce this year is canceled. And so we're also rethinking what does it mean to have connection with our customers from an event basis, and we're rethinking it to be smaller, more frequent. Doing an all-day or multi-day event is too much. This call is great. You're doing it every Friday, it sounds like. That's great. We're doing the same thing, whether it's TrailheaDX, I've got my sign here. So we did an event, and I had some decorations and they gave me the decorations, and we have an event, it was broken up. But even our salespeople, you think about marketing has moved even more to the sales team, where the sales team is having even more meetings, even more small events but they're smaller and more frequent. And I think that's a shift a lot of companies need to look at is that you need to connect more than ever, but you got to rethink. You can't take what you did before and do it in this model. You can't have the link, you can't have the size. So if you're going to make it smaller, make it more frequent, make it more personal.

Yes. Listen. I had heard 2 months ago at a SaaStr event that some Salesforce people were talking about, yes, we're moving to weekly meetings. And I didn't know if that was like a short-term thing, but that certainly is interesting. You guys, even 2 months later, continue to do these weekly kind of communication meeting, so something seems to be resonating there. And it is interesting now. Like the cost to do that isn't high either, right, thanks to Zoom and other technologies. So maybe we'll shift to the external changes. You talked about some of the things you're thinking about event-wise changing internally and rethinking things. How are you thinking about supporting sales environments in this remote sales world? Are you thinking about changing product road map and moving things around and adding new things? What has to -- what are you contemplating on the product road map side to enable a remote sale world?

Yes. Well, I think, yes, crisis can be used for innovation. It's an opportunity, and we're leveraging this crisis to really try to innovate. So what I was just talking about is how can we innovate in our marketing. Let's not think about how we marketed before. And what does it mean now, but also what would it mean going forward? And what are we learning from how we market? work.com is an offering that we just launched, and we built product in, I don't know, a month. It was super quick. We leveraged some of our existing products, but we've built some new capabilities. And because of the crisis, we were bringing people across the product organization together. It wasn't just, "Hey, let's segment off part of it." It was kind of an all in, like let's launch this work.com offering because we wanted to figure out how can we help people get back to work. But also when you look at that, it's also how do we help companies work with their employee base, something that we haven't been in that much in the past. So it was a way to leverage the crisis to go quickly and be very relevant in what's happening right now. And I think what we're looking at in our road map is what else can we do? What else can we do that is very relevant, very current, where we can go quickly and also try to rethink how we collaborate. So it's not just a -- that's a sales cloud effort. That's a service cloud effort. That's a platform effort. That's a MuleSoft effort, Tableau. We're still doing that. We still want to be best-of-breed in those categories. That's part of our success is we're both best-of-breed in each category but also look at it as a holistic CRM. But we are looking for more opportunities where how do we bring together the breadth of our capabilities for some specific purpose. work.com is a great example.