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

All right. Welcome, everybody. I'm Walter Pritchard, software analyst here at Citi. Happy to have Bill Patterson, who's Executive Vice President and General Manager of the CRM Applications at Salesforce. And Bill, welcome, thanks for coming.

Yes. Walter, thanks for having me. I hope everyone is safe and is doing the best they can given the times that we're all in.

Yes. Agreed. So maybe we could kick it off just talking a little bit about your areas of responsibility at Salesforce. I think some people may think all Salesforce does is CRM applications. So your areas of responsibility, and then where are you -- sort of how you got to Salesforce.

Yes. Great. So I've now been here 3 years at Salesforce. I joined after Microsoft. And the areas of responsibility that I'm responsible for are our Sales Cloud, which is our kind of marquee flagship product around the sales performance management domain; our Service Cloud, which is really where I joined to lead that effort a couple of years back; and then our small business divisions, so our Essentials product lines that is really geared for kind of a different segment of the market. And then finally, this year, I was also asked to lead an effort called Work.com, which is about safe reopening of workplaces, given the pandemic state that we've been in. So those are really the 4 areas I'm responsible for, for the company.

Okay. Got it. Maybe we can start out just talking about with your core areas, sales and Service Cloud mostly, but I guess Essentials is relevant here. I mean in a -- we're just in a different world we were in 6 months ago, and we've tuned into the conference calls, so I think we've heard the high level kind of how customers are responding. But maybe you could give us that level next down of detail around some of those specific product areas, how have you seen customers' behavior change and how you think that may evolve from here.

Yes. No. I mean, look, I think first and foremost, this is my first go with pandemic experience in my career. I think it is for many of us. And so as businesses face the reality of kind of the blunt force trauma that, I think, was faced with many kind of halting of operations back in the March -- February-March window, the first thing that a lot of businesses said was we got to -- we have to pivot. We have to really take care of our customers with continuity, higher degree of resiliency. And you think -- you saw a lot of real focus around businesses that go digital; digital in terms of commerce, digital in terms of service. The shift from the office to the home forced a lot of digitization in kind of core areas of business technology and spend. And so I think we've been leading in with customers through that time, not just doing the lift and shift of kind of take your resident software and move it to cloud, but how can we fundamentally rethink our business altogether by just engaging customers where, bringing companies and customers, which is our company's tagline. Maybe it was not exactly something people could do when you're in a world of social distancing altogether. So we had to help companies rethink, rebuild it on the fly. And I think that what we saw was a lot of businesses leaning into their relationship with Salesforce and just saying, "Hey, how do we do this differently, given the constraints that many of us are under today?" And from that, you saw just amazing opportunities of digital-first interactions became not just kind of a bespoke operation. It became the norm. And that's really, I think, what's led to such amazing, I would say, opportunity for our clients using the platform.

What impact have budget considerations had at this point, both in your selling -- you've got sort of horizontal products that sell into all -- lots of types of customers, and then you have that Essentials business. What have you seen just from -- like everybody understands the urgency around things like order online and pick up in the store or having to deal with the customer service when the reps are at home. But how have budget considerations impacted things so far? And do you expect that we've seen the full impact of budget considerations?

Well, I think first and foremost, companies just needed to respond and respond quickly, and do so with whatever budgets they had available to them at the time. We launched an offering -- my team was responsible for something called Salesforce Care, which we put out in about the March window of time, which is actually free use of our software for 90 days just to help companies kind of deal with, like I said, this amazing change to their every day or what was considered business as usual. And from that time, some organizations kind of pivoted to free up capital to be able to redirect it towards making their newly kind of formed systems to become more the mainstream. So I think some of that has just been freeing up of capital from maybe either reducing the office budgets to then create to more variable things like software. But also, I see a lot of organizations, like I said, pivoting, just doing things differently now, which has been just powerful, I think. And that is becoming, I think, the new norm for a lot of organizations like in service, where maybe you're not in a service center big building anymore, but you're doing your contact center from home, which allows you to think differently about using variable dollars to allocate to the areas and keep your business running along.

Got it. And in that Essentials area, have you seen anything that's different than what you've seen from the other 2 businesses?

I have to say I'm just incredibly proud of the resiliency we see amongst the small business community today. Obviously, you saw a lot of government assistance with some of the Payroll Protection Programs that were put forth, et cetera. But you do see a lot of businesses, especially in small business, just kind of leaning into whatever they can to stay alive. Here in my town, Lafayette, California, we're a big restaurant community. It's amazing how many now were out in the streets running tables. That was not the norm in January. So I think businesses today are just finding these moments and opportunities to really lean in. And the small business, I have to tell you, has been incredibly resilient rebuilding quickly. We see that with our technology. Customers who use our Essentials offering are just leaning into being more agile for customers, changing things for -- like if you're a retail organization or a storefront, maybe now you're doing personalized delivery to your customers in your local area. These are the kinds of initiatives, I think, our technology facilitates to help them, like I said, open up new ways of just interacting, which I think has been powerful. The amount of text messaging that's gone on in small business, what used to be phone call and e-mail is now text, it's just really fundamentally transforming the way in which companies are becoming closer to their customers. And I think it's really exciting to see.

Got it. Maybe diving in a bit to some of the different businesses. I think Sales Cloud is -- it just never stops growing, I think is an observation. I mean I think a lot of people have called for the maturity of this business for many, many years. Could you help us understand what is driving the growth at this point? I mean, I think it's still in the double digits and a very large business. What is driving that growth? And how do you look at the sustainable sort of growth drivers going forward versus anything that's happened up to this point?

Yes. I think our strategy is pretty simple around kind of our business line for Sales Cloud. It's -- one, it's to be the #1 platform for sales professionals to drive their sales productivity and sales performance with. Second, it's to really start to think about becoming more industry-specific. So really having tailored solutions for, let's say, financial services or health care. And we have great offerings that are really specific versions of Sales Cloud for those industries. And then the third pillar of our strategy is really thinking about this mission criticality. How do we think about really taking sales cloud and taking the capabilities of Sales Cloud and making it become more integral into the broader revenue functions from just, say, opportunity management or sales forecasting, if you will? A good example of that is we have a technology called Salesforce configure price quote, or CPQ, which really gets into more of the what is being proposed, how it's being proposed, what is the optimal price point to get better margin performance for a particular transaction. And it just becomes stickier in terms of our growth or longevity in the account, but it also becomes more valuable in the eyes of our customers because we're helping them not just become productive but more profitable in the same regard. And I would say that, that is the same kind of strategy that I'm using over in Service Cloud, which is really thinking about being the best platform for customer service, starting to really align by industries, like if you think about big transformation going on in kind of the telecommunications industry, for example, right now with 5G. And then also thinking about these new expansions and mission-critical workloads like voice, which is a new offering. So this constant playbook of just best-in-class industry kind of depth and then mission-critical workloads continues to be our -- I think, our playbook that we're running across both these product lines.

Got it. And I guess one thing that I was going to ask about later in the conversation, but I might as well move it forward. On the way you described CPQ and becoming mission-critical, I mean, it starts to sound a bit like some of the value that like an ERP system historically delivered. How do you look at the sort of line that exists between those 2 types of systems? Have you been able to push that back? And are you able to access budget that might have previously been an ERP-type budget?

There's -- in my career, there's always been tension between front office and back office. And when you think about the real opportunity in the front office to be more agile, to be more dynamic in the way that kind of an organization has to run, the more things move from in a platform way to the front, it allows the business to kind of go with the ebb and flows that they face every day. And I certainly think that has been a strategy for us as we think about organizational assets like our CPQ technologies or our Salesforce billing technologies, just allows us to move some of those classically back-office functions into the front to allow for that agility. So do I think about it as reallocating spend from one to the other? I just think about it as providing capabilities to businesses to make them become a little bit more agile.

Got it. Can you talk about how you folded in -- I know Marketing Cloud is a B2C kind of separate business, and you have the Pardot technology within Sales Cloud. How have you folded that in? And how integrated is that? And I don't know, qualitatively, how is that attached into Sales Cloud and has been a driver?

Yes. It's a deeply integrated offering in terms of Sales Cloud, Pardot. The way that we see the revenue funnel is it starts in marketing and gets right into sales. And our ability to bring sales and marketing teams together and running from one platform has been probably one of the biggest opportunities that we see just changing companies in driving the top half of the revenue funnel. But it goes beyond that in my mind. I mean, again, when you want to make more personalized offers to a client, we need to do so with that Customer 360 data, right? So what we're doing is not just saying classically, take a part on edge, and put it on Sales Cloud. We're taking the full customer platform, bringing that back up with the Pardot. So it's more of that closed-loop kind of model for driving tailored offers, communications and outreach that, again, just turns it into a higher revenue-generating arm for the business.

Got it. Got it. Is -- from also the perspective of Sales Cloud, I think we don't hear a lot about competition in that market these days. Your market share is pretty high. What do you still see the pockets of incumbents that you're taking share from? And how has that changed versus where it was a couple of years ago?

I get asked this question a lot. I'm still surprised every day how much homegrown I see. And especially as I outlined our strategy for you around the industry area of our offering, I see a lot of homegrown technology that was very much focused still around, I would say, customer-focused transactions. So really being an order management, order-taking kind of system. And today, customers and companies are just smarter and need more guidance around maybe the logical set of choices. And so I see a lot of replacement of homegrown with Sales Cloud becoming more of a system of advice and guidance out there. And I also see a lot of legacy on-premise software that came maybe around the early part of the 2000s that just need modernizing and push to cloud. The amount of stories, Walter, that I heard at the end of the first quarter -- our financial first quarter, about companies that couldn't close their books because they actually couldn't put people into the offices safely to actually perform the systems, it's quite staggering how much legacy still exists, even I would call it modern legacy that exists that, now, with going full cloud just allows the book from culture to fully materialize. So I think that the legacy of the 2000s, like Siebel technologies, it's amazing. I still replace that for some reason. Legacy Microsoft Technologies are out there. And so that becomes just, I think, where a lot of companies that want to be more agile are coming to Salesforce and running Sales Cloud to do that.

How would you -- from the low end of the market, where does the competitive situation sit? I mean, you have players that offer sort of cheaper alternatives. You have some of your some of your brethren in the front office space that are offering sales hubs and so forth. What are you seeing in the low end of the market? Is that any different than -- some of those technologies, Siebel and so forth, I think, are more in the enterprise and homegrown things are in the enterprise?

Yes. The market in the low end has always been, first and foremost, like the customer database platforms or content management systems have really been kind of the traditional space that's there. You do see, like people on the low end that are more, I would say, more doing the front office suites like a Zoho or a Hubspot, for example. You see them there. But what ends up happening is you tend to find organizations as they grow or they need to drive a little bit more specialization in sales, not so much a generalization around the front office, you kind of outgrow them. And so as soon as you bring a sales team together, you need to be really managing a sales team, not just a front office operation. And I think that's really the kind of the inflection point that when people kind of move off of these first digital platforms or your first digital system, then I think that then the specialist offerings tend to have a little bit more value focused on the plot of what you need to do, which is drive revenue there.

Got it. And maybe going through a similar discussion on Service Cloud, some of which you've mentioned already. Can you talk about some of the drivers of growth we've seen? I think Service Cloud is one that's been growing pretty fast, and maybe less concern that's been out there around a slowdown. But can you highlight some of the clear drivers that you've seen in Service Cloud?

Yes. When I got here 3 years ago, Salesforce was excellent in only, I would say, one type of service, which was case management really in the service center or service operations, if you will. But there's a broader landscape of service professionals and technicians out there like field service technicians that make up a large percentage of the service workforce. And so one of the first things that we said was we need to really expand categorically into the wall-to-wall service market. And that's been kind of one of the bigger investments we've made on the Service Cloud side, is really expand our platform to cover just more service kind of professionals. I think now you're also seeing a similar kind of stance with us going in the industry. The acquisition of Velocity, for example, that runs on top of Service Cloud as a kind of a value-added industry set of components allows us to just deliver further value into the hands of customers where, let's say, in the service center, order management is required. Those are just great kind of assets to fully expand kind of, I would say, the more kinds of service operations that run on the platform. So it's definitely been a little bit different strategy in Service Cloud, which has been more about let's become kind of more of a holistic service offering, and that had already existed on the Sales Cloud side.

Got it. And how do you think about -- I think one area of service, you've got the sort of case management side. You've also got sort of the deep workflow and integration and automation and so forth. I think the common perception is that second area has been an area that Salesforce hasn't been as strong in, and you've had folks like ServiceNow maybe PEGA that do that. Could you highlight sort of where you think you are in that area of service cloud and what you're doing to try to continue to compete in that area?

Yes. I think, first off, I'm a big believer in the, I would say, the automation of service. I think that today, a lot of service operations and organizations are constrained in terms of the number of bodies we can put across the channel. So the more that we can drive efficiency in the service side, the better. Part of that comes from really being able to think about, like I said, the end-to-end service delivery piece and be able to orchestrate that process more holistically for a company. We have incredible workflow tools, incredible tools for process, automation, orchestration. Things like our box technology, for example, can completely automate a routine service case without actually talking to a person or an individual. That just kind of keeps capacity in your service center running. What we probably don't do is talk about just our tools because we're not a tool company. What we are is a solutions company. And so we don't -- while we don't articulate maybe specific features or functions like some others do, it's probably because we're focused a little bit more on the plot line, which is helping service operations just run more effectively, which is maintaining high quality of service and doing it at a lower cost set of operations.

Got it. Got it. And in the customer service area, you highlighted field services as one area. Another area, I think you've released or announced a product is around the call center in voice. I think you call it Service Cloud Voice. What's your vision around that product? I think you've had -- there's quite an incumbency of technologies in the call center, maybe the area of customer service that, from that perspective, has changed the leads. What's the vision with Service Cloud Voice?

I started my career working in the contact center. And I think the first who invented alt-tab never had a customer on the other side that equation, trying to get an answer from you. My vision is driving just more efficient operations for service agents and service tech teams altogether. One of the areas that I think has been held back has been the phone and telephony space. And there was this, I would say, bespoke technology called computer telephony integration, CTI, that has really kind of been the broker between the phone system and the business process application. But that was simply about facilitating connection, about connecting the phone kind of system, which was quite aged, but it was kind of a set it and forget it platform, like don't break that, alongside your business process platform, which has to be dynamic by nature. And I think that what I'm -- my vision here is the actual communications matter. What is said on the phone conversation matters. The technology has gotten to a place now with our partner, Amazon, or our partner in Google, where you can actually understand the stream faster with computer -- with AI than a human can blink, and that way that we can actually now speed up the next best action or speed up the recommended knowledge or speed up the recommended answers to solve the problem just as the customer's finishing their sentence. And so the more we can really think about this technology, getting into warp speed into the hands of an agent and having it really deeply integrated into the process itself, is going to drive better, more consistent service. It's also going to drive better, more advisable outcomes. And again, our big differentiator is because we have sales and service working together in the same platform, we can turn the service center into a revenue operation center, helping drive even more durable growth organizations around this platform.

Got it. And in that area, how important is it for your customer? It sounds like some of those things you've mentioned are really driven at automating the existing voice customer experience process, which I think all of us can admit is pretty inefficient when we're on the phone. The other angle is sort of the digitization of that channel and sort of tying it in with other channels, which sometimes, as a customer you, find that your interactions are not necessarily sort of coherently captured across the different channels. How -- where do you -- I'm just curious where your customer priorities lie around the, first, the automation piece versus the sort of unification of the channels?

They're hand in hand with one another. You can't automate something that isn't completely digitized. And I think that one of the things that in the service world today, specifically, organizations have long been investing in multichannel, which just means they invest in all of bespoke together kind of all in the sum of parts. What we're doing is actually making it truly omnichannel, where voice is now a digitized channel, where SMS is a digitized channel, where OTT messaging or social messaging is now a digitized channel. And because these are all feeding through one platform, now, we can actually drive the automation that's needed. And sometimes, that automation means that an AI agent can pick up the interaction and drive it to resolution. Sometimes, that means that the AI agent will just do kind of almost like a qualification and hand it off to an agent themselves. And sometimes, the AI agent maybe gets dispatches right to a field service technician. This ability for us really to think more holistically around bringing that service center from these bespoke parts into a more homogenized system allows for greater efficiency and allows for just more opportunity for transforming service because you're not kind of having these loose tie connections between the call center -- or the online version of your service, the call center and then the field technicians themselves. And that's quite reality for most clients we're helping today, is actually go from these bespoke systems to now in all one type of platform.

Got it. And then similar, you mentioned Velocity as a helper here. Company has also bought Tableau and MuleSoft. Can you help us understand, and those weren't clearly -- I think we can -- it's more clear sort of where Velocity or the Field Service acquisition you did, where those fit in. What sort of examples can you give us around sales and service where something you couldn't have done before you owned -- the company owned those 2 assets?

Yes. When you think about MuleSoft, I'll use the service example, oftentimes, it's pretty routine that a service agent, and I mentioned the scenario about the alt-tab experience, it's pretty routine that an agent is toggling between 5, 6, 7 different systems of record to then manifest the routine customer service case. And because of the opportunity we have with MuleSoft to really create these really beautiful and seamless experiences directly into the agent console, so it's one single pane of glass, it just allows us to really manifest better performance, better agent productivity and then kind of just a more streamlined operational flow. So MuleSoft becomes such a strategic application for service organizations to manifest better productivity for their service teams. And in the case of Tableau, I never met a single sales manager that has completely accurate or highest fidelity sales forecast numbers. And so the ability to kind of do -- and it's often because most sales forecasting systems only base their data off of kind of one systems information. With Tableau, the ability to get data from outside, from outside sources, from data sources that are macroeconomic sources, combined with your local data sets, it's incredibly powerful what the power of Tableau does for just better business decisions because your system now has both great data from inside, but also power of outside information coming in. So I think both of those technologies really just further proof that we're going to keep investing in areas that manifest better performance for our customers. And I could not be more excited to see more and more customers taking on both of these offerings, working hand in hand with CRM applications.