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

Good afternoon. I hope everyone on the line is enjoying Deutsche Bank's first virtual technology conference so far. My name is Taylor McGinnis, and I'm one of the software analysts here at Deutsche Bank. We have 2 great back-to-back keynotes now, starting with Doug Camplejohn, who is EVP and GM of Salesforce's Sales Cloud. Doug, thank you so much for joining us.

Thanks for having us.

So before I dive into the prepared Q&A, I just wanted to remind everyone that you can submit a question via the chat box on the screen on the left-hand side, and we'll hopefully have a few minutes at the end to run through some of those.

So now Doug, I know that you've been a Salesforce for a little under a year and joined from LinkedIn. So for those who may not have met you, mind providing a quick background on yourself and role at Salesforce?

Sure. So I joined in February of this year. Prior to that, I was at LinkedIn for about 4 years and came there through the acquisition of my company, Fliptop. And we're doing kind of machine learning for sales and marketing. And during my time at LinkedIn, I ran the Sales Navigator team, and now I'm the General Manager and EVP for Sales Cloud at Salesforce.

Awesome. So that was a good intro. So now I'd love to talk about the current environment and the impact that you're seeing on Sales Cloud, given that that's very topical. So based on your conversations with customers, where do you feel CRM or sales-related IT projects fit on the priority list relative to other tech initiatives? And maybe you can talk about any trends you've noticed, or if there's certain modules gaining more traction than others during this time.

Yes. I think it's a bit interesting coming into a role like this in February and then having the world turn upside down just a little over a month later. And I think when COVID hit most businesses, it kind of looked like a MASH trauma unit with everybody doing triage. I think the first job was obviously to make sure that employees were all safe and had what they needed to be productive. And then the next job was really to check in with all their customers, not just ones that were active in the pipeline, and make sure that they could be kind of supported and taken care of. And what we see now is the customers who starting to enter this next phase, where things have stabilized a bit, and companies are really looking to return to growth. And I think in this environment, sales productivity is a huge focus for companies. And we've seen great growth in areas of our portfolio that align with us. High Velocity Sales is one example of a product that we have in a lineup that automates a lot of the sales playbook and has really become table stakes for a lot of sales organizations these days, especially in their business development rep and sales development rep organizations, top of the funnel. So we're seeing a lot of adoption and good traction there. Another area that's been great for us is we -- as you may recall, we acquired a company, MapAnything, a little over a year ago. And last fall, they released a MapAnything -- or Maps' Territory Planning product. And that's really been on fire. That's allowed companies who have, let's say, reshaped their sales teams to suddenly run all these what-if scenarios of what it would mean to remap their territories, focus on a different set of accounts, look at different markets, really do a bunch of what-if scenarios side-by-side and then push that right back into Sales Cloud and deploy it in a way that's just not possible before with spreadsheets.

Got it. That's great background. And maybe just on that, so Salesforce's latest 2Q earnings sprint was very strong against a more challenging demand environment. And new business, I think, was actually consistent with pre-COVID levels. So do you feel that this was representative of some broader improvement in the demand environment relative to 1Q or just Salesforce's own execution? I know you talked about, just a minute ago, stabilization. Did you see that this quarter? And maybe you can discuss any go-to-market or product changes that you guys made within Sales Cloud to try to drive adoption amidst the pandemic.

Yes. I think there's a couple of things going on here. So COVID obviously drove it home to companies that being digital, being in the cloud was kind of business-critical in order for them to quickly adapt to the changing market conditions. And we're seeing companies lean into this digital transformation faster than ever before. So that's really been an impetus for this change. And companies who hadn't gone through this, or at least part of this transition, are seeing themselves at a competitive disadvantage and are really trying to change that. And second, while I can't ascribe all of our Q2 performance to a single go-to-market or a product change, we have always believed in a kind of Salesforce-on-Salesforce approach. So one change that we did do in Q2 was we rolled out the High Velocity Sales solutions I just mentioned internally to nearly 2,000 of our business development and sales development reps who now use that on a daily basis. And that's dramatically increased the productivity of that team.

Got it. And so are some of the things that you're mentioning, are these add-on modules? And maybe you could talk about the upsell opportunity from those when you include things that you mentioned were -- with High Velocity and mapping territory and planning. Can you maybe talk about that opportunity?

Sure. So the nice thing about the portfolio that we have is we have kind of this Russian nesting doll kind of strategy. So you've got the core platform, where if somebody wants to write directly to the APIs, they can build something very custom that scales really nicely. Then obviously we've got a range of solutions that are built on top of that, from our entry-level Essentials product, which is really meant to capture the SMB market; all the way up through our 3 editions of Sales Cloud: Professional edition, Enterprise edition and Unlimited edition. And then on top of that, we now have these industry clouds, these industry editions that could take that even further. In addition, within Sales Cloud, we have a set of these add-on packages. And we're always looking for ways to kind of put these pieces together in interesting combinations. But right now, things like the Einstein, Sales Cloud Einstein package, which involves a lot of data capture from e-mail and calendars, a lot of analytics, scoring and other kinds of things, has been very popular. This Maps add-on has been very popular. And as I mentioned, High Velocity Sales as well. Another area that's part -- underneath the umbrella of Sales Cloud is the CPQ product: configure, price, quote. So this was the acquisition of SteelBrick that we did about 5 years ago, and really took a product that was pretty nascent at the time and turned that into the market-leading solution for CPQ. And now we're even looking at up-leveling that further into something that looks at the entire revenue operations pipeline, so how do you start to combine CPQ with B2B billing and partner relationship management, even some of the contract life cycle management pieces to put more complete solutions together.

Got it. That's helpful. And then just sticking with the pandemic, and as we look ahead, how would you characterize pipeline activity and lead generation at the start of 3Q relative to the first half of this year, even prior quarters? I'm curious what your guys' expectation is for the slope of a recovery or when you think that we'll begin to see IT budgets or spend on CRM start to normalize.

Yes. So our current pipeline is consistent with our historic norms. We continue to be pretty mindful about how global events, and there's multiple obviously going on right now, may impact our customers. But I will say that we have the benefit of being the #1 CRM for so long. Gartner just came out with their latest Magic Quadrant for sales force automation and CRM, and we're -- we've been #1 14 years in a row. And I think, especially in times like that, that really helps from a pipeline demand-gen standpoint because customers are increasingly turning to the brands they trust. They're taking less risk. They're going in with the folks that they think then -- that can not only sell them software but really help them solve business problems. And the vast majority of the companies that we speak with during this time are using this period to really rethink all of their processes and operating models. And that's when they come to us, when they take a look and say, "Okay, how did you do at Salesforce? You just had this amazing quarter, you're using your own products, give us the best practices or help us work with partners to go implement that in our own organizations."

Got it. That's really helpful. And then maybe switching gears. So Sales Cloud is now a $5 billion business that has grown in the low to mid-teens the last several years. And Service Cloud now has passed -- surpassed, actually, Sales Cloud in terms of size. So I know that there's always lingering fears that Salesforce's Sales Cloud is reaching a level of maturity. So what would your response be to that? And where do you think we stand in terms of penetration today? And are there any interesting growth opportunities that you feel are really underappreciated?

Yes. Well, I wouldn't have left LinkedIn to come to Salesforce if I thought CRM was ready to be put out to pasture. And I really think we're in the early days of CRM. And I think you're going to see more innovation in CRM in the next 5 years than even in the past 20. And as we look at the market, I think there are billions of dollars of TAM waiting to be unlocked. But in order to do that, we've got to kind of change the way we approach things. I think that a lot of the CRM industry has been chasing this "Glengarry Glen Ross, give me the leads, always be closing" kind of model of sales. And the world is different than that, and we have to change with it. The fact is buyers are in charge now, and B2B buyers are -- and they were, even before COVID hit, but COVID has just made that even more acute. The B2B buyers are bringing their B2C expectations. What is it like to do one-click checkout on Amazon and have transparent pricing and reviews or recommendations from Netflix? They're bringing those expectations to the B2B party. And reps have to change from this kind of always-be-closing mentality, ABC, to kind of always be helping. So in terms of opportunity, I think it's everywhere. I think we have core capabilities that we're enhancing. I think we're relooking at our packaging. I think that we have a number of areas that we don't play in yet. And then, ultimately, as I said, I think that feeds very nicely into a family of special value-added capabilities around targeted industries.

Got it. Yes. And then on that, I mean, the Vlocity acquisition was a home run in our view. So could you just talk about this acquisition maybe in a little bit more detail and how this will strengthen the value proposition of Sales Cloud and add to the efforts that were already underway in building industry-specific clouds? And then maybe as like a second question on that, curious what average deal sizes look like when you have a tailored CRM solution versus not.

Yes. So I agree with your assessment. I mean Vlocity CEO, David Schmaier, is awesome. And now he's running our industry cloud efforts. I think Vlocity, the beautiful part of that business is that they were in a position where it wasn't just a repackaging of other stuff. They had to provide value, otherwise they wouldn't get paid. So they had to provide value that was unique on top of the existing sales -- Service Cloud offerings, and they bring all that to the family. And I think Vlocity really helps us round out our offerings and create this kind of more complete Russian-nesting-doll strategy that starts with low end in the Essentials product and then takes them through these -- all these editions and the industry editions. With Financial Services, for example, which is our most mature industry offering, we're seeing kind of ASPs of about 30% or more higher on average. But I think it's also worth noting -- just kind of back to that product portfolio and family, it's also worth noting that Essentials is the only entry-level CRM solution that doesn't have limits, and -- because we've built it on top of the same back-end as our Sales Cloud and industry offerings. So buying other CRMs, I often say CRM at the entry level is a bit like buying QuickBooks. It's a great product, great starting place, but there's not a lot of companies that are going public on it, right? So you eventually go through this very painful transition point when you kind of hit the limits and hit the scale. And so Salesforce is really the only vendor that doesn't have this limitation and allows companies to come in and start with a $25-a-seat product and go all the way up to implementations that are now the largest companies in the world.

Right. No, I think you make a very good point there. And then I just actually want to circle back in something that you mentioned a little bit earlier. So you talked about that there was maybe a couple of areas that are interesting that you don't necessarily play in today. Do you mind elaborating on what some of those areas might be? What are adjacent markets that you find interesting in terms of looking at Sales Cloud in home?

Yes. I think the -- one of the big changes that we're doing in the Sales Cloud product team is really focusing on the jobs to be done by our end users and working backwards. So I think that if you look at, just in general, putting the buyer at the center of that, we then look at what is the rep trying to get done every day, what is the manager trying to get done every day, what is the sales operations trying to get done every day. And I think that that's where we think about a lot of -- where a lot of opportunity lies. So things like enablement, for example, are pretty interesting in terms of how do we -- how do you onboard a rep? How do you make sure that you're kind of checking in and finding out how that rep is performing? How do you kind of compare the top performers to the not-so-top performers? And then how do you ultimately turn those B players into A players? So we have some kind of pieces that we've got in the market right now with things like Trailhead, which is a great learning platform. And we just rolled out in this year Call Coaching, which allows companies to kind of record and analyze phone calls. But I think there's a lot of opportunity for expansion there, especially now that these sales teams are all virtual.

Got it. And now I'd love to just talk about your background with LinkedIn. So prior to your role at Salesforce, like you mentioned, you were VP of Product Management for LinkedIn's Sales Navigator. So given that Microsoft is a competitor of Salesforce with Dynamics and acquired LinkedIn in 2015, maybe you could talk about what Microsoft has done with LinkedIn to enhance its CRM offering, and if that served at all as a competitive advantage relative to Salesforce or not.

Yes. I mean I think it might have been Novell years ago that coined the term coopetition. And so Microsoft is -- and LinkedIn are 2 of those great coopetition partners there. And we compete on some things, and we cooperate on other things. So Microsoft currently doesn't offer any advantage over Salesforce with respect to LinkedIn integration. You have to remember, the way that the LinkedIn deal was structured, it was up to LinkedIn to determine what they wanted from Microsoft to accelerate their business instead of vice versa. And so when the deal was closed, there was no integration at that time between Dynamics and Sales Navigator. And Microsoft did some work to integrate Sales Navigator more closely with Dynamics and kind of bring it to where the LinkedIn integration was with Salesforce a couple of years ago. But we have -- we actually have a better integration today with LinkedIn than Microsoft has. In fact, Sales Navigator is the only sales application that is pre-installed to the Salesforce. So an admin who has a license to Sales Navigator and Sales Cloud can configure Sales Navigator and deploy it directly from within Sales Cloud without even having to go to an app exchange and download a package. So that's just one example of kind of how tight those organizations are and are continuing to bring the products together. We also have really deep integrations with Outlook, and we're just about to roll out our Teams integration because that platform is obviously doing incredibly well. So both Microsoft and LinkedIn continue to be great partners for us.

Yes. No, that's really interesting that you mentioned that. And one other -- so this kind of leads into my next question. So Salesforce had an offering called Data.com, which was a contact database that had information of millions of business professionals. But Salesforce discontinued that service back in 2018, and that was competitive against LinkedIn's Sales Navigator. And now you have 2 vendors in the space, that being ZoomInfo and Dun & Bradstreet that just went public this past summer. So maybe you could talk about the decision to partner with those companies on -- with Sales Cloud versus offering this data yourself. And I mean ZoomInfo's growing around 40% and has run rate over $400 million. So I guess just what are your thoughts on this opportunity and the possibility of Salesforce ever reentering the space based on some of their success?

Yes. One clarification before I jump into that. So -- and coming from LinkedIn, we never really considered Sales Navigator a competitor to Data.com or ZoomInfo or any of those players because LinkedIn doesn't allow for the export of contact information. And as you know, kind of trust and privacy are 2 really core principles for Salesforce. And data is a messy business, especially in an increasingly regulated world. So things like GDPR coming to Europe, I'd be kind of shocked if something similar doesn't make its way to the U.S. in the future. And even though it was before my time, I think, ultimately, I agree that Salesforce looked at this and said, this is an area that was best left for partners rather than being something we did ourselves, at least in the area of PII, personally identifiable information. I think there may be other opportunities for business information down the line. And that's really -- that's where the beauty of AppExchange comes in. AppExchange is our B2B marketplace, our app store, and it's the #1 B2B app marketplace in the world. And it's a recognition that kind of we're never going to be everything to everyone. And so we create this platform in this marketplace that delivers jointly the most complete solutions to the market and allows, as you said, companies like ZoomInfo to thrive. And I think [ Henry's ] done a great job there.

Awesome. That makes a ton of sense. And then maybe just moving on. So Salesforce has obviously been very focused on bringing more data and analytics to the platform via the acquisitions of MuleSoft and Tableau. So can you talk about the importance of these acquisitions in relation to Sales Cloud and if at all they've enhanced adoption or usage of the platform?