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

Welcome to our next session. I'm really excited to have Bret Taylor from salesforce.com. Bret, you had a very busy time here, and I think that we'll go into that in a minute. But collaboration is -- everyone is talking about it this week, but you had a little bit more background on this.

And so I actually wanted to have the first question more around like a broader industry question. It's like talk a little bit about that evolution of the collaboration space, and you were in it as well with your own company a little bit. Just like how did that evolve and to see like how we got to today here?

Well, I won't go all the way back. But for me, the moment where I think this space really opened up for innovation was when Steve Jobs introduced the iPhone in 2007. Before that, I think e-mail was really the only kind of technology protocol that you could use to collaborate with each other, collaborate with partners, collaborate with customers. And as a consequence, everything went through e-mail. You probably remember the back in the dark ages when you got tagged in a Facebook photo, you get an e-mail about it, right, I mean, back in the day. And all of a sudden, with smartphones and the App Store and push notifications, it really opened up the door for alternatives to e-mail in both our personal lives and our work lives. You've seen this all over the consumer technology landscape, right? You've gotten everything from WhatsApp to Snapchat to TikTok. I think seemingly, every couple of years, there's a new way that we communicate and collaborate with in our personal lives. But I think that really opened the door in the enterprise as well. And I think you're seeing this in the technology landscape broadly. Obviously, I started a startup called Quip, which Salesforce acquired. It really focused on document collaboration. And I think by far, the most prominent example of this is Slack that for -- truly changed the way companies work and operate together and really offered an alternative to the traditional kind of e-mail plus documents productivity view of how people collaborate. And I think it's had a huge impact on our customer base, and we'll probably talk about it later in the questions. So I won't do it now. But I think it's really interesting. I think it's fun. When -- you don't get these big technology shifts that often. But every couple of decades, you -- I think a new platform comes along that opens the door to innovation. And that's -- in that moment for me, that smartphone introduction was probably -- that opened the door to companies like Slack.

Yes. And then if you think about like -- so you kind of tried it. We had like Salesforce doing Chatter. And like for you, it must be almost personal. So what did the Slack change, where you thought like, I should have thought about that like in hindsight? What was different about them than the first attempts?

Yes. It's a wonderful question. And I do think about it a lot as an entrepreneur who's slightly less successful than Stewart Butterfield. You do some retrospectives. I do think the product is just extremely high quality. The experience -- when you're defining a new way of working, it really comes down to the quality of the product, the interaction of the product. There's a few things that I think really make Slack stand out. One is just how engaging it is. I think that we talk a lot of enterprise software about systems of record with things like your system of record for your customers or perhaps your ERP system. This is the core databases that back your business. We've talked about in the past few years systems of intelligence, which is how do you add AI to those capabilities to make your customer experience better, reduce errors, reduce costs, all the things you'd expect with intelligence. And then there's systems engagement. And these are the panes of glass that your employees and your partners and your customers spend all day looking at. And Slack really created that, something that was truly engaging. And as a consequence of that, it really became a platform. I think they have 1 million weekly active developers building apps that connect into Slack, which are fundamentally line of business workflows. And then on top of that, probably the biggest insight that really, I think, transformed the way I view Slack was Slack Connect. This is something Stewart has talked a lot about in Slack earnings calls, but this is the capability to create a channel with a partner or a customer. And it's being used by a lot of our customer base, like Sales Cloud customers as an account management or a partner relationship management capability. We actually used it to do due diligence on this deal, which are for obvious reasons. The idea that these collaboration capabilities aren't limited to collaborating with your fellow employees but are a technology you can use to collaborate with partners and customers, I think, is really unique in the marketplace. And obviously, as you're thinking about the synergies between Salesforce and Slack, it was obviously something we talked quite a bit about.

Yes. I mean, if you think about it, like you -- at Salesforce, you sell applications. With Slack, in theory, you could see, it's just a better front end, but actually -- for a lot of the stuff that you do. But you might kind of see it more as a platform. So what's driving that kind of factor of, this is a tool versus this is a platform?

Yes. I really do think that our platform is apt when thinking about Slack. It connects all the people, all your stakeholders, your employees, your partners and your customers, and it connects all the ops and workflows. So when we're thinking about how does Slack plus Salesforce help our customers be more successful, it's really through that lens of the platform. For sales, it means Slack Connect for partner relationship management and account management. For customer service, it's things like case swarming in a contact center. Kind of an esoteric term, but that means a bunch of people working to solve a case as quickly as possible to get you off the phone. It also -- when I think about field service, which has been a tremendous area of growth for us, it's connecting the field to the contact center. So when someone's on-site and they're debugging a problem, it's an amazing way to sort of connect there. For marketing and commerce, which is 2 of our other large businesses, particularly relevant after Cyber Week a couple of weeks ago, you really think about Slack as this kind of central nervous system for the teams running Cyber Week, all the merchandisers and marketers who really depend on that week to make their quarter, to drive their business. So when I look around it, I really think about Slack as a system of engagement for our entire platform. And I think about it very inclusively, not just for the employees using our software but for the partners and the customers that our customers are engaging with. And I think that's an incredible capability, particularly now. We probably talked too much about the pandemic in these investor calls. And I think the most interesting thing about this pandemic is we've gone from really talking about it as something temporary to, I think, really talking about what are the enduring consumer and customer trends that will remain on the other side of this. And put bluntly, it's not like cyber, e-commerce transactions are going to go down next year, right? I mean we're not -- the door that we've opened is not going to get closed. And you see this across companies changing their workforce plans for distributed work. You see this around things like medicine going to telemedicine. You've seen this in the adoption of e-commerce. And when I think about what does it mean for Salesforce to provide a platform for Customer 360 and CRM, wow, it could be so much more valuable with a tool like Slack in this all digital world that we're in right now.

Yes. And then the -- if you think about the long run, like -- so you kind of mentioned a lot of the use cases around sales and interacting with customers. But if you look at -- and at the end of the day, there was going to be like a big standardization discussion happening with your corporates. And Marc Benioff mentioned about some of your big clients already coming back to you. But like if you think about it, like if you own sales and they do Slack, and Slack had a very good starting point in the IT developer environment, you have like 2 big contingencies or 3 groups in an organization that are already kind of happy on Slack, and the standardization discussion should be much easier. What are you seeing there in terms of the long -- what are you seeing already in terms of feedback with clients and now, but also at -- as a long-term potential?

Yes. It's been -- it's fun once these things are public, even though it hasn't closed yet. All -- I have so many customers reaching out to me with their ideas and their reactions. Number one, I think it's really reinforced how prevalent the awareness of Slack Connect is in the marketplace already. I was on with Gavin Patterson, our Chief Revenue Officer, with one of our large telecom customers the other day, a couple of days ago. And they're both a happy Slack customer, but we're actually on to talk to them about managing their channel and direct sales motion in their B2B business. And they immediately were talking about ways that they want to leverage those 2 together. And it really reinforced the -- I think the thesis that we had coming in as Slack is not necessarily just a tool for employees to collaborate, but as a tool for these lines of business to do their jobs, these industry-specific line of business, specific business workflows with Slack. The other thing that I think is really interesting and you brought this up, where you have lots of different stakeholders in the business who are fans of Slack and the opportunity to really go wall-to-wall. I think that when you look at our -- the key lines of businesses and industries that we serve, there's so many stakeholders that need to be involved to get your job done. Just imagine you're an account executive on a sales team and you're getting approval for a discount, you're sending out a contractor, you're logging into your ERP system, you're touching finance departments, you're touching probably engineering and product, whatever your company does. And I think there's an incredible opportunity to, I think, bring more stakeholders into the workflows that Salesforce provides our customers due to kind of that organic capability that Slack has to engage so many members of the company. And so I think it can really accelerate Slack's exposure to different lines of business who maybe wouldn't have been exposed to it otherwise and then really help Salesforce customers kind of be more inclusive with all the stakeholders necessary to provide a great sales experience, customer service experience, marketing experience. So I think it will really help on both sides, as it's been reinforced with my customer conversations.

Yes. Okay. I want to slightly move on from the Slack topic now. So as you think about product and product evolution at Salesforce, I just wanted to -- it's a big picture question, but like what are kind of the guiding principles? Because like you've got it at the Analyst Day, again, it's like, oh, why are not doing like back office, et cetera? But like how do you think about that, that product evolution? You acquired a few assets. But also, the Customer 360, there's something like really organic growing up -- growing within Salesforce. Like talk about the bigger picture for us here.

Yes. Our product strategy, we call Customer 360. And we're really focused on it because we think that especially right now, it's the most relevant part of every one of our customers' technology portfolio because it's about growth. If you're a consumer goods company that, due to the pandemic, has had their retail execution not driving the kind of growth that you'd previously expect, you're probably contemplating going direct-to-consumer. What does that mean? It means an e-commerce storefront. It means order management. It means digital marketing. It means building a customer data platform since you have first-party customer data for the first time because you're not just going through wholesalers and retailers. And behind -- and if you go into the C-suite of a company like that, are they talking about their ERP system? No, they're talking about their business model transformation, which is driven by a vision for CRM and Customer 360. And you go into every industry. Financial services, health care, CPG, retail, manufacturing, every single one of these companies is going through what they would call a digital transformation. But if you double-click on that, because that word is so abused by technology companies to me and pretty much everything you want it to mean, what they really mean is their customers are going digital. Their customer experience is changing. Their business model is changing. Their channels and partnership strategy is changing. And I think Salesforce is really the software that can power that transformation and fundamentally get companies back to growth in an economy where that is hard, that requires a ton of agility this year. And I think that's really why we're so relentlessly focused on this space, as you would describe sort of front office, which is how can we help our customers grow. I think one of the things we've done with our inorganic strategy that I am really proud of is saying, what are the supporting technologies that we can provide that will really accelerate that transformation? If you take something like MuleSoft, I think as a stand-alone company, that product was sold primarily into IT sort of after the project was sort of in flight, right? Okay, now that we've decided to digitize our contact center, let's find an integration platform to connect all these legacy systems. We can now go into customers and say, we not only have a way for you to transform your customer service experience, we have an integration platform to make your time to value faster, to make your next project cheaper and really provide a strategic way if you integrate all your legacy systems. That's a much more complete value proposition and really answers a lot of the hard technology questions that our customers are facing when they're transforming their customer experience. And I think the thesis with Slack is quite similar along those lines. If you buy what I'm selling on this -- the changes from this pandemic in terms of consumer behavior, employee behavior being more permanent than we originally expected, what an incredible way to complement our value proposition in this all digital world as a way to engage with employees, customers and partners. So that's fundamentally it. I think we take pride in our focus. We take pride in how relevant it is, particularly this year. And I think our inorganic acquisition strategy, I think, has really sort of broadened our value proposition to make it more complete as we go into each of our customers.

Yes. So if I hear you correctly, so this is the horizontal technologies that you added with Tableau, Mule and now Slack. It's really a complement to your original focus rather than like -- because I do get the questions like, oh, are they going everywhere now? But it's really -- it looks like you're complementing what you have.

That's right. And I think there's 2 angles I look at. When we go -- if you're a fly on the wall of a customer discussion, it's exactly what you described. We really want to have an integrated value proposition for our customers and help them build a Customer 360, a single source of truth for their customers, for their partners and all their stakeholders. And we really -- when we talk about acquisitions and the synergies, it's really about that focus. I also think, though, that it does expand our total addressable market in ways that, I think, have been really compelling for our business. And I think that when I look at the secular growth in data that I think Tableau is benefiting from, the move to the public cloud and all the challenges that companies face with legacy systems, I think MuleSoft benefits from. So I would say both. If it doesn't amplify our core value proposition, we're not interested fundamentally. But we also really do when we're thinking about the total addressable market of our company, we want to make sure we're going into areas that we feel like are long-term secular trends that will position the company well a decade from now.

Yes. I'm trying to switch gear again and looking at some of the original products. So with -- and so you came later to Salesforce, and you had like a background like that is kind of like for companies that kind of were started after Salesforce with kind of slightly more modern technology, let's say, like [indiscernible] like this. So when you look at the portfolio, like how do you think about that kind of modernizing the Sales Cloud, the Service Cloud in terms of how they were originally done, but still running it and making sure the customers continue to be happy customers in terms of what -- the service they get from you?

Yes, it's a great question. There's kind of 2 avenues we've taken. One is really broadening the value proposition for the buyers of each of our clouds. So with Sales Cloud, we've added things like partner relationship management, CPQ, which is our revenue cloud, which is really the interface between sales and the finance operations teams that are so key to the way sales teams operate. This year, we've announced Salesforce Meetings, which is a way to really integrate Sales Cloud with the Zoom calls that our poor account executives around the world are on every single day and really integrate that into that single source of truth, so that you can actually effectively track who are you meeting with, what was the effectiveness of the meeting. And you can imagine, especially in this digital era, how valuable that is. And I can tell you, every customer I've been talking to is reevaluating business travel right now. And I think that, again, when you're talking about what habits are going to remain, I think we're going to have a lot of Zooms going forward, hopefully less, but I think it's -- that habit is going to remain. When you look at things like Service Cloud, it's really similar. It's really not just innovating our core, which we've done with things like Einstein, where we've added things like chatbots as a case deflection mechanism. We've also expanded just the breadth of our value proposition to things like field service, to things like digital service, to -- all the way to Service Cloud Voice, which is our contact center offering. Now when I think about our original clouds, our value proposition is so much more complete. And just take Service Cloud alone, there's really no technology company who can come in and say, we can power your end-to-end customer experience, whether it's someone in the field, someone in a contact center, a long-running case. If it's a chatbot that's live on your digital website, that's really, by far, the most complete value proposition. And I think that's really what's -- I think continued to grow clouds like Service Cloud, and our organic growth rate has been so impressive through particularly Q2 and Q3. It's something we're really proud of. It's just how complete each of these clouds are. So you're right, there's an aspect of, call it, innovators' dilemma, where you want to make sure you're constantly re-architecting these things to be relevant. I also think that even within this space, there's just a lot more innovation that we can deliver to our customers to make these value propositions more complete.

Yes. Next subject is like one of the things I get from investors a lot is like with Mark Hawkins leaving, there's this kind of weird notion that, oh my God, like now, he was the hero of margin expansion in Salesforce. And now all the floodgates are opening, and Bret and everyone is spending like crazy. Just maybe kind of put everyone to rest to -- and ensure that we don't go -- ever see it. Like how do you think about that effort within Salesforce?

Yes. So it's a great question. No one's unlocking the vaults of money right now. And so it's interesting. I don't think Mark Hawkins was the champion of margin expansion. That was our management team. We -- one thing, I think I'll just describe our philosophy, which you've heard from Mark quite a bit, which is, one, we have a very durable model. And I think that, that's been really proven this year. Obviously, Q1 was crazy when the whole world locked down. And candidly, I think the world went into paralysis for a couple of months there in the early parts of this year. If you look at the results from Q2 and Q3, I think the durability of our recurring revenue model of how we manage attrition, I think, is unique in the software landscape. And something that I think investors really should understand as something that is, I think, reinforced to us in crisis. I wasn't here during the 2008, 2009 time period, but I was here for this crisis. And to see the durability of our model endure, I think, reinforces our confidence in our business model and our relationship with our customers. And then along with that is we do think that we're prioritizing growth, we always have. We are a growth company. And we think that, given the size of the market that we're addressing and given the secular trends, even with the economy's complexities this year, the tailwinds of the digital imperative from this pandemic have really given us even more confidence in the size of our market and the opportunities for growth. But it doesn't need to come at the expense of modest margin expansion. We do think this model grows more efficient over time. And whether it's in our cost to serve or how we go to market, so it's something that the whole management team is committed to. And I know Amy Weaver, obviously, is as well. But it's -- but I want to make sure, that's not Mark Hawkins' role on the management team. It's the entire management team's philosophy.

Yes. No, that's good to hear, and I'm sure investors will like that. The last question, and I see my time is almost up, like talk a little bit about the customer conversations, what you see in terms of end demand. Like there's a lot of talk about digital transformation. For us, pre-COVID, that was kind of a bit of a term everyone liked to talk about where it wasn't really tangible, and we didn't really know what it meant. It sounded more like a marketing slang. Now it seems it gets more like real and customers realizing it's more real. What do you see out there in terms of the field? And are people coming back to spend? Or how did the last kind of couple of quarters feel for you?

Yes. So really -- I really agree with what you just said, which is digital transformation was like a marketing buzzword. Then all of a sudden, when all of your consumers and customers are only available via digital channels, all of a sudden, that marketing buzzword takes on a very concrete meaning. So we are seeing an increase in demand. You've heard -- I think Gavin talked a lot about it, both in the results in Q2 and Q3, but also the pipeline that we're seeing. And I think it is reflecting kind of a tale of kind of 2 narratives happening at the same time. One is, I think there continues to be some anxiety about the economy just because it's been -- the recovery of the pandemic has sort of been happening in fits and starts. And you're seeing this across the world right now as cities and states and countries are locked down again, given the surge in the virus. You see -- that's coupled with the optimism from the vaccine, and no one really knows what to think. On the other hand, the tailwind of digital is more than compensating for that, which is why this year, I think, it was symbolic when we brought up our revenue guidance for the year back to our original or a little above our original. That's something that's surprised even us, if you asked me in March. And I think it really reflects that what's happening right now is really a sense of urgency around these digital projects. No one wants to be on their heels if there's another pandemic in the future. And then similarly, I do think that every single CEO I'm talking to is really seeing -- kind of almost using this as an opportunity to transform their business in ways that had already been in flight. But given the market this year and the consumer behaviors, they're saying, let's just get it done. Let's make that business model shift. Let's accelerate that project. And a few of the things that I see that have really changed is, one is a focus on time to value. People aren't making multi-year projects for digital transformation. They're saying, let's get it done in 3 months and iterate. Actually, candidly, as a technologist, that's a much healthier way to do a technology project. And similarly, I think there's a big focus on technology agility. And we've always been a big proponent of what we call low code, essentially enabling a much broader range of our customer base and our partners to deploy these technologies. When you looked at the big events in this pandemic, like, for example, the distribution of the PPP loans from the Small Business Administration, the banks that processed most of those were the ones who used platforms like ours and our partners and CNOs to stand up a portal in 6 days, 5 days. And so you're really seeing the benefit from technology agility. So when I've had conversations, particularly with -- at the executive level, it's been, I want a platform that will enable me to be agile in the face of future shifts in the economy. I think that's going to be really healthy for the economy over time as people don't necessarily sort of rigidly encode their business model in their software, but really think of these technology platforms as essentially tools for economic agility in the face of uncertainty. So that's broadly what we're seeing, which is -- I think this digital tailwind is something that we feel optimistic will really endure through next year and future years.

Perfect. Bret, I see my time's up and people telling me I need to come off. The -- I could talk for a long, long time with you. It's fascinating. Thanks for joining us today, and that was a really great session. Thank you.

Thank you.

Thank you.