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

All right. I think we're ready to kick things off. I'm DJ Hynes, I'm Canaccord's Senior Software Analyst. Thank you all for being here. Now this is the first time we've done this e-commerce symposium. We're delighted to have Salesforce here, one of the sessions that I was really looking forward to hosting. We have Adam Blitzer, who is EVP and GM of Digital. And I'll let him talk a little bit about what all that entails at Salesforce. We're going to try and make this as interactive as possible. There's a Q&A function on the webinar. So if folks tuned in online have questions, please send them in. I'll be keeping an eye on it, and I'll work them into the conversation, but we have 25 minutes. So it probably makes sense to get right into it. Adam, thank you for being here. As I said, we really appreciate it, and I was looking forward to this one.

Maybe just to level set everybody, can you talk a little bit about your background? You've been in the MarTech space for a long, long time. Maybe how that brought you to Salesforce and kind of what your role is at the firm today?

Sure. Absolutely. And first of all, thanks for having me, DJ. It's great to be with you today. So I'm a bit of an old hand at MarTech. I wound up starting a company called Pardot in 2007 in Atlanta, it was a business-to-business marketing automation system. So really focused on demand generation, lead tracking, lead scoring, but very B2B centric. Built that company organically in Atlanta. We bootstrapped it, and then we sold it to a larger digital marketing company in 2012 that was newly public called ExactTarget. Got to ExactTarget, we were just about paint our walls orange and then about 10 seconds later, we sold ExactTarget to Salesforce. So it was a very quick hop. It was about 10 months close to close, and it's exactly sort of the right place to be for a business like ours that was so focused on B2B marketing. It was very much in the wheelhouse of Salesforce. ExactTarget became the B2C engine of Salesforce. Pardot really became the B2B marketing engine. I worked largely on the B2B side of the house for the next 4 to 5 years. I ran the Sales Cloud. So a lot of what people think of as CRM at Salesforce. And then about 18 months ago, I really switched focus to the digital side of business. And so that is our Marketing Cloud, our Commerce Cloud and our Experience Cloud. So all the things that a Chief Digital Officer might care about to have great relationships with their customers to really build a connected customer experience. Sometimes it's better to be lucky than good. But obviously, digital is where the action has been really over the past year. As we've entered into the pandemic in businesses that were digital seconds coming into the pandemic became digital-only by necessity, there's just been a tremendous, tremendous amount of digital transformation occurring. And we really think the businesses that are going to grow the fastest as we come out of this are going to be the ones that have managed to become digital first. So that's a quick background on me and excited for the conversation.

Yes. That's awesome. I mean you're the main man to talk to with all the hot trends happening at Salesforce, so that's great. Given, obviously, the focus of today is e-comm, we're going to focus the conversation there, but I do have some questions I can maybe cross into some of the other clouds. But let's start with kind of like the last year and what's happened in the pandemic. I mean it's just been such a transformative period in commerce. And it feels like everybody made the move to online if they weren't there already. Maybe just talk about kind of the biggest challenges that you saw in your customer base and kind of how Salesforce was able to help those folks solve their needs?

Sure. Yes, I'll talk about a couple of different challenges. One, I would say, for companies that didn't have a direct relationship with their customers, the pandemic threw them for a loop. And by this, I mean, many consumer packaged goods companies, many manufacturers, where their old advantages of having great placement on store shelves or a tremendous amount of inventory sold through third parties kind of the big marketplaces out there, all of a sudden, those channels were shut down to them, right? People couldn't get into big box retailers or you had -- the major marketplaces had to focus on essential goods. And so all of a sudden, if you're a consumer packaged goods company or manufacturer, there was some period of time where potentially no one could actually buy your goods. They were just sort of sitting somewhere. And if you weren't direct-to-consumer, if you didn't have a direct relationship, you were in a bit of trouble. So that is one thing that we've really seen addressed sort of in mass over the past year is so many of these companies were already planning on a direct-to-consumer strategy, maybe not as their main strategy, but as kind of another pillar of their commerce strategy, and it was sort of viewed as a nice to have. And I think the pandemic really blew that -- brought that into focus as a must have or have to have. And businesses are saying, I never want to be disintermediated from my customer again. This is a trend that sort of started. You could almost -- if you look back years ago what happened with Gillette versus Dollar Shave Club and Harry's Razors and these kind of direct-to-consumer sort of digital native brands were able to come in and take a significant percentage of the market just by having that direct relationship, that's what sort of started this. But then I think the pandemic showed just how vulnerable you can be, if anything happens in that sort of distribution chain with your customer. The second major challenge that we saw was just logistics in general. So not only were you sort of potentially cut off from your customer, you also potentially cut off from your supply of goods, right? Just things making it to your distribution centers to be shipped out to customers became really unpredictable at different times and could really result in a poor customer experience. And so we saw stores starting to do interesting things, thinking about their retail footprint. Some brands thinking about all the stores that they have that might be closed really as sort of mini-warehouses for goods and look at how do we unlock all of this inventory that's just trapped in our stores and use those stores as shipping centers. Now we just happen to have launched and made generally available our order management service at the beginning of last year. So right before the pandemic actually started, we didn't realize that this would become as strategic of a product as it became just over the next few months. When you think about what order management does is, it gives the customer a tremendous amount of control over how they get their order, right? Do they buy online and pick it up in a store? Do they pick it up curbside? Could they arrange for it to be kind of sent through a different distribution center than what they were originally planning? So that became a really strategic product. The trends were all there, but the pandemic really accelerated that. And the reason is it gave all of these retailers just a way to give their customers more control over that inventory and how those orders were coming.

Yes. It's super interesting, right? I mean, Salesforce is so big and does so much that we don't always get the shine of light on some of the interesting stuff that you guys are doing. I remember Demandware going down the road of like order management, when you guys acquired them, it's interesting to hear the timing of it and how that impacted kind of your opportunities in the pandemic. One thing I wanted to hit on, look, we've obviously seen like the record GMV in the space. I think you guys reported 74% GMV growth in Q4. So volume and value of transactions is super strong. I'm curious about what you saw from a new business perspective, right? Because we also heard of traditional brick-and-mortar customers kind of moving online for the first time out of necessity essentially. Maybe just talk about kind of the demand drivers for Salesforce over the last year or so?

Sure. Yes. And we saw demand across a few different vectors. The first one, you're absolutely right, there was a tremendous amount of GMV growth. And one way to think about it is, essentially, every day was holiday level traffic. Literally every day was holiday level traffic and not just for us but for the entire industry. If you look at our peers, I mean, everybody was seeing this tremendous surge in GMV, which ultimately leads to increased revenue or increased bookings from your existing customer base. The other thing we saw was, again, a tremendous amount of digital transformation projects being pulled forward. So businesses that already had an e-commerce strategy, but were just looking to take that to the next level and maybe they didn't have it planned in the next year, they wound up pulling those forward. And I would say the way businesses were thinking about digital transformation is they probably have many different things in their agenda. They prioritized all the things that touched their customers directly. So as opposed to sort of back-office innovations, anything that touched their customers directly, those were the things that got pulled over -- pulled forward. We're able to do a number of really transformational strategic deals. I think it was after our Q2 earnings call, we talked about our incredible customer, VF Corp, which has a great portfolio of brands like North Face and Timberland and Vans. Obviously, they already had an e-commerce strategy, historically partnered with Salesforce has been able to do some incredible things, implement things like live shopping which takes advantage of kind of this virtual experience that we're all in now. But still, you feel like you're with an expert, really seeing the merchandise in sort of a one-to-many, but it feels like a one-to-one fashion. So still kind of our bread and butter of major, major retailers, tremendous amount of new business there. The third thing I would say is also new industries, that maybe we traditionally didn't have as big of a footprint in, have started to really adopt e-commerce maybe in a way that we wouldn't have expected a few years ago. And these are companies in health care, life sciences; these are companies in automotive; these are companies in like quick-serve restaurants. We've been able to do deals across all of these. One of the things that I think really helped us during the pandemic is we realized a lot of companies are doing this for the first time. So when I mentioned those new industries, they're going from a world of kind of no e-comm to e-comm and may not have a tremendous amount of in-house expertise or also, they just need to get something up and running quickly. So we launched what we call our QuickStart programs, where these are very opinionated services engagements around particular use cases. It could be around things like social selling or subscription management. So it's commerce for a very specific use case where we can get a customer up and running in a couple of weeks and then, of course, they could build on it from there. But really, the idea of taking that implementation time line, taking the cost of implementation down very, very significantly so the customer could get up and running for their specific use case. So again, GMV sort of explosion, new business in our traditional bread and butter and then expansion into other industries has really been where we've seen the growth.

Yes, perfect. Let's put a finer point on the GMV part of the equation, right? Because I think your business model is a little bit different than others in the space. We kind of see this like instant gratification jump in growth for a company like a Shopify or the like. Maybe just talk about kind of how that GMV might flow through the P&L for Salesforce?

Yes. And DJ, I have 2 little kids. So I try to teach them that life is not about instant gratification. At times, they got to do the journey and see it. So we handle our GMV a little bit different. So our customers essentially commit to what they expect their GMV to be with us. And over time, they work through that GMV. So when we see a surge of GMV, essentially what it means is we'll see future revenue. So it's not exactly at that moment in time, they're sort of going to do an early renewal. They're going to kind of re-up their GMV amount with us and then burn through a new amount of GMV. So essentially, there's a slight delay, but it's the leading indicator for what we're going to see in the future. So a similar model but slightly different.

Yes. So it's fair to think...

Yes.

Yes. But it's fair to assume that some of the strength that we've seen in terms of volumes have yet to translate into your financials for Salesforce.

Yes. So it's fair to say that there's generally a slight delay. And so when you see a surge in GMV, you should see what follows sort of after that as kind of those customers re-up because essentially, what happens is they've already committed to a certain amount of GMV. So we sort of see that in the beginning. As they burn through that amount of GMV over time and the pandemic really accelerated that thinking about new customers using that GMV commitment faster than anyone expected, and that's good for the customer, it's good for us, right? It's sort of first principles around you want your customers doing as much GMV as possible, that will lead to sort of an increased size of deal with us in the future.

Yes. Makes perfect sense. All right. So enterprise deployments in the space are generally pretty sticky, right? It's like open heart surgery to kind of replatform your e-commerce system. That said, I think there's a perception among investors that Demandware maybe getting a little bit old around the edges, right? That it's a bit more IT resource intensive versus some of the maybe newer tools to the space. How would you respond to that? And then maybe you could talk about kind of where Salesforce has invested in the platform and where those efforts are focused?

Yes. My wife sometimes claims that I'm getting old around the edges, and I just tell her, support. I support all of our enterprise needs. So Demandware was certainly an enterprise platform. And so we're not the type of company that has 200,000 merchants running through our e-commerce platform. We have many fewer merchants doing much, much, much greater volumes of GMV and at a much higher level of sophistication. And so I would say our deployments are, to some degree, as complex as the customer wants it to be because of the flexibility that we offer. We do recognize: One, as I mentioned, for the customers that are doing this really for the first time, they don't have kind of a tremendous amount of e-commerce heritage within the company or let's say, they're just a smaller, they're a mid-market company and maybe they have less resources overall to think about this, that's where we've really gotten a lot of traction from the QuickStart program that we've implemented, where it's -- again, it's more opinionated. It isn't, say, here is a pallet that you can do anything with. It's more opinionated and will come in or our partners will come in with a very scoped implementation and say, "hey, we'll get you up and running in a couple of weeks. Here's the use cases we cover," and then you can sort of step into it and add from there. And that's been incredibly successful for us. The other thing is we've also really worked on making some product developments that make Commerce Cloud easier to adopt and implement overall. So one I'd mention is our partnership with Stripe around payments, a key driver for us. Every -- obviously, every customer is going to use payments in some form or another. Payments integration is never a tremendously fun part of implementation. So we just wanted out-of-the-box Day 1, you turn the Commerce Cloud on, you have payments integrated. And so we take that headache out of it for our customers that choose Stripe as their payments vendor. And then the other thing is we did an acquisition of a company called Mobify, and that really helps round out our headless story. So headless airs more on the side of sort of enterprise and flexibility. But I would say even as you come down market, there's much more interest in headless than there used to be. So the idea of commerce -- not all of commerce is going to be sort of tied to our back end, and you have the front end that we prescribed for you as a store. Customers want much more control over how does that store show up as a progressive web app. We looked out at our partner base. We have this great company in Vancouver called Mobify, and they take probably a couple of months out of a typical headless deployment by managing that progressive web app front end for our customers. We also launched, in July of last year, a new set of commerce headless APIs to, again, just round out the developer story, make those kind of complex or sophisticated headless deployments much, much faster. And then the other piece I would say is order management. So order management is really the glue between 2 of our flagship products. So our Service Cloud, which is really the largest product area at the company now, and our Commerce Cloud. And if you think about order management, all the kind of sophistication around what a customer can do with the order, what an agent can do with the order, that really becomes the glue between those 2 centers of gravity. So those are all the areas where we focused on that have really led to significant gains and the ease of deployment for our customers.

Yes, yes. That's helpful. As we think about like delivering an omnichannel experience, we get a lot of questions around marketplaces, social, mobile. Maybe just talk about kind of how Salesforce helps its merchants across each of those 3 channels and kind of how you bring it all together?

Yes, absolutely. So I think the old world of e-commerce was drawing everyone to your stores. So no matter what, you were hoping all traffic occurred on your storefront. And the reality of e-commerce today is the customers are where the customers are. And the customers are going to transact wherever they want to transact. And so you have to -- we have to enable our customers to be able to provide great experiences wherever their customers are. So you mentioned marketplaces, this is a place where we've made some strong partnerships. You'll see a couple of partners in our partner ecosystem, whether it's Mirakl in Europe or Marketplacer in Australia, they're both focused on those marketplace offerings. Mirakl just announced a joint deployment with us, with Commerce Cloud to launch Hudson's Bays -- Hudson Bay companies marketplace. Really, really successful example of the 2 of us partnering to deliver a marketplace for just a massive, massive retailer. In terms of social, again, this is very new for many of our customers. As part of one of our QuickStart programs, we really focused on getting customers up and running with social shopping, again, just in a matter of a few days, really focused, particularly on Facebook and on Instagram, which are probably the farthest along in terms of their maturity. I think over time, you'll see all social channels really kind of offer much more shopping on the social channel. If you imagine, social, really, they're making their money through advertising. A sort of cost per click model is nowhere near as effective for them as a cost per conversion or cost per sale. So I really think they're all going to sort of have outcomes-based advertising in the future. And of course, we'll need to support that as that happens. And then mobile, I think this really speaks to our headless story and just having strong kind of mobile-first experiences that can be built easily with Commerce Cloud, our Mobify progressive web app framework really makes that much, much easier. Under Armour is a great example of a customer of ours that launched their global commerce. Before we had Mobify, they used Mobify for the mobile piece of that experience. They used our reference architecture for the -- or the web part of that experience. So partnerships on the marketplace side QuickStarts and kind of native integration on the social side and then really Mobify, which we acquired that helps us tremendously on that kind of headless mobile side.

Yes. So we had -- we did a session with BigCommerce earlier, and they were talking about headless as well. It seems to be a big thing. Any way to like frame where we're at in terms of headless penetration? Like what are you seeing? I'm curious because you guys obviously have more of an enterprise customer base, kind of what you guys are seeing as a barometer for the market?

Yes. You certainly see it increasing quite rapidly in the enterprise, that's been the trend probably over the past couple of years and making -- and that's why we've been focused on making it more and more accessible to enterprises whether it's with our set of headless APIs or acquisition of Mobify. I think what's been interesting is I've seen that come down market quite a bit. So even in the mid-market, I think customers are really thinking headless when they can. It's still -- I would say it's still significantly more difficult for customers, and that's why we're doing everything we can to just be the simplest option for a headless deployment because I think the future of commerce is probably significantly headless where the front and the back are just not that tightly tied together. Historically, they have been. But I think the future of commerce -- you're going to have to show up in so many different places on so many different form factors and then on so many different channels that the future is probably going to look fairly headless.

Yes. Yes. And actually, maybe that's a decent segue into a question around like how much of the commerce experience is powered kind of directly by Salesforce versus how much are you relying on marketplace partners? And I guess that kind of gets into the question of open architecture versus vertically integrated stack and philosophically, kind of how you view the market?

Yes, absolutely. So you can think of it a little bit like the MarTech market. It's not nearly as fragmented as MarTech, right, where you're used to seeing a LUMAscape with 8,000 logos on it. But there are increasingly a number of just best-of-breed kind of different pieces of the e-commerce stack that are important. Our strategy, similar to what it is in marketing, is we want to kind of manage the most strategic aspects of that stack. And so when you think about our Commerce Cloud, it's vertically integrated for the parts that it manages. And I don't want to put a percentage point on it, but it's handling most of the complexity of commerce for our customers. But you're always going to have pieces of it that our third parties are going to be amazing at, and these can be things like managing tax. You might have customers that want their own order management systems. Maybe they've had one in place for 15 years, and it would be too much complexity to get off of. It may be things like managing the store, the in-store presence. And we've certainly made investments there, but we don't offer our own package for that. So we believe, let's manage the most strategic parts of that stack sort of where the data is really concentrated and then let's have an open ecosystem to sort of have 1,000 flowers bloom in terms of our partners and give our customers the choice to round off the rest of the commerce experience.

Yes, makes perfect sense. Two more questions I want to get to. Just how tightly is Commerce Cloud integrated to the rest of the Salesforce stack right now? And I'm thinking about and you alluded to some of this with the integration with Service Cloud, et cetera, with the order management product, but like as you manage a customer journey across marketing, service, commerce, like what are you able to do from a data perspective? And how should we think about like Einstein and AI kind of influencing your e-commerce efforts?

Yes. So one of the things I would say, and this maybe speaks to ease of use a little bit, is that our customers just get AI out of the box with Commerce Cloud. And so we think of it as first principles, right? If our AI works well, customers will drive more GMV, if they drive more GMV, it's good for everybody. So it wasn't something where we sort of charged extra for. So they're taking advantage of the Einstein platform sort of from day 1 when they start with Commerce Cloud. To your point, I would say the best integration between commerce and other products is really with Service Cloud and really by way of order management. That's really where the rubber meets the road between a service agent and a commerce experience. So we really focused on kind of that specific use case first. I'd say also on the marketing side, we've made a lot of noise about our CDP, our Customer Data Platform, which we call Customer 360 Audiences. And we GA-ed this at the end of last year. If you think about understanding your customer deeply, so powering a customer journey with all available data, CDP, a Customer Data Platform, really becomes the heart of that. It doesn't matter if it's commerce data or service data or marketing data, you just understand your customer better by having all of the data in one place, normalized and then ready to activate in your marketing channels. So those are really the 2 kind of main avenues of integration across our products. And that's really probably the trifecta to think about when you think about most of our B2C customers or sort of that commerce, service, marketing, sort of triangle that they create.

Yes. Yes, makes sense. Last question from me, and it's the same one we've been asking kind of all of our presenters today just to get kind of a good full scope perspective, and it's along the lines of kind of expect the unexpected. Like what's a prediction that you have about the e-commerce space over the next 2 to 3 years that may surprise folks?

Yes. Normally, when I try to predict the next 2 or 3 years, I like to predict that I'll [ adhere ] again. But there's proof that I won't.

You would be both.

It's Jeff Bezos, right? If the wealthiest person in the world doesn't on stuff like that. When I think about the commerce space, one of the biggest changes, I think, we'll see is this idea that everybody becomes an influencer. So not influencers, right, as they exist today, on Instagram and things like that, but it's that brands figure out how that's happening to their most loyal customers and activate them, so sort of activate them, reward them, but realize that their customers, their best customers are also their greatest brand ambassadors. And a couple of things have prevented them for doing that today. One is brands are often disintermediated from their customers, right? There's often maybe a retailer in between distributors sort of in between, and they're not yet building kind of this rich profile of their best customers. They're starting to now. And the second is they don't really have a way to sort of activate them and -- activate and maybe reward them. But I think this is because now on both sides, right, customers are kind of looking for brands that they really strongly identify with. Maybe because of the products, maybe also because of the social mission and message of the brand, but they're kind of yearning for this deeper connection with the brands. Brands are looking for a way, how do we amplify our message. And I think those 2 things will come together. I think technology will be an enabler of that. I think that's going to be a big change over the next couple of years.

Yes. Yes. I hope you're right. I can tell my wife, I'm an influencer in the 2021. Adam, thank you so much for doing this. You've got a lot in your plate and exciting stuff at Salesforce, so it's great to have this conversation with you and really appreciate your participation.

Thanks so much for having me. I really enjoyed the conversation.

All right. We'll talk soon. Take care.

Thanks. Bye-bye.