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

Great. Good afternoon, everyone. Thanks for attending today. I'm Derrick Wood, the senior enterprise software analyst at Cowen. And very pleased to have David Schmaier, who is President and Chief Product Officer at Salesforce.com. David, thanks for joining today.

Hi, Derrick. It's great to be here, and thanks to you and your colleagues for inviting me.

So I -- you have a lot of history in enterprise software, so very excited to talk to you. And for those who don't know, you had founded Vlocity and previously was at Siebel and a lot of core enterprise software companies.

So maybe give a quick background on you. And then I really wanted to dig into a little bit about Vlocity because I think a lot of investors maybe didn't know the company too well. And I'll ask some specific questions there, but just maybe a quick background on you.

Sure, Derrick. I've been working in enterprise software for over 3 decades, so I'm dating myself here. And -- but out of Harvard Business School and out of engineering school, I went to this little software company called Oracle in the '80s. And there I met Marc Benioff, who I worked with at Salesforce. And I met Tom Siebel, who I worked with at Siebel. And I worked there, and I have been a product person most of my career. And I helped -- I was in the founding executives at Siebel Systems, so I was the Chief Product Officer there. Then I went on to found a company called Vlocity, which we built 6 industry vertical apps on the Salesforce platform. So out of 5,000 companies, it turned out to be the fastest growing app company ever built on top of Salesforce. I founded it with the Veeva founders who are also Oracle and Siebel friends, and Veeva is the biggest one ever built on the platform. And then this is actually the 1-year anniversary today of Vlocity being acquired by Salesforce, so in honor of that I wore my Vlocity official sweatshirt, and -- as you do in tech. But it was a great acquisition. Vlocity is now part of Salesforce Industries, which is a rapidly growing part of our strategy and our business. And now I'm working as Chief Product Officer at Salesforce across our entire portfolio. So great to be here.

That's a great overview. And I'm curious on Vlocity. You guys picked, you said, 6 core verticals. Why did you pick those verticals? And can you describe a little bit about the breadth of the platform? What applications you really were able to serve in those verticals?

Sure. Yes, Derrick. First of all, we knew that customers really want industry applications. Industry applications give you faster time to value, and they're also very sticky because they're much more mission-critical because they go beyond the front office into the mid-office or sometimes into the back office. And then in my prior experience, I had verticalized the front office and mid-office before at Siebel. So we started out building 1 and then 2 and then 5 and 8. And it sounds like science fiction, but if we check the facts, it's actually true that at Siebel, when it was acquired by Oracle in the mid-2000s, we used to ship 24 verticals in 20 languages on the same day. So I learned a lot about what to do and what not to do. And so we saw an opportunity, first the Veeva team, and then the Vlocity team saw real opportunity to bring verticals to the cloud. And the cloud is faster and easier and simpler. But the "industry cloud" as it's called, I'll say that in quotes, industry-specific in the cloud, it's even faster than generic cloud. So if you're an insurance company, you're a CEO of an insurance company, why wouldn't you want the insurance cloud? If you're a telco CEO, why wouldn't you want the communications industry or media industry cloud? And so it's just -- it's purpose built. It's kind of streamlined to your business. So we think this is -- I would call this cloud 2.0. I think this is the future of where the whole industry is going is, if you have the choice between industry-specific and not, why wouldn't you choose the industry-specific version for your business?

And like you said, you can address front office, middle office, back office. Beyond the front office, I mean, what were some of the capabilities in the core platform? I think there's process automation and order management and things like that, that are pretty powerful components of an industry platform. But maybe speak to that and what kind of legacy technologies you were replacing? When you look at that middle office arena, I think there's a lot of older technology still there. So if you could kind of speak to the types of displacements and vendors you're displacing.

Sure. And yes, let me just finalize the second part of your first question, which is why do we pick these industries at Vlocity. These were the largest industries from a total addressable market point of view that had, what I would call, the largest propensity to meet industry-specific capabilities. So some industries are more nuanced than others. And you might say to me, "Hey, David, whether I buy life insurance or I buy a sweater at Nordstrom or I buy the quad-play from Verizon, it's kind of all CRM to me." I don't think that's actually true. Like the products are very different. The way they're priced and bundled is very different. The distribution channels and the way you serve those products is very different. Like I'll take -- since this is the TMT conference, like in the telecom industry, there's the concept of move, adds, changes and disconnects. So I moved from this house to that house or I add services or I disconnect services or I change them. So I go from one geolocation to another, and you expect all that services just turn on in the new place. Or if you buy something, and I live in apartment 12 and you live in apartment 11, you would assume that when you buy it, it turns on where you live, not where I live. And so that's a very telecom-specific capability called the premise. And so there's a lot of those kind of capabilities in insurance. There's policies and claims and rating and underwriting. And so you'll find there's real nuance. Health insurance, there's coverage and the liability and going from quote to card, where you basically quote insurance and get your insurance card. And so each one of these industries, there's real nuance to it beyond what I would call standard CRM. And then I think what's really exciting is, then it goes to a new place, which is with AI and machine learning and big data. Now that you have more data, like you have the subscriber data or the device data in telecom and media or the streaming data in media or all the patient data and the heuristic data in health care, you can do very intelligent things. And so this is kind of the next generation. But our strategy was very simple at Vlocity. We watched Veeva disrupt all the life sciences players, so we went right at the on-premise players. And we said what we have is better, it's easier to use, it's faster. And by the way, if you look at the total cost of ownership, it costs less money. And so we did the same thing at Vlocity against the incumbents in the telco space or the incumbents in the insurance space. And I think it's getting harder and harder for those companies to sell their on-premise 20- or 30-year-old software. And so we were really trying to disrupt the competition and to kind of change the game.

Got it. Got it. Okay. And how -- can you give us a sense for how that's been folded into the current operations and go to market of Salesforce? Is that -- is it part of the broader vertical strategy? Is it operated separately? Or has there been more integration than looking at other acquisition Salesforce has done?

Yes. It's -- Vlocity is now an integral part of the Salesforce Industries. So the way I would describe it is Salesforce Industries is not 5, it's not 8, it's 12 purpose-built industry clouds. And everybody may or may not know that. So it's gone from a small number to 12 very, very quickly. And so now if you want to serve financial services, health care, telecom, media, energy, government, education, nonprofit; probably, one I missed in there but we can give you the full list of the 12. But -- so if you're in one of those verticals, this is the product that we lead with now, and it's a way to take what we call the Salesforce Customer 360, which is across sales, marketing, service, commerce, but now it's all tailored to the way that your business works. And so from a product point of view, it's all in one Salesforce Industries organization. When I came into Salesforce a year ago, I worked as the CEO of Salesforce Industries, so I ran that division. And since then, I was promoted at the beginning of this fiscal year to be Chief Product Officer. So the guy who is running this organically, Jujhar Singh, is now running Salesforce Industries, all the products and all the marketing associated with the products. And then our worldwide field organization under Gavin Patterson is really almost completely verticalized now. So it started 7 years ago as mostly horizontal, and that's got more and more and more verticalized. So now we have vertical account teams all over the world. We have 12 industry cloud products. And so when you take industry products with industry teams, magic happens. I mean the customers really lined up because we're speaking in their language, we have software that's purpose-built. So I think it's really a game changer. And I think it's one of the more important and maybe one of the more underreported strategies that's going on at Salesforce.

Okay. Yes, verticalizing both from a product and customer engagement and the channel and up and down the whole go-to-market model, that's pretty clear and probably speaks to some of the strength you guys are seeing in larger deals because these deals tend to be bigger, stickier, higher retention and more prone to buying more of the portfolio when you lead with industry verticals. Is that a fair way to put it?

Yes, it's a fair way to put it. And most of the other players in this market, they either have on-premise vertical software or they're trying to get to a generic cloud architecture before they can verticalize, that really works well. And so there's a kind of an analyst on the Internet, he has a site called -- Bob Evans, called Cloud Wars, and he recently ranked Salesforce as #1 in the industry cloud category. So I think we're literally years ahead.

Yes. How about from a horizontal perspective? I mean MuleSoft has been a very critical, successful acquisition. There's other exciting -- Customer 360 is a big vision. I guess if you step back and think of -- it's kind of a loaded question, but think of like the vision of 5 to 10 years from now, it sounds like verticalization is certainly a big focus. Any other big visions that you'd highlight here?

Sure. MuleSoft was an amazing acquisition. And when -- at first glance, I think when it started, I'm not sure everybody really understood. Well, why would you plug integration into Salesforce? I think now it makes perfect sense, and it's growing. I think Marc and Bret talked about this on the earnings call, that it's growing -- that and Tableau are growing faster than Salesforce, the average. And so they've been very successful acquisitions. If you think about what the CIO wants to do, they want to consolidate applications and have an integrated architecture. And so now if the cloud is faster and easier and more agile, you can standardize on Salesforce in your front office and you can integrate it through our API -- to the API economy, to anything else that you have in the enterprise. And so -- and I think it's a big deal because it allows you now to ideate faster in the front office. And once you put Salesforce in the front and MuleSoft in the middle to integrate with everything else, you can then take the time to consolidate your back office applications. And some of these back office consolidation projects are much lower ROI because you can consolidate back office applications and the customers don't even notice the difference. But when you put in the Customer 360, where you have a unified strategy and vision and architecture, so whether you go to the website or the contact center or talk to a field rep, we know who you are, we know what you want, we know the next 3 products to propose to you and we can provide you better service and we can automate the order flow. That -- customers notice that difference, right? And so really, I see MuleSoft as integral to like increasing the absorption rate to how we implement the Customer 360 into these companies. And it's not just big companies. Like that's where we started with MuleSoft. MuleSoft Composer, which is a new product announcement, is really, really cool because it takes the full power of MuleSoft and simplifies it for more business or analyst level people. So there's prebuilt connectors that you can plug, let's say, Salesforce into NetSuite or other kind of like medium-sized company back office apps that everybody has. And so I think Composer is going to be another like great value proposition. So I think our biggest play is Customer 360. I think MuleSoft has been a big, big deal. Then maybe I'll talk a little bit about Tableau. Tableau is the #1 visualization technology out there. And I think more people visualize like the COVID statistics on a state-by-state basis with Tableau than anything else. So there's a public Tableau dashboard that's free, that you can look at, that kind of gives you all this information. But it's really a beautiful visualizer. And if I'm an executive at a company or if I'm a line manager, I really want to see what's going on. Like the world is getting increasingly more and more and more digital. So as I said before, you got the Customer 360 across all these channels, maybe it's verticalized now. So we actually call that like the industry cloud or industry 360 version of that. Now you've got MuleSoft to plug into all of the on-premise older legacy systems. And now you can put Tableau on top of it to visualize what's going on. And in the sort of the digital world, if you will, we're in this new work from anywhere digital world. Like this conference is still, I think, either largely digital or all digital. I mean someday soon, hopefully, that changes. But I think we're never going back to the old ways of working. And so the ability to work anywhere, the ability to integrate and be agile and the ability to visualize what's happening has kind of never been important. So it's real synergy between the Customer 360, between MuleSoft and between Tableau.

Yes, yes. Those clearly were standouts last quarter. And with Tableau, I mean, is the idea that really every employee should have a license of Tableau to be able to visualize data throughout the Salesforce platform and throughout other third-party data sets. Is -- I mean it seems like Tableau is a big leader in the space but still probably pretty underpenetrated, and you guys have relationships with a lot of front office people. And so is the go-to-market strategy really to kind of -- we hear more about going end to end, wall to wall. Is that -- it seems like we're still probably pretty early, but is that a fair way to characterize it?