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

Thank you for joining us, Stewart. Glad you made it in, and your flight's here, right?

Yes. Sorry to keep you waiting.

Well, thanks for coming. Thanks, everyone, for joining us. Thanks for the patience, and apologies for the delay. We'll go ahead and dive right in. We have Stewart Butterfield, who is the CEO of Slack. Thanks for taking the time, Stewart.

Maybe to start off with, can you just give us a little bit of a background into yourself, your journey with Slack, how the company got started, what your vision was and then why you ultimately decided to partner with Salesforce?

That's a lot. I was born March 21, 1973, in coastal British Columbia. Actually, the timing was pretty good because I got -- I started college in 1992 and got an account on disclosed UNIX machine. And this was like 6 months or so before the web started taking off. And as someone who grew up actually in British Columbia kind of like on the fringes, it felt, of the continent, the Internet's ability to transcend space and time was really powerful. I think since then, it's -- my whole career, my set of interest has been largely about the use of computing technology to facilitate human interaction. So me and some friends started a company to make a web-based game. That didn't work and it became Flickr. We got bought by Yahoo!. We spent a couple of years at Yahoo! And then we left and started to -- another company where the intention was to build a web-based massively multiplayer game, and that didn't work and that one ended up being Slack. But I think there's a real insight -- and this is an impossible thing to replicate. But because we weren't working on a version of Slack, we spent 3.5 years working on something else but, on the side, solving the communication problems that we had. We didn't have a name for the product. But it was only the things that were either so irritating that we couldn't stand them anymore or so obviously an improvement that we couldn't help but do it that actually got done. And if you remove the ego and the speculation from the software design process, it turns out that you end up with something really amazing. It's like don't think of an elephant. It's not a useful instruction to anyone because if you try not to pay attention to something, it will work out that way. But I think we realized shortly after we had done like 6 or 8 months of development work and starting to get some friends to start using it, that we had something that was going to be really big. And then I haven't kept off on everything since, but I think we're still the fastest SaaS company to $100 million in ARR and $200 million and $500 million and $1 billion. Now if we're going to cross paths with Zoom, which is kind of an impossible compare, but -- you have to bear with me if I get a tiny bit philosophical here. If you think back to the 1960s, when computerization really got started in earnest, especially in the financial industry, there was a complete separation and probably like 2 [ casts ] of people between the decision makers and the people who use computers. And through the '80s and '90s, those kind of converged, like you started to see executives who had computers on their desktop and they started to use software more and more. But the fundamental systems, like the system's record, if you work for ConEd and it's the invoicing system that mails out the invoices to people, no executive was touching any of that stuff. And we're still not quite at the point where the -- at most organizations, they're really interacting. But that distance has really collapsed, and the classes of people that sit between the software and the decision-makers has become much smaller. And I think this might sound strange, but the opportunity we saw with Slack was to kind of help bring objects and records and data and files and things like that, that were in the software world into the place where the conversation was happening. So messaging is kind of just -- it's fundamental to every organization. And if you think about, all of you roughly spend -- well, I'm not sure how many like solitary, asocial analysts there are in the group, but probably professionally most of you spend 70% of your time on communication. If you're an executive at any kind of company, you spend more or less 100% of your time reading, writing messages, talking to people, writing, reading all of that. And if that's where the attention is, that's where the software should show up so that you can make faster decision-making. I'm sure we'll come back to this in other respects. Probably some of you have had this job, but there are many millions of people around the world whose job, at some point or other, has been get some data, put it into Excel, make a chart, take a screenshot of the chart, paste it into PowerPoint and e-mail the PowerPoint to someone. And obviously, that's not a super effective use of all of the incredible technology and real-time analytics and stuff that we have available to us now. So I think we're still -- despite the last 30 years of massive increase in IT spend and kind of revolutionizing the way work gets done, we still have another 30 years or so ahead of us to really -- to realize all of the value that's possible there.

Yes. And so it's interesting. I think you brought up an interesting point, right? So that gap that's been there between the users of software and the decision makers, that's something that Slack tried to rectify in some cases, right? You always had this bottom-up model that you would go to the users first, drive adoption, get their hands on the keyboards and using the product. And -- so maybe talk about how that has influenced Salesforce post acquisition, right? Like what's the impact that Slack has had on Salesforce? And what's the impact that Salesforce has had on Slack post acquisition? What are the kind of the synergies that you're seeing now that you are under the Salesforce umbrella?

Yes. I think that -- I hope that we're being helpful with some of the more nascent self-serve efforts, and I think there's 2 different things. One is just like fully self-serve. The customer never talks to a salesperson. And that's -- Slack has like 195,000-ish customers that are like that, like they've never spoken to a salesperson. And then there's also 4 organizations that have an involvement with the salesperson, a lot more self-serve options, adding and removing licenses and changing license types and stuff like that. So we've been really trying to be helpful, sharing what we've learned. And there's kind of a divide, and I don't know if this is something that gets -- that's really you're able to get rid of. But if you need to implement software -- like in other words, if someone needs to sit down and do some analysis and think about the customization and specific compliance issues and data inputs from this customer, then you're more or less always going to involve a salesperson. It's not really going to save you any time to take the salesperson out of that, if it's already $10 million of professional services fees and 18 months to implement. However, I think we are seeing more of an ability -- and for once Gartner, I think, has like really got the perfect phrase, more of an ability for organizations to compose the specific elements that are required to run their business. So that composable enterprise idea is becoming more and more true. So I think the Salesforce has a huge platform business, and a lot of that is trying to bring together 2 systems that are, otherwise, separate and reduce the cost of the implementation. But anyway, I think we've been helpful there. Slack had a lot of Salesforce DNA. Our GC took Salesforce public. Our Head of Sales, our CMO, most of our sales leaders all came from Salesforce. So we had that influence all along. But the holy grail, I guess, is to really get to the point where we have an effective articulation of the promise or the value of combining the system of record with the system of engagement, like to really -- to bring those together as quickly as possible. I would say that Slack was a Salesforce customer for 6-plus years before we got acquired. I'm the CEO. I never once went to our Sales Cloud instance, literally. I don't even know what the URL was. But almost every day, I would do this little command from inside of Slack. That was accounts and then the name of a customer because 99% of the time, what I wanted was the name of the account executive so I can pass on some information. Sometimes I wanted the amount of money they spend with us or their renewal date or a number of active users, and that just all came into Slack. It was much faster and easier to get it that way that I never considered actually going to Sales Cloud. I think more and more people have experiences that are like that.

Is -- when you think about the customer journey, do they understand that, that vision of having Slack be this front end? I think, Mark, he has even used this client server as an analogy of Slack as the front end and then all the data and Salesforce is the back end. Are customers there yet? Are you still educating and evangelizing where are they in that journey?

Still educating, but I'll do the kind of 2 rhetorical tricks that have worked well with customers recently. And the first one is just like a thought experiment. If you imagine going back to March of 2020, and you could still have business dinners, you could still use conference rooms, you can -- business travel is all okay. When you took away all the software, then every company would just disintegrate. Like you wouldn't last for 24 hours. And I don't just mean the back-end systems, I mean, like the tools that people use to communicate because it just wouldn't have been possible for -- to have that continuity. So just logical implication, at some point in the last couple of decades, we switched from a world where the digital HQ, and yes, it's a marketing term, but there is some digital infrastructure that supports productivity and collaboration. We sit in a world where the digital HQ kind of supplements the in-person HQ to one where the digital HQ is more important because as a matter of objective fact, we have been able to continue largely working in-house knowledge workers over the course of many years with people not going into the office. And I think the inverse just isn't true. The other one, I'll say, hands up -- but do you all know the Amazon 6-page memo format where you write the memo in advance and you start the meeting, and everyone reads it. Hands up if you know that. I think some people are a little bit shy, but we'll see. But if I asked that question, and I say, of course, you know it because there's so few efforts to try to improve the efficacy of communication, so a few investments that organizations make and training people to become better communicators that the single example kind of really stands out. And the reason I bring those 2 up together, first of all, I think the -- the first point is much more convincing now than it would have been if we didn't have a pandemic because people just like saw that this was possible. The second one, going back to the point that the executives spend 100% of their time on communication, let's say, you go all the way down the chain to the -- I'm talking about knowledge workers, so not warehouse or field or delivery people or anything like that, but the people who spend the least amount of time on communication in their job are still probably 40%, 50%, maybe 60% or something like that. So if you have 10,000 people at a pretty low total cost of employment, let's say, $100,000, that's $1 billion a year on payroll costs and $500 million of that is going towards having people have meetings with each other and write e-mail and stuff like that. But I don't mean to trivialize that because, obviously, the larger the organization, the greater the cost of achieving that alignment. It's really essential. But I mean if you can make any difference in the efficacy of that communication and how it happens and how information is disseminated, how people come to have the same understanding of the current situation, I think their returns are disproportionate to more or less anything you could do. It's just -- it's much harder to measure. It's much harder to implement. It's just kind of messy. And I think the reason that most organizations don't invest in training on even email etiquette -- there's a little bit of that, but...

But you -- that you saw today, is that a part of the road map?

Yes. Absolutely. So I'm now responsible for Quip as well. And I think -- and I got this down to like 15 minutes, my whole spiel, but I got 8 minutes left here. So I will do the super abbreviated version. You can imagine this lineage that goes back to Word Star, Word Perfect and the original Microsoft Word. That's like kind of business letters, term papers, contracts, resumes, that kind of word processing document lineage. And then there's a different kind of species, which is the web page, which is obviously infinitely more flexible, much more about connection and links to other documents, much more a way of encapsulating things that are better elsewhere. And the Quip is going to move a lot more towards that latter pace because I think we're never going to take significant share away from Microsoft Word. Certainly, no one is going to be redlining contracts. But the world has expanded significantly. And I think that there's a couple of categories that either exist nascently right now or don't really exist yet but will be the kinds of things like spreadsheets, presentation software, calendars, e-mail that everyone is equipped with, let's say, 10 years from now. And I think one of those is a real facility for just -- is not good product marketing but being a flexible container for arbitrary digital objects, to be able to bring together all kinds of media files, records and other services. And Quip actually did this really cool integration with Sales Cloud, which they call the account planning tool, and it was sold as Quip for Sales. And it was kind of like this. Okay. Sales Cloud has all this information in it. I want to create a custom view of this, my specific account, what the plan is, what the stage is, all the details. I could use Lightning, which is Salesforce's kind of specification language for extending their products. But I have to be an admin and learning Lightning is hard, whereas I already know how to edit documents. And so they built this tool that you just bring together like real-time information, charts and graphs and the current status and the opportunity size and who is assigned to and put it into a document. And the second benefit of that was rather than being trapped inside the app, this was now like an encapsulated thing that could be shared outside. People love this, and I think we need to do it for the other 100 most commonly used enterprise applications. So people can really do something with, let's say, Greenhouse, Anaplan and Workday or -- it is funny. Head campaign at every company is the same where it's just like someone literally projects Excel on the wall and you argue and then someone takes notes, maybe edit themselves in real time and then goes back and does it again. So there's like one that's critical to how companies operate and plan, but could use real automation. And you need some medium that brings these systems together. The last one I would say that I'm especially excited about is right now, we use Zoom most of the time, but there is everything because other people use other products. And there's a little video rectangle and it's just floating on black like the void behind it. But meanwhile, people are taking notes in another document. And when it comes time in the meeting to share a document, it's like a picture of a document, even though Quip, whatever, Word, Google Docs, Figma, Miro, MURAL, all of these applications now have great real-time collaborative features built in for people to use. So when you're sharing a picture of that instead, it's not interactive, it's a little bit bananas. And last point, you spend all this time in meetings, and there's no artifact left behind. Like there's like the now no calendar entries, but you don't even know that the meeting actually happened. Even a receipt that said this meeting happened with these people in it, it lasted this long would be fantastic. But if you had that plus the documents that were shared plus people's notes, this will sound very strange at first, but I think it will be something that all of you will be using, let's say, within 5 years. The meeting happens on the document. And I'm using document in a very loose and general sense so that there can be something left behind. But at Salesforce, they use [indiscernible], other places have other kind of frameworks. There's a lot of meetings that are just like we're going to be on the call while we're looking at the Quip doc editing the [indiscernible] and there'll be some comments in back and forth and debate and then some other work. The meeting will end. Someone will also do somewhere substantial edits, come back, and then the next week, we're bringing that up again. And that continuum between synchronous and asynchronous collaboration is one that I think there's a huge rich vein of opportunity. And of course, a lot of that real-time collaboration at least benefits from and, in some cases, requires access to all the systems of record to be able to pull together information and curate, combine and provide some editorial on top of it in a way that makes it much more helpful for other people.

You become kind of like the central hub of data and information and workflow.

Yes.

In the -- interesting -- in the time that we have remaining, I want to maybe switch gears a little bit. I think one of the things that's on everyone's mind in this room is we're hearing a lot more about macro uncertainty and what that means for tech spending. You have a fairly diverse customer base, let's say, inside Slack and certainly inside Salesforce as well from enterprise to SMB and across various industries. What are you seeing in the data in your pipeline and in your conversations with customers in terms of their propensity to spend on technology, on software in this environment?

I'd reiterate what Amy and Mark and Brett and Gavin all said on the last earnings call, which is we haven't seen that show up yet. And I'm -- I try to be optimistic in life. There's a class of CIO who perhaps, after like a couple of decades of being disempowered, views their job as just the reduction of the cost of IT spend in the same way that you would say, like I want to reduce our spend on HVAC. I want it to be 70 degrees in the office, but I don't really care who our HVAC provider is or -- I just want to save some money on it. I think that's a lunatic position to take because there are so many advantages to begin and investment in IT should be thought of as strategic. I think the pandemic actually shifted some of those mindsets a little bit because if you look at the opportunity for Salesforce and you didn't ask this yet, but we had 1.5 minutes left. And you were going to -- the increase in the guidance around profitability and in operating margins, I think as someone inside the company, it's going to be largely driven by our own digital transformation, by our own system upgrades, by increasing the amount of automation. And so when you're feeling under pressure and your business, you want to be a little bit more conservative and reduce spend, one way to think about it is like, okay, we spend $150 million on software, let's make it $130 million or something like that. Go grind the vendors and maybe give up some things. I think that would be a poor way to do it when there's like -- this might be fantastical. But I genuinely believe like a 100% increase in efficacy possible for how people work together when you take account of communication and the use of software and a number of things can be automated because there's just too many people who -- human beings, creative, intelligent people who have a window open on this part of their screen with some information in it and a new window open on this part of the screen with a box, and they're typing the stuff. Look, they're looking at this one and typing it into this one. Sorry. Every time -- those are my phones. Every time you see that, it's like -- it's a waste of the human intelligence creativity. It is like mindless repetitive work that could be automated, and the cumulative impact of that, I think, is really enormous. So the -- kind of tying that together, I think the optimistic view is that we will not see kind of a direct translation of macro trends to demand for enterprise software because I think more and more people -- more and more customers are thinking strategically about the investment in software as a way to increase their profitability over the long run.

And that's something -- it's okay, we can go a little bit over, but that's something that we've seen change quite a bit over time in enterprise software, right? It's not -- maybe even in the early 2000s, right, like enterprise software was different than what it is today in terms of business reliance on it, and it's not something you can easily turn off anymore, which actually brings me to -- maybe we'll conclude on this point. But we've seen from Salesforce, I think, over the last couple of quarters as a whole, this -- or a couple of years, even, this rise in multi-cloud deals, right? Customers are increasingly buying more of the platform as opposed to buying certain products. And you kind of laid this out a little bit earlier, but maybe let's put a finer point on it. What role does Slack play in driving those multi-cloud deals given that you can be this glue that brings together, I think, a lot of the different solutions inside Salesforce?

You all remember Star Trek and think about like the bridge and the people around the periphery, like there's one person who's doing comms, one person who's doing engineering, one person who's doing web [indiscernible], one person who's doing shields. It's like all of these people, they're software operators, they have the big red and green buttons that they're pushing. And then they tell each other kind of what happened in their system or they discussed the decision and then they go implement the decision in their system. I tried to draw a picture of this once, didn't work out. I don't think our marketers are going to use it. But there is something to that. There is like -- the communication layer is where the information comes together from all these different systems. So I think in addition to the kind of integration at the back end and connecting these systems in a way that costs millions of dollars and takes months and months or quarters and quarters to do the implementation, some of these can be integrated just at the front end. Like if you can, as a professional operator of this kind of system, take this object out, share it with someone and they can do the same for you, then there's a lot more possibility for bringing information together in a really critical way. So I think Slack can be, in case that wasn't clear, something like the air inside the enterprise's bridge and that helps synthesize information from many places and coordinate activity.

Yes. Why don't we leave it there? We will continue the discussion upstairs in [ Mar ]. So feel free to join us, everyone, for Q&A. Stewart, thank you very much for being here. It's a pleasure.

Thank you. Thank you, everyone.