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

And I'll build on that, Rob. I think as sort of Rob mentioned, what started as largely per user per month is now expanding into the agents that are sort of exploding the workforce. The usage that's exploding like never before. And even into the future, you're going to start to see kind of more things like outcomes that like organizations are sort of ruminating on or delivering with slack that sort of cortex of that work, that really become kind of opportunities for participating in more value exchange between us and the customers that we serve. So as you think about sort of the monetization opportunities, they're highly elastic and they're highly sort of variable based on sort of what companies do with the software. And what is really fascinating about Slack is how much people do with the software and how we all embrace it in sort of our core work and workflow, and it just becomes almost like the place where I prefer to do my work as opposed to all these other systems that might have had to interface to do my job with prior. So I think the monetization sort of opportunity, what started sort of very small around the user base world now expands into lots of different sort of upside potential for many of our businesses [indiscernible] included.

And that, I think, goes back to something you asked earlier that I didn't perfectly answer when you were talking about our differentiation or how we might maintain this. I think that's our moat, honestly, is like the distribution that we've had, the compounding context flywheel that sits in Slack and just the more and more you use it, the more and more valuable it becomes -- and I think that's ultimately the moat.

Bill, I want to ask you a couple of broader monetization questions. The data point we got from Miguel on the earnings call was 5% roughly of the Salesforce installed base is on premium SKUs. And premium SKU can sometimes be a 60% to 80% uplift. Could you just break this down for us a little bit if we're a Salesforce customer, and we're not one of the ones that have already invested engineering resources and to making cloud-first happen without quote for [indiscernible] we say, Core4 sounds amazing. How soon can we onboard. What -- explain the 60% to 80% a little bit more, what is that uplift?

Yes. Let me give you -- it's sort of in the case of our traditional 2 core cloud Sales Cloud and Service Cloud, but -- when you think about all the software that's required to make a salesperson sort of productive, not only is oftentimes your CRM system for managing your sales pipeline, your context, your accounts, et cetera. But that often sort of expands into your sales performance management system, where my quota, where my commission, where my compensation sort of management systems are aligned maybe my sales and admin software, which is sort of help me kind of become enabled or effective as a seller. Maybe that's where all my content exists. I can come out and deliver pitches or proposal to my customers. And there's also sort of all these extremely like sometimes it's called recording software or coaching software that helps me sort of in moments of working with customers. Well, the average sort of spend on a customer with all of those other technologies in the United States, it's about $1,300 for an average sales professional. And what we've been able to do is put a lot of this value into one price edition called our agent force 1 addition or -- we may have a new name for that next week, but I'll call it [indiscernible] today. That [indiscernible] addition is retails for USD 550. So the goal here is to really kind of take money out of the extremities for we know every sales organization has to recruit higher activate and make salespeople productive and performing and now put it into sort of 1 offering that's there. And it's early days for us. We only started really thinking about premium levels of monetization really the last couple of years. And so as Miguel was sort of rightfully pointing out, it's just early days for us to put these premium additions into our installed base. And as they go through the life cycle of a contract with our company, what we're seeing is more and more of our customers are sort of trading up to these additions as they come up for renewal. So it's not something that will be a big bang immediately overnight is everyone on a premium addition. It is something that as companies have other contracts that they're rolling off from other vendors and now consolidating on the Salesforce. That's the motion that we're kind of running with the premium additions that are there. And I think it really allows our customers to sort of save money in the process while driving higher performance and higher productivity for every salesperson that they do. By the way, the same is true on the Service Cloud side. You have to have a case management solution, a telephony solution sometimes a chat or channel solution that's out there. And so the same sort of kind of play is what we're engineering on that side, which is more consolidation of extremely with spend into more of a consolidated sales force platform.

So there theoretically will be an upgrade cycle that we could guess at for each of the salesforce clouds over time. That is essentially the strategy you talked about -- the thing that I want to better understand, so this can get pretty confusing pretty quickly because you've got the agent for SKU. You've got what will be the [indiscernible] You've got headless, which is sort of a pick and mix independent of [indiscernible] maybe just help -- you had a beautiful cohort description earlier. -- help us put this into cohort, so we can understand what the different customer...

We're doing a pretty good job of all the names. And so like I said, the naming is something that we're definitely working through as a team, but let me kind of make it really simple. With our agent force addition, you get cloud force, you get agent force, you get data cloud and you get the best of all the Sales Cloud that's there. So we want to have 1 addition that they all come into and [indiscernible] Yes, exactly, a premium tier of all of those offerings. Now can you buy all of those items discretely? Yes, you can buy all those items discretely but we want to make it an economically viable and attractive offering for companies to get the best of Salesforce in this 1 edition because what we know is that for those organizations that run that agent force 1 addition, their salespeople are more productive. They're using the software more because they have Slack also into that addition. They have our Tableau offering. So they have all the analytics that they need to be productive in their role. And so this is really not just a strategy of sort of loading someone up all the sales force that they could have, it's really we've engineered this from the start to make it the best addition for workers to have the best performance of their lives.

And that is the 60% to 80% or math it back...

That's right. That would be where that number would correlate to.

Okay. Now let's introduce in [indiscernible] qualified into the equation. One of the nuances that we struggle with a little bit is thin in practice sounds a little bit like agent forcing practice but it's not explain the difference?

So I think as sort of the world of agents and agentic platforms are starting to clarify for all of us, it's become very clear that there are many customers that want to have purpose-built specialized agents to perform discrete tests on behalf of their business. Finn is a great example. -- been as a solution that was engineered for the customer service domain, really to help kind of streamline and automate a lot of those routine and interactions that the company has with its customers. And so that is a purposeful agent that is hyper specialized and focused on that area. Hyper, which is an agent from qualified is actually a hyper focused, purpose-built agent for the marketing domain where Piper's job is to sort of sit as part of your website, enroll someone through your sales and lead qualification process and ultimately try and book meetings with sales professionals. So these are 2 agents in 2 very different tasks on top of kind of commonly what might be a website experience from a company. Now what agent force does is it sort of orchestrates all of them in the back end. It understands and knows what Fin is doing. It knows and understands what Piper is doing. It knows and understands what agents that are built by developers are doing on this platform so that we know that one agent can start of an experience and then pick it up as a conversation traverses from the marketing world to the selling world, to the servicing world. And so this is where, again, as sort of the world between platforms that orchestrate the journey and agents to sort of power the front end of those experiences, that's how they sort of differentiate from one another. But it's overly probably reducted to say, is it qualified versus agent force or Piper versus spin. We don't see customers sort of say, I deploy 1 or the other. Oftentimes, what we see our companies deploy all of them. They start with the top of the funnel with the piper, the bottom of the funnel with the fin and agent force sort of orchestrates in between.

And then I also have to budget for anthropic token spend [indiscernible].

Yes. No, not on those offerings. If you're buying kind of cloud as or anthropic as a kind of customer, you do that with them with Anthropic, as part of sort of agent force and part of Piper and as part of FIN, you're not paying sort of for [indiscernible] tokens to make that -- those interactions powered.

Okay. That makes sense. Let me ask the broader question, which is there's an evolution in the software here that goes from being setout based to selling outcomes, selling a unit of work, which we think is quite expansionary for the software TAM where does the budget come from when you're having these conversations?

Yes. Well, I think -- maybe I'll start and Rob, you can kind of add in from your productivity lens. But I think as terms of budget goes, it depends on where the outcomes are. Sometimes outcomes are actually aligned towards savings. So the actual savings become a self-filling proposition for -- for our dollar we save, we can reinvest those dollars in the software that powers those savings. And in other cases, some of the outcomes that we're working on now like in the case of our sales and sales agent domain kind of paying for qualified leads or paying for orders that are actually booked -- and so that's where organizations are happy to invest in those outcome-based agents because the more that those agents perform, the higher revenue that they're actually performing for their organization. So I would say that the outcome-based agents actually allow us to align value realized with budgetary sort of planning all together. I've not yet met a CFO that says, I'm not willing to give you a dollar if you're actually going to help me make -- so this is an opportunity for us to, like you said, get into more of that expansionary opportunity, especially as our benefits are more jointly aligned with customers on those domains specifically.

I mean I would layer in, we continue to see more and more of the premium for Slack because of the additional work that we're taking on and the economics we're helping our customers with. So we're a little bit different. So when you were talking about, in general, the move to headless and Cloudforce as an example, earlier within Slack, we have something called Slack bot, which is an out-of-the-box agent for knowledge workers that is built on top of Anthropic. And it's a broader sales force level, we think it's important that you'd be able to accomplish the work through whatever your tool of choice might be -- so we want to be able to tie in to any harness that you use, but we are going to have a penned harness out of the box, and that is lockout. And so when we go to -- when we look at Blackbaud, 1 of the bets that we make is we actually take on the burden of token economics ourselves. And so it's part of the producer per month for our highest-grade plan, our knowledge workers that our customers are able to go to Slack bot and get done much of what they might have done in an open-ended cost tool in another way. And does it mean those other things can go away? No, it doesn't. It means it's an easier way to budget and some of the more specific higher order, like deep knowledge work that needs to happen in those other tools will happen over there. But this is just like a very easy, reliable way for you to give the knowledge work agent to the majority of your employees at a reliable cost and then really target like, yes, they need cloud code or they need cowork or they need an unlimited token spend, et cetera. So but we see often the premium that we're getting coming at the expense of utilization of other tools, frankly. And it's not necessarily elimination of heads. It's like when you look at Slack, like we'll have a business leader brings Slack into an organization like a sales organization that like, okay, I want to connect Slack to Salesforce, and I have a goal of getting my first sales reps to -- my new sales reps, too productive in 90 days or less. It used to take 6 months, and you connect Salesforce and Slack together, and they can do that, and they're effectively accelerating revenue rather than -- and taking some cost out because they aren't using third parties to come in and train those people. They're actually having the software to do it for them. Or it's like, okay, we're doing a percentage of our internal meetings through huddles now as opposed to these other things that we're doing. So we're taking 30% of the workload off of some of those other tools. Similar things with documents, similar things with agents for knowledge work. So we shave off by being more convenient, economics in other places.

I have 2 big picture software questions. I want to pick [indiscernible]. So the first is, Bill, you've talked in the past about back office versus front office convergence and how agents can perhaps blur the lines. What do you think is the future of what has historically been silos between back and front office.

Yes. I started my career as a production scheduler for Motorola as an intern. And so I was like a back office dude, and then I learned about this magical thing called CRM, which is about like actually working with customers. And so I've always had this like inter rift in my own brain between back office and front office. And what was sort of fascinating is the limits of the technology systems have always been really about the roles that were kind of specialized to perform discrete tests and functions. And when you learn about like a lot of the systems in use for many businesses, those con systems themselves were operationalized or built for the concern of what human labor could do. And so I think it's so fasting right now, and Rob, you talked about and alluded to it with the Slack world, we'll see more agents in our workplace than employees and human employees sometimes in our workplace to perform work in tasks. And so we have to go back to the ability to reinvent a lot of these fundamental systems and processes and activities that people do because now the technology is going to be always on, always running in our lives really to help us become more productive and to drive higher quality output in the work that we sort of perform. So if anyone here is sort of a back office and front office sort of Maven, I'm sorry to say, I think they'll blend, and I think that they will blend in ways that really break down a lot of categories and a lot of sort of opportunities. But at the end of the day, if we use software to make companies perform better, that's where value systems like Salesforce are really being engineered for from day 1 which has helped make our companies be better companies, help them sort of engage their customers in better ways and help them sort of transform their business, not to recreate yesterday's legacy but really to define what tomorrow sort of looks like. So I'm very, very bullish about just workplace and workforce transformation in that regard. I never want to have to kind of do MRP scheduling again in my life. And so I'm very, very excited about this ability to fundamentally hand some of that work to agents and to spend energy where I like to spend energy, which is with people and relating in new and exciting ways.

Okay. So the second one is horizontal versus vertical. And you'll have some pretty spiky comments from David Friedberg, gets to the beginning of the earnings call on horizontal leading vertical. You've announced some really interesting life sciences wins. For either of you, what do you think is the future of vertical software?

Maybe I can start Black is inherently more horizontal, I think, than the rest of the Salesforce products. And -- but I think there are opportunities for us to get more vertical. And I think maybe that will be a good segue to Bill. But again, coming back to like the total available market for knowledge workers, like it's in excess of 1 billion people, I think, globally. And so we very much look at the horizontal opportunity for Slack because what's been very interesting is if you look at from the inception of Slack, the challenge that was set forth for the team was, is there a way that we can build software that will make coordination easier to make people -- the hardest part of people's working lives coordination, more simple, pleasant and productive. And that's a problem space that fortunately has endured pretty tectonic shifts in underlying technologies, whether that be the cloud substrates to now the new models, like coordination is still pain right? I don't think there's a red [indiscernible] article like go read that. And I think there's just -- remains tremendous horizontal opportunity for coordination and orchestration of work for knowledge workers despite everything that's happening with agents that are out there today. I think there are domains that we can verticalize in that we're interested in, you're starting to see us do with Slack code, which is we can -- that span industry vertical. And so I think you'll see us go into stove pipes of LOBs rather than necessarily industry verticals, but I think you expect to see us go long on tech and dev and coding in particular from a verticalization perspective.

Yes. In the spicy commentary, I think, really, the message was about finding out where really your true differentiation in your about to create unique value sort of represents. And if you keep going down that spectrum, there's horizontal and then there's vertical and then there's regional and then there's local and then there's personal sort of opportunities to create value along that sort of spectrum. And I don't think that value stops on any one of those sort of kind of stops along the journey. I do think there's immense opportunity for us to utilize the technology and I think I take a lot of inspiration for what Slack does for me in my life where I get out of my own way, and I work with my team and I work with my group and I work with my organization in ways that I never could do before. But that just sort of goes on that same spectrum where I'm now working less in a local way but more in a communal way. And I think that as we see this vertical opportunity maybe more clearly, there is great value that we can create making hyper-relevant computing for companies in certain industries that maybe have regulatory requirements and uniqueness that allows us to maybe sort of deliver higher-value services or not. So I'm not sort of a big believer in the versus, I think there's a big spectrum of opportunity there, and we're excited to sort of play in that spectrum broadly speaking.

It's really good stuff. Please join me in thanking Bill and Rob for their time. Thank you [indiscernible].