Why Salesforce Will Soar in 2014

NEW YORK (TheStreet) -- Salesforce.com (CRM) appears poised for a bright 2014 punctuated by large, enterprise deals and consistent customer retention. A string of strategic moves in 2013 have sowed the seeds for potential success in the coming year.

"I see tremendous runway ahead for ourselves, for our partners, and for our customers," Salesforce's vice president for Strategic Research Peter Coffee (pictured above) tells TheStreet during a recent interview highlighted in the next page.

Indeed, the upward trajectory of Salesforce's stock has the makings of a move higher next year even after having gained more than 25% in 2013. As Schaeffer's Investment Research's senior technical analyst Ryan Detrick explains (chart), after experiencing a breakout in late August, shares have spiked above previous peaks.

"This suggests the shares have a good deal of upward momentum," Detrick said, adding that Salesforce's "firmly" upward trending 200-day moving average indicates bulls are in on the chart. 

Underlying the bullish conviction is evidence of deal momentum. Oppenheimer analyst Brian Schwartz and Koji Ikeda's latest Salesforce customer survey polling 24 enterprises and 26 small to medium businesses at the 2013 annual Dreamforce conference indicates that 60% of the 50 customers sampled are predicting that their company will buy new Salesforce products in the next half year.

Also worth noting is that many of the large companies that looked to be leaning towards buying new Salesforce products also said they would like to expand seats with Salesforce, an indicator of continued customer satisfaction with the possibility of additional licensing revenues.

The poll showed that 71% of enterprise customers were looking to ramp-up their salesforce.com seat count in the next six months versus 67% in 2012. Of all customers surveyed, 72% would like to increase their Salesforce seat count, up from 66% in 2012.

Schwartz and Ikeda's report further revealed that a number of salesforce.com customers who are also customers of Oracle's Eloqua (ORCL) have been experiencing softening satisfaction in the Eloqua Marketing Cloud, creating opportunities for the company as contract renewal windows open.

Salesforce has found itself in the interesting position of being a cloud computing service leader that's also far from saturating the market. In some ways, the company has barely scratched the surface of the cloud computing market. Management recently revealed at the 2013 annual Dreamforce conference that about half of the Global 500 have yet to contract any salesforce.com product and less than 700 customers have been generating more than $1 million in annual recurring revenue for the company. This underscores  further potential in the enterprise space. As Salesforce's investments play out, the company estimates it will deliver its first $5 billion revenue year during fiscal 2015.

Top strategic moves laid down for 2014 during 2013 include visionary acquisitions, product transformations, and top hires. The company most recently bulked up its portfolio with the launch of Salesforce1, a mobile-based platform that combines its core offerings of Sales Cloud, Service Cloud and Marketing Cloud at a time when the mix of workloads running in the cloud is expected to triple over the next five years during this era of mobility, and on-premise workloads could decline more than 20 points. This is according to data based on Piper Jaffray analyst Mark Murphy's survey of 141 chief information officers responsible for more than $111 billion in IT spending budgets.

Meanwhile, Salesforce's summer buyout of Fortune 500 and small business-focused digital marketing software company ExactTarget continues to add to revenue growth. Other accomplishments of the year have included the hiring of software industry veterans such as former Oracle executives Keith Block and Anthony Fernicola to help drive global sales and large, enterprise deals. The company also expanded its upscale market exposure by more than tripling its independent software vendor partners to 900 this year, from the last.

"The extraordinary thing about the way we can engage with a customer even in the early stages is that we don't build a storyboard," Coffee said during the interview. "We don't build a prototype. We build a working application that if they like it, they could begin using immediately."

In next page, Salesforce's Peter Coffee talks strategy, including Salesforce1 and ExactTarget, for the year ahead.

Andrea Tse: What kind of ExactTarget-integrated cross-selling and bundling strategies do you have in mind for 2014? How has the ExactTarget property helped bolster Salesforce's multi-tiered pricing abilities?

Peter Coffee: Well let me begin with what the ExactTarget acquisition really represents.

ExactTarget is often pigeonholed by people saying 'well they do email, they do email advertising management.' When you look at the ExactTarget Fuel platform, there's the capability to craft an individualized conversation with a prospect where an email is dynamically populated the moment of opening it by all the other information that you already have about other multi-channel contact with that prospect -- the ability to have a multiple path follow-up based on whether someone does or does not click on a link in an email and things like that.

I'm really able to say now that the Salesforce platform comprises of three things: Force.com, which is what many people know. It's the technology that underlies our market-leading CRM and service products of course. The Heroku platform, which we're now increasingly making able to consume from Force.com, and so those are not as distinct as they were a few years ago. Heroku of course being much more geared toward compute intensive things and the ability to use more standard languages, while Force.com is much more tailored to rabid building of mobile and social applications. And now, the ExactTarget Fuel platform is the third leg of that tripod.

So what you see with the rebranding of our marketing cloud offering as the Salesforce-ExactTarget Marketing Cloud is that really, we're able to tell people look, you can monitor sentiment with the Radian6 technology, which of course is part of that Marketing Cloud. You can craft highly tailored social media promotional campaigns with the Buddy Media competencies that are part of Marketing Cloud.

You can follow up on those social media campaigns with highly individualized dynamic conversational engagements, with the ExactTarget technology. And with the resulting opportunities, you can follow up with the Sales Cloud. So the combination of these things is extraordinarily powerful in terms of taking someone from merely being aware of your brand to feeling that they're having a one on one conversation with you, and of course ultimately we hope becoming a customer because it's all about an Internet of Customers.

Tse: Heading into next year, can you describe your outlook on large, enterprise and mid-market deals for Salesforce in light of the Salesforce1 launch? And how will the rapidly changing mobile technology environment and the culture surrounding it influence the adoption rate of Salesforce1 by large and mid-sized businesses?

Coffee: When people ask me what are my top three statements about the difference between 2013 and 2014, the number one on my list is that 2013 was the year when mobile stopped being an accessory when you look at your mobile device before anything else in the morning, when it's the last thing you touch at night. And instead of using the mobile when you don't have time to boot the laptop, increasingly I find myself sometimes realizing I've been working on my phone all day and now I pretty much only boot the laptop when I need a big screen, or I need to do something like authoring a large document.

Most of my work now gets done in what we call 'the feed,' which is the vehicle in Chatter and now of course in the larger Salesforce1 environment. 'The feed' represents the opportunity to open an object on your screen that represents a customer or represents a project instead of an icon that represents a document. If you think about it, it's now a 32-year old idea to double click an icon and open a spreadsheet or a document or a presentation. What you really want is to say 'show me the state of my engagement with this customer or this project, or this partner, or this team.'

And really what we think we're doing with Salesforce1 is providing a container in which not only the salesforce.com but also the leading, game-changing, collaboration and productivity technology leaders can find a new container in which they can deliver what they do to the largest possible audience. You see the other brands that were part of the Salesforce1 launch. Companies like Workday (WDAY) and Evernote and Dropbox that are now able to be in that same environment that's in your hand, on your tablet, on your smartphone, regardless.

The other thing that's extraordinary is that we made such a deep and successful commitment to bringing forward more than a decade of customer data and customizations and user interface developments that our customers have done with things like the Visualforce technology that have all been brought forward in an extraordinarily seamless way, and I sometimes say to people 'please don't call Salesforce1 our new platform because in many cases, new platform means throw away everything else you've done.'

It's really a new container in which not only can you continue to use all of the investments that our customers have made with us over more than a decade, but in which now, it's possible to go forward at full speed with giving people the mobile productivity that is really now the centerpiece of their working lives.

Tse: Looking at your Superpod -- are you expecting more large enterprises to actively seek out use of this? Can you tell me more about Salesforce's Superpod strategy?

Coffee: We're tremendously pleased by the unfolding and the enlarging partnership that we feel we have with Hewlett-Packard (HPQ). Hewlett-Packard's adoption of Salesforce CRM has been called by some the largest, vastest deployment of our CRM that's ever been made.

The reaction from the user committee within Hewlett-Packard to that adoption has been marvelous, and I was particularly struck by the comment of a senior Hewlett-Packard manager that this adoption went so well that they feel they're now in a position to tell all of their legacy IT enterprise software providers that the new default is that they will soon be replaced by cloud services as opposed to the default being that they'll be kept, that the new normal at Hewlett-Packard's to say that this should be done as a cloud service unless there's a compelling reason not to do that -- and so, extending that strategic partnership with the announcement of HP Superpod where Meg Whitman of course was present at Dreamforce to discuss this briefly with Marc Benioff in the keynote.

I'm looking forward to seeing how that synergy between Hewlett-Packard converged infrastructure and the proven, secure and highly innovative foundation of Force.com and salesforce.com technology is going to unfold.

Tse: Salesforce has been in the unique position of being categorized as both a large cap company and a growth stock. As the leading provider of web-based sales force automation software, you had about 14% of the total global customer relationship management market share as of 2012. How aggressively do you think you can expand from here, with the launch of Salesforce1 and your ExactTarget plans exceeding expectations?

Coffee: I have heard people question our ability to maintain our order of 30% year on year growth. I've heard some people suggest that our market share is reaching a point where continued growth is difficult to maintain, and I challenge that because I think that they're misunderstanding what our market is.

Our market is not the cloud SaaS market. Our market is not the CRM market. Our market is the marketplace of people trying to get stuff done. And today that market includes tens of billions of dollars of revenue that are being spent in what most people find very unsatisfactory, capital intensive, skills intensive -- and innovation poor legacy IT.

And when I look at the market that I feel we're growing into with the platform, technologies that we have ourselves, and with the environment that we're providing to the ecosystem with Salesforce1, I don't see us as being anywhere near a double-digit percentage of that market yet, and I see tremendous runway ahead for ourselves, for our partners, and for our customers.

Tse: With many new opportunities that need to be captured, can you tell me about Salesforce's sales mobilization efforts? Can you describe the level of specialization that will be impressed upon and required of your sales teams heading into 2014?

Coffee: Some of the most striking conversations that I have had with customers in the past year have all used very similar language when they have expressed their surprise that we came in the door and didn't pitch our product, but instead showed them a vision of their company in their marketplace going forward. We didn't put up a roadmap of what we were planning to sell, but instead, literally, handed them an iPad, with a branded, working application we had built simply to demonstrate what we thought a day in the life of an automobile sales representative or a payroll services account executive might be.

The extraordinary thing about the way we can engage with a customer even in the early stages is that we don't build a storyboard. We don't build a prototype. We build a working application that if they like it, they could begin using immediately because it's already running. It's in the same environment that it would be running when they were using it as a paid service as when we built it. And that's something that's never really been part of the way you present technology to a customer before, and the result of that is that increasingly we use the expression internally 'One Salesforce.'

We're not there to sell a chunk for chunk replacement -- though sure, we're obviously not unhappy if someone says 'I'm tired of my old, sluggish, expensive CRM with low adoption and I want you.' And we're perfectly delighted to say 'great, we can replace your CRM that nobody likes and nobody uses with a CRM that has high adoption and produces measurably improved productivity.' That's great for everybody. But it's just such a single step on a journey. Let's replace a vision of separate channels for the prospective buyer and the customer with a new model in which you have a complete view of your customer. Cause any given customer at any moment may be an established user of some of your things, an imminent buyer of some other things, and a prospect for other things still. Well you want to deal with that customer as a total of what their business goals and visions need to be. And so increasingly we use the phrase "transformational partner."

We don't want to walk into the door as a technology vendor or a technology replacer or technology disruptor. We want to walk in the door and say, 'we believe we can show you what your customer craves in the way of a superior, one to one conversation before they become your customer and become an ongoing, proactive customer care after they become your customer. Labels like CRM and service and support, those are useful labels for function, but they shouldn't be silos, and what that really means is our account executives increasingly -- I say the old model of being an account executive was the cage fighter. You go in, and you do battle with the competitor for the CRM deal or the service deal, and the victor comes out and there's cheers all around.

Well the new model for account executives is that they're a quarterback. They go in to meet with the customer, survey the field of play, and then they may bring in some linebackers or bring in some runners to receive the pass. They really need to orchestrate a team from within salesforce.com that can come in and deliver domain specific expertise in the industry, process specific expertise in areas like the current best practices, in sales and service and support. So John Wookey, who works with our application Work.com said this isn't about making better HR software. This is about making a better workplace. And I think we tried to bring that same spirit to all of our conversations to customers.

This isn't giving you a better CRM. This is about giving you far more productive sales people who create a level of engagement with customers that you never even thought of attempting before. That's the kind of conversation we're having. So in many ways, we have many more opportunities within salesforce.com today to develop and introduce domain-specific expertise in industries and processes. But at the same time our frontline people need to as I say evolve from cage fighter to quarterback in terms of bringing together that team and knowing what the right play is in partnership with the customer.

Tse: Can you describe your relationship with Workday? How deep is it? And can you provide information on the range of financial benefits that you've seen since your integration in September? Would Salesforce and Workday ever consider bringing companies such as Box into your ecosystem?

Coffee: Well of course, Dropbox was part of the Salesforce1 announcement. And you know, the word ecosystem is an interesting word. In nature, life finds a way and niches become populated and it's my personal opinion that there's not some overarching guidance that says this is what's going to happen. Rather, things happen. Things evolve.

If you look at the controversy when we first acquired Rypple and rebranded it as Work.com, some people tried to set that up as a very dramatic tension with Workday, but in fact almost immediately afterwards, Workday doubled down on its integration with us by introducing our Chatter technology into their product, which was announced at Dreamforce 2012.

And of course at Dreamforce 2013 just a few weeks ago, Workday was part of the Salesforce1 announcement with a Workday product for the Salesforce1 environment in which they expressed great confidence that they would find more ability to deliver more capability to more customers precisely because of the things I've just been saying about Salesforce1. How it's now a unified, integrated feed first device diagnostic container in which your skills sets, whether they'd be in human capital management or financials or other productivity aspects, all of these things can now be delivered to a larger audience with faster time to market, and more commonality of user interface conventions.

If you think about this, before Windows came to the desktop, every application looked and behaved differently, every application had to bring in its own submerged iceberg of things like printer-drivers and so on, and it really raised barriers of entry to the marketplace and limited users' ability to be productive on their machines. In a lot of ways, we're talking now about an environment that is what some people call the post-PC era. Now the centerpiece is the smartphone or the tablet.

You need to ask the question: in the world that comes after PCs, if tablets and smartphones replace the PC as the centerpiece of productivity and interaction, what's going to replace Windows? It has to be something in which if you write an application once, it enjoys common user experience, best practices technology for things like security and ease of delivery, commonality of conventions of behavior, and represents that fastest possible path to the largest possible market of business and personal productivity, and I would argue that in the world that comes after the PC, I think we're now seeing what it is that comes after Windows: it's called Salesforce1.

Do I see a company like Box as our competitor? And really at this point, if you look at the big picture of how stuff is still getting done in companies, a tremendous amount of stuff in companies is still getting done with 20 or even 30 year old technologies. You know, a spreadsheet on a network share with an emailed conversation wrapped around it, that's a Force.com application practically begging you to spend a couple of days writing it. At which point you suddenly have an automated governable, secure process that is far superior to what you had before.

We and Box and Evernote and Dropbox are all I think more joined in competing against that legacy of unproductive, cumbersome technology than we are competing against each other. The opportunity to move the vast majority of people working today in the U.S. and in emerging markets from that decades old model to something a lot more like what they enjoy in their personal lives is so vast that I think we have more interest in common than we have in contention.

-- Written by Andrea Tse in New York.

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