Cloud-based software is a huge industry right now with the global public cloud services sector pegged to grow by 17% in 2020, to a total of $266.4 billion, according to Gartner Inc.
That’s up from $227.8 billion in 2019, Gartner reports.
The largest component of the cloud computing industry is the software as a service (SaaS) sector, is forecast to rise to $116 billion in 2020, mostly due to the scalability of subscription-based software.
Cloud computing and SaaS have always been the sweet spot for Salesforce, one of the largest and most successful software companies in the world. The company, based in the high-rise Salesforce Tower in San Francisco, reported revenues of $13.28 billion in 2019, making it one of the strongest financial producers in the global software sector.
That’s a pretty big deal for a company that’s only been around a few decades.
So how did Salesforce (CRM) - Get Salesforce Inc. Report get to the top of the cloud-based software market? It’s a story worth telling for anyone who wants to start a software company, or for that matter, go to work for one.
Salesforce Model – A “Single Idea”
Salesforce was founded in 1999 by Marc Benioff, a sales executive at Oracle, one of the largest software companies in the world.
The company was founded on a single, bold premise – that software should be made available to the masses, on a 24/7 basis, over a global cloud computing infrastructure. No longer would companies have to bring in expensive software computer companies like SAP or Oracle (ORCL) - Get Oracle Corporation Report to install standalone computer platforms inside the company’s walls, and at great cost.
The future, as a prescient Benioff saw it, would be a world where companies could buy software outside of their own buildings, at lower cost and equal or greater efficiency, have everything stored on an external cloud?
“It’s amazing to consider that no matter what size customer we were pitching, or where in the world we were selling, a singular idea drove all our accomplishments: we never sold features,” said Benioff, in his book, “Behind the Cloud: The Untold Story of How Salesforce.com Went from Idea to Billion-Dollar Company – and Revolutionized an Industry.” “We sold the model and we sold the customer’s success.”
That single idea was mocked by software industry elitists who never saw the threat Salesforce represented against the big software providers (Business Insider once wrote an early story about Salesforce entitled “The Ant at the Picnic.”)
Yet Salesforce and Benioff would emerge as computer industry revolutionaries and prove the critics wrong by building a single product – a customer relationship management software tool – around a single idea – building products companies could use on the cloud.
That idea has companies looking for software product and services that make it much more simple and efficient way for individuals to use software, however and whenever they wanted to. Salesforce’s CRM software, especially, would be extremely user-friendly, affordable, easy to set up, and would easily integrate with existing software platforms, and run, as the company promised, faster than lightning.
“We had to come up with guiding principles about the system,” Benioff said in his book. “Do it fast, simple, and right the first time. We wrote those “laws” on a white board, and they stuck. They forced us to create code that was simple and efficient, and this is what ultimately gave us the ability to scale.”
Growth of Salesforce
After creating Salesforce in the usual Silicon Valley style - Benioff created the blueprint for his new company in his tiny Telegraph Hill apartment near downtown San Francisco – Benioff went to work.
He did so with three business partners Parker Harris, Dave Moellenhoff and Frank Dominguez, with the original funding coming from Larry Ellison, CEO and founder of Oracle and CNET founder Halsey Minor, among other investors.
Getting off the ground was a slow process, but the company turned the corner after its first-ever Dreamforce annual convention, held at the Westin Hotel in San Francisco in 2003, which attracted thousands of attendees.
With its brand name getting out to its network of 8,700 customers and numerous potential investors, Salesforce held an initial public offering in 2004, raising $110 million in the deal. The company’s “day one” stock price stood at $17.25 – today Salesforce (CRM) - Get Salesforce Inc. Report stocks trade at $177 per share.
Growth continued and by 2009 the company crested the $1 billion mark in annual revenues, along with a 10-year high of 55,000 customers.
Within two years, Salesforce almost doubled those customer numbers, at 55,000 and grew in prominence after Forbes dubbed the business as “the world’s most innovative company.”
2013 and 2014 saw more growth and more acquisitions for Salesforce. In 2013, the company purchases ExactTarget, an email service provider, for $2.5 billion. Under the Salesforce umbrella, ExactTarget would become The Marketing Cloud, a key product and service line for the company, providing critical software marketing automation tools and systems for its growing legions of customers.
Soon after, Salesforce branched out into six new global industries, including the high-profile and high-profit healthcare and life sciences sector, further building the company’s global brand. Salesforce would soon successfully bring its health care customers – old and new – under its fledgling Health Cloud software ecosystem.
Other cloud-based initiatives followed, and by 2017, Salesforce was reporting $8.3 billion in annual revenues. Business was so robust that in 2018, Benioff and his executive team moved the company’s operations to what was soon called the Salesforce Tower, a skyscraper that dominates the San Francisco skyline. That year, revenues grew to $10.4 billion.
It would top that off with its largest acquisition ever – a $6.5 billion investment in MuleSoft, a major cloud computer integration vendor with major customers like Coca-Cola (KO) - Get Coca-Cola Company (The) Report, Unilever (UN) - Get Unilever NV Report and Barclays (BCS) - Get Barclays PLC Report.
Employees were happy, too. In both 2018 and 2019, Salesforce was ranked first by Fortune among the “Best Companies to Work in America.”
Salesforce has had its share of growing pains – and bad news – throughout its 21 years in operation.
In 2007, the company was victimized by an email phishing attack that led to cyber-thieves landing the contact information of Salesforce customers (a company salesperson had inadvertently provided a log-in password to a data fraudster.)
Twelve years later, the company found trouble on the tax and cultural fronts. In 2019, Salesforce was cited as one of many Fortune 500 companies that paid an effective U.S. tax rate of 0% or less, even though it did so legally.
The same year, Salesforce was the target of a civil lawsuit from 50 women accusing Backpage.com (a Salesforce client) of facilitating sex trafficking, rape and abuse, with Salesforce’s knowledge. A judge rejected the plaintiffs' lawsuit in late 2019 and cleared Salesforce in the case.
In 2020, Salesforce stands as one of the most prominent computer software companies the world, with a market cap of $156 billion and a one-year target consensus analyst estimate of $203 per share.
The company is widely cited by in-the-know investors as a major growth stock, with 91% of technology industry analysts tracked by FactSet.com calling CRM either a “buy” or “overweight” in a February, 2010 research report.
That’s an impressive outlook for a company that was once dismissed as an “ant at the picnic.”
Instead, Salesforce is the big dog now, in a cloud computing landscape that it helped to create and has dominated in for the past two decades.