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Salesforce.com

Company Profile

Publication Date: 6 Nov 2009

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ABOUT DATAMONITOR

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TABLE OF CONTENTS

Company Overview..............................................................................................4

Key Facts............................................................................................................... 4

SWOT Analysis.....................................................................................................5


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COMPANY OVERVIEW

Salesforce.com is a provider of application services, which allow organizations to share customerinformation on demand.The company offers customer relationship management (CRM) services tobusinesses and a technology platform to develop and run business applications.The companyprimarily operates in the Americas. It is headquartered in California, United States and employsabout 3,570.

The company recorded revenues of $1,076.8 million during the financial year ended January 2009(FY), an increase of 43.8% over 2008. The revenue growth was primarily due to the increasednumber of new customers and additional paying subscriptions from existing customers.The operatingprofit of the company was $63.7 million in FY2009, compared to operating profit of $20.3 million inFY2008. Its net profit was $43.4 million in FY2009, compared to net profit of $18.4 million in FY2008.

KEY FACTS

Salesforce.comHead OfficeThe Landmark @ One MarketSuite 300San FranciscoCalifornia 94105

USA1 415 901 7000Phone

1 415 901 7040Fax

http://www.salesforce.comWeb Address

1,076.8Revenue / turnover(USD Mn)

JanuaryFinancial Year End

3,566Employees

CRMNew York Ticker


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SWOT ANALYSIS

Salesforce.com is a provider of application services, which allow organizations to share customerinformation on demand.The company reported a robust customer addition during recent years,which enhances its top line growth and market position. However, the intense competition in theindustry may affect the operating performance and profitability of the company.

WeaknessesStrengths

High dependence on the AmericasRobust customer additionsSignificant market position

Focus on research and development

ThreatsOpportunities

Intense competitionGrowing demand for cloud servicesEconomic slowdownBusiness expansionPrivacy concernsIncreasing presence in Asia Pacific

Positive outlook for CRM market

Strengths

Robust customer additions

Salesforce.com recorded robust customer additions during recent years. The company provideson-demand CRM services, applications and platforms to the customers located worldwide. Itscustomers include small businesses (companies with fewer than 200 employees), medium sizebusinesses (200 or more employees and up to $1 billion in annual revenues), and large businesses(over $1 billion in annual revenues).

During the period FY200709, the companys customer base has grown significantly, acceleratingits top line growth. Its customer base increased at a compound annual growth rate (CAGR) of 36%,

from 29,800 in FY2007 to 55,400 in FY2009. The company reported the year-on-year growth of35.1%, compared to FY2008 customer base.This robust growth was due primarily due to theincreased demand for the companys services and cloud applications. Robust customer additionsresulted in the strong growth of subscription, professional service and support revenues.Thecompanys revenues reported a strong growth at a CAGR of 47% during the period FY200709,increasing from $497.1 million to $1,076.8 million.

Robust customer additions enhance the companys top line growth and its market position.


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Significant market position

Salesforce.com is one of the leading players in on-demand customer relationship management(CRM) services. The company delivers integrated, completely customizable enterprise applicationsto companies of all sizes. The company is the leading provider of software on demand, based onrevenues and market share during 2008. Across the industry, the company is recognized as one ofthe major CRM technology providers for capital markets.The companys share in the total CRMsoftware market has increased from 6.8% in 2006 to 10.6% in 2008.

Salesforce.com was ranked third on Forbes list of 25 fastest growing technology companies, with40% earnings per share (EPS) growth and five year sales growth of 72%. In addition, the companyis the market leader in the sales cloud and service cloud domains. Salesforce.com is the largeston-demand vendor, making up about 50% of the market. Leading position in the on-demand CRM

services enhances the brand image of the company.

Focus on research and development

The company has significant focus on research and development (R&D) operations. It has beeninvesting a significant amount on technology development over a period of years.The R&D expenseswere $44.6 million, $63.8 million and $99.5 million for the years FY2007, 2008 and 2009, respectively.This represents an increase of 43.8% from 2008 to 2009 and as the percentage of total revenuesincreased from 8% to 9%.

The companys R&D efforts are focused on developing new proprietary services such as Force.com,and improving and enhancing the effectiveness of its existing service offerings. As a result of its

focus on R&D, the company upgraded its major products and introduced new products in the recenttimes. In September 2009, Salesforce.com launched Contact Manager Edition, a new edition, whichprovides the essential tools needed to manage business contacts and customers in the cloud. DuringApril 2009, the company launched Mobile Lite, a new free mobile offering, which provides customerswith instant access anywhere to Salesforce CRM, and is available for iPhone, BlackBerry smartphonesand Windows Mobile devices.The company also launched Force.com Checkout, a new set ofservices to accelerate customer and partner success with buying and selling enterprise cloudcomputing applications.

Focus on research and development helps the company remain competitive in the market placewith significant offerings.

Weaknesses

High dependence on the Americas

Salesforce.com is significantly dependent on the Americas for its revenues. For FY2009, the companyrecorded 72.1% of its total revenues from the Americas. The company reported 17.7% revenues


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from Europe and 10.2% from Asia Pacific.The Americas operations have historically accounted fora large portion of the company's total revenues, contributing 78% and 74.6% in FY2007 and 2008,respectively. This demonstrates geographic concentration, with majority of its revenues from theAmericas. The weak economic outlook for the American economies adds to this business risk.

The companys international operations accounted for 27.9%, 25.4% and 22% of the total revenuesin FY2009, 2008 and 2007, respectively.Though the international revenues increased slightly duringrecent years, this contribution is low, when compared to its competitors international operations.For instance, the company competes with huge technology players such as SAP and Oracle, whoprovide CRM offerings and have a diversified geographic presence. For instance, SAP generatedmore than 45% of its revenues from international operations during financial year ended December2008.

High dependence on the Americas increases the business and country specific risks to the companyand restricts its growth opportunities when compared with competitors.

Opportunities

Growing demand for cloud services

The worldwide demand for cloud computing services is forecast to record strong growth in comingyears. Cloud computing is a computing infrastructure model which enables delivery of software asa service (SaaS).This reduces the upfront royalty or licensing payments, investment in hardware

and other operating expenses. As result of its benefits, the cloud services market is forecast to growby over 20% in 2009 to cross a value of $55 billion. Furthermore, this market is forecast to record aCAGR of 22% to reach value of $150 billion by 2013.

In addition, the global SaaS (on-demand) market is forecast to reach $10.7 billion by 2009. Thegrowth of 42% is projected for 2009 over 2008.While strong demand for SaaS is forecast from NorthAmerica, approximately 35% of the worldwide revenue is expected from outside the US, with thepositive outlook of new contracts from customers in Europe, Middle East, Africa and Asia Pacific(excluding Japan) in 2009.

Salesforce.com has a significant presence in the cloud domain with various offerings including theSales Cloud, Service Cloud, cloud platform for CRM, and cloud infrastructure for various applications.

In addition, the companys CRM on-demand applications are integrated with various Google platforms,which will enhances their demand.The company also started offering Force.com, a cloud platform,for Amazon web services to extend the power of cloud computing to even more enterprises. Growingdemand for cloud and SaaS services will facilitate the companys revenue and market share growthin coming years.

Business expansion


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Sleaforce.com is focusing on business expansion activities, investing in new operations and enteringinto various strategic collaborations.

During September 2009, the company joined forces with Unit 4 Agresso, parent company of financialsoftware specialist CODA, to from FinancialForce.com, a new company. FinancialForce.com willdevelop, sell and support the only accounting application delivered in the cloud 100% on thecompanys Force.com platform. Salesforce.com is a minority investor in the new company and willprovide new solutions along with FinancialForce.com. In August 2009, the company also investedin Practice Fusion, the leader in free, web-based physician practice applications. Along with this,the company also planned to launch the Practice Fusion's patient health record (PHR) applicationon its cloud computing development platform, Force.com.This will enable the company to expandits cloud computing offerings to health care industry in the US, which is forecast to grow significantlyin terms of IT spending.

In addition to these investments, the company entered into strategic alliances to launch new offerings.During October 2009, the company partnered with Cisco to offer a complete contact center in thecloud, integrating Salesforce.coms Service Cloud 2 with Cisco Unified Communications. In the samemonth, the company along with Dell launched Dell-salesforce.com solutions for small and mediumbusinesses (SMBs), which offer CRM applications through the cloud.The company also partneredwith Adobe to integrate Force.com platform and the Adobe Flash Platform to create Adobe FlashBuilder for Force.com, which brings the consumer web to enterprise cloud applications.Thesecollaborations with various technology players will enable the company to launch new products inrespective domains.

Business expansion through new investments and strategic alliances will enhance the companys

operations and offerings, thereby increasing its customer base and revenues.

Increasing presence in Asia Pacific

Salesforce.com has a long-established presence in the Americas and Europe, and is increasing itspresence in fast growing markets such as Asia Pacific.

During July 2009, the company officially opened a new data center in Singapore to address thegrowing demand for its services in Asian Pacific markets. The companys customer base of CRMapplications and the Force.com platform in Asia Pacific has recorded a good growth during firstquarter of FY2010, surpassing 5,000 customers including industry leaders such as Crocs, Pacnet,Acer, Datacraft, Ramco, Ricoh, VSNL and Telecom New Zealand. Further, in June 2009, the companypartnered with Fujitsu for support services including application development, systems integration,and consulting for its applications and Force.com platform in the Asia Pacific region.This relationshipwill strengthen the companys global partner ecosystem and help it to address the growing demand.

The Asia Pacific is the companys fastest growing market, with a revenue growth of about 72% inFY2009. Moreover, the Asia Pacific SaaS market is projected to record a significant growth, increasingat a CAGR of about 65% and reaching about $1.2 billion by 2010.The companys increasing presencein a growing Asia Pacific market will enhance its revenues and market position.


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Positive outlook for CRM market

The positive outlook for worldwide CRM market is creating opportunities for the company. Despiteof weak economic conditions, the global CRM market recorded a growth of 12.5% in 2008, over2007. The CRM market revenues reached $9.15 billion in 2008, compared to $8.13 billion in 2007.SaaS domain was the primary driver for the market growth, representing about 20% of total CRMsoftware market. Growth in social networking and social software also enhanced the CRM marketgrowth.

Further, the growing investments in technologies, which enhance productivity, provide insight intocustomer behaviors, and growing online commerce, sales and marketing activities are expected toenhance the CRM market in future. Salesforce.com has a significant position in the CRM market,holding the third place in terms of revenues. Positive outlook for CRM market will enhance the

companys top line growth and customer base.

Threats

Intense competition

The company operates in a highly competitive CRM, enterprise business applications, anddevelopment platforms market.The company competes primarily with vendors of packaged CRMsoftware, whose software is installed by the customer directly; and companies offering on-demandCRM applications. It also faces competition from internally developed application and enterprise

software vendors; and online service providers, who develop toolsets and products that allowcustomers to build new applications that run on the customers current infrastructure or as hostedservices.

Salesforce.com competitors include Microsoft, Oracle and SAP in enterprise software applicationvendor domain; packaged CRM software vendors such as CDC Software, Consona, and Pivotal;on-demand CRM application service providers including NetSuite and RightNow Technologies; andenterprise application service providers including IBM. The company also competes with somesystems integrators including Accenture, and Deloitte Consulting. Some of these competitors arehuge conglomerates with high scale of operations and diversified offerings, which provides themwith advantage of economies of scale, posing intense price competition to the company.

Intense competition may affect the operating performance and profitability of the company.

Economic slowdown

The worldwide economy is presenting a challenging business environment. Most of the advancedeconomies are forecast to contract in 2009, compared to sluggish growth rates in 2008. Moreimportantly, the companys major markets including the US and Europe are forecast to contract incoming years.The GDP growth rate for the US is expected to drop in coming years, primarily due


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to the turmoil in the financial markets, very weak housing market indicators and negative consumersentiments. Consequently, the GDP growth of the US in 2008 was down to 0.4%, and it is expectedto contract by 2.7% in 2009.The GDP growth of Canada, which declined from 2.5% in 2007 to 0.4%in 2008, is expected to contract by 2.5% in 2009.

The European market (primarily comprising the Euro region and the UK) is also forecast to slowdown.Euro region, which includes Germany, Italy, France, and Spain, slowed down from 2.7% in 2007 to0.7% in 2008, and is forecast to contract by 4.2% in 2009. The UK economy is forecast to be weakin the coming years, with its GDP growth rate declining from 2.6% in 2007 to 0.7% in 2008 andforecast to contract by 4.4% in 2009.

All these economies together accounted for more than 50% of the companys total revenues inFY2009.These weak economic conditions are resulting in the reduction of clients software and IT

budgets, bankruptcies, which could diminish the demand for Salesforce.coms services. Economic

slowdown could impact the companys operations in future.

Privacy concerns

The increasing privacy concerns may reduce the effectiveness of the company's solutions.Salesforce.com's clients use its service to store contact and other personal or identifying informationregarding their customers and contacts. Government bodies, however, are considering adoptinglaws and regulations regarding the collection, use and disclosure of personal information obtainedfrom consumers and individuals. Furthermore, privacy concerns may cause customers' to resistproviding the personal data necessary to allow them to use service effectively. For example,regulations such as the GrammLeachBliley Act, which protects and restricts the use of consumer

credit and financial information, and the Health Insurance Portability and Accountability Act of 1996,which regulates the use and disclosure of personal health information, impose significant requirementsand obligations on businesses that may affect the use and adoption of the company's service.

The European Union has also adopted a data privacy directive that requires member states to imposerestrictions on the collection and use of personal data that are more stringent, and impose significantburdens on subject businesses than current privacy standards in the US. All of these domestic andinternational legislative and regulatory initiatives may adversely affect clients' ability to collect anduse demographic and personal information from their customers, which could reduce demand forthe company's service.


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