Thursday 21 February 2019

Having a head in the clouds could be secret to Salesforce success

Investor

Marc Benioff, chairman and chief executive officer of Salesforce.com
Marc Benioff, chairman and chief executive officer of Salesforce.com

By Aidan Donnelly

One of the most important technological advances in recent years has been the development of cloud computing, and San Francisco-based Salesforce.com is leading this paradigm change in the way software is being designed and delivered.

Founded in 1999, it has established itself as a leading cloud application and technology platform vendor. The company's flagship product is its core salesforce automation or customer relationship management (CRM) application. While there are many other companies providing CRM software, what allowed Salesforce to stand out from the beginning was a delivery method known as Software as a Service (SaaS).

SaaS providers generally price applications using a subscription fee (most commonly a monthly or an annual fee) - with the software being run on the provider's infrastructure rather than installed on the customer's systems.

Few can deny the size and scope of the impact of cloud technology, but we are still only in the early stages of adoption in the enterprise space. Salesforce.com is by far the largest SaaS vendor by revenue and continues to demonstrate industry-leading growth despite having the largest revenue base in the cloud space. As an industry leader, Salesforce.com will reap many benefits as markets mature and applications expand.

The company is well positioned to expand its footprint within its customers operations as it looks to transform all aspects of its business to digital. The company is focused on evolving its product portfolio into new growth areas, both organically and through acquisition.

It is successfully leveraging its position in CRM applications to engage customers at the highest level in a broader strategic discussion which includes service, marketing, ecommerce and Internet of Things (IoT - the network of devices, vehicles, and home appliances containing electronics, software, and connectivity which allows these things to connect, interact and exchange data).

The management and staff of Salesforce continue to evolve the company's product portfolio and messaging to address an expanding number of markets and are leading the trend away from legacy software towards more user-friendly, mobile, flexible cloud applications.

The company entered the Marketing Automation (MA) space with two large acquisitions and will likely round out this portfolio with further strategic deals in addition to organic product development. This MA segment has the potential to become the next US$1bn business given the large addressable market and the opportunity being created by the disruption caused by shifting marketing spend from traditional channels to digital channels.

The company's avenues for growth are not limited to existing customers though. To date, the company has focused its effort on just eight geographies and generating just 30pc of revenue outside the US (compared to 50pc or more for other major vendors), and this suggests larger room for market share gains, especially as cloud adoption gains momentum internationally.

Salesforce has also developed the leading Platform as a Service (PaaS) offering, enabling customers to extend their use of the core SaaS applications and also fostering an ecosystem of third-party independent developers to offer software applications through its AppExchange marketplace. It gives users the ability to develop, launch, and manage software applications without having to deal with the infrastructure required for building those applications.

The technology world is in the midst of many changes, but in this case you might be glad that Salesforce.com has its heads firmly in the clouds.

  • Aidan Donnelly is head of equities in Davy Private Clients. For disclosures, visitdavy.ie/AidanDonnelly
  • Any investment commentary in this column is from the author directly and should not be seen as a recommendation from The Sunday Independent

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