Q&A: Salesforce Founder Marc Benioff

The CRM sector has fallen under considerable criticism in the past few years, mostly due to disappointing ROI figures. Into this breach stepped Salesforce.com, the CRM services company founded by former Oracle vice president Marc Benioff.

Aiming to replace cumbersome enterprise software suites with outsourced services, the 4-year-old company has seen its model take off, with annual revenue going from $5 million in its first year to around $100 million in 2003. Benioff, Salesforce.com's CEO, recently sat down with VARBusiness senior writer Luc Hatlestad to talk about why the time is right for services to overtake software.

VB: The CRM market has taken a lot of hits lately. What's it's current state?
Benioff: The CRM market was oversold three or four years ago, and continues to be in a lot of cases. Three years ago during the Internet boom, everybody had to have a CRM solution, even though they weren't quite sure what to do with it and not quite sure how it would impact their businesses. So a lot of money was spent, and there was a lot of hype in the market only to find out that after having spent millions on software, people weren't quite sure how to actually make it work and, in fact, never rolled it out to all their employees. All the research analysts say that more than 50 percent of all CRM projects initiated in the past five years failed. We hear figures that say only about 18 to 20 percent of all licenses sold are actually deployed and being used on a regular basis. If you include casual or infrequent users, the number gets up to 30 to 40 percent max, but it's certainly no higher than that.

VB: How did it get so out of control?
Benioff: The tremendous push for Y2K compliance drove a lot of software investment in the late-1990s. This helped a lot of software companies but skewed earnings. People saw tremendous increases in stock valuations, and nobody wanted to be caught unprepared. But how many Y2K disaster stories did you read about? None. Companies were not that compliant; it's not like everyone did such a great job. All that goes to show is that Y2K paranoia hyped people into buying stuff they probably didn't need.

VB: What makes you guys different?
Benioff: We have adoption rates of over 90 percent and customer satisfaction rates of 98 percent. We offer a high value proposition in a market that's really been under the gun in the past couple years. Of all software sold and hyped in past few years, CRM was oversold and under-delivered more than any other software solution, which is ironic because the whole idea of CRM is that it helps with customer satisfaction, provides better visibility into their businesses, and helps customers grow their revenues and pipelines. All that obviously didn't work out the way it was sold. We have a very different value proposition. Marc Benioff was an early investor with Siebel. Most of us have worked with large enterprise software companies and know what the problems are with software.

We have this anti-software theme. The way we sell it is as a utility. When most companies sell software, when you write them a check, they go to their next customer because you already wrote the check and they're not interested in you anymore. You'll pay them 20 percent more in maintenance fees per year, but they don't really focus on your success. You have to figure out how to make the software work in your environment, and you're going to spend another eight times to 10 times over the original purchase price for infrastructure, other software resources, training and implementing it into your environment. The initial purchase price of a large enterprise software package is only 10 to 20 percent of the total cost of ownership, and you won't see value out of it on average for one or two years.

Because of all this, companies are saying, "Give me a low-risk, low-cost alternative that I can get value out of immediately. I want it to be intuitive to use, and if I don't like it, I want to be able to turn it off and send it away." Nobody has extra money lying around these days, so they need a solution they can get up and running in weeks or months, not years. We've spent all the money on the infrastructure, and we run it on our computer systems for you. All you have to do is tap into it using a PC with a browser. That's our value proposition: We can give you the same application you're used to spending millions of dollars on upfront, and we charge a monthly or yearly subscription for it. You only pay for what you get, and you'll use what you get, or you don't pay us.

VB: Aren't customers going to have security and scalability concerns with letting another company handle their data?
Benioff: People only use a utility if they're sure the quality is good, if it can scale and it's cheap and easy to use. It's the same with us. Early on, we were just a sales-force automation company, but we now have a very robust full CRM solution. Our quality and usability is as good as Siebel, who tries to say we're not reliable or secure. It's an easy criticism to throw at start-up Internet companies, but now we can go head-to-head with any company and say our security is better. We now have 6,300 customers and 83,000 end users that operate on us. They all went through the same evaluation that shows them that our security is a non-issue. Because we have these economies of scale, security has become a core competency of ours. We invite all our customers in to do a security audit, and they come out saying we're more secure than their internal applications. We spend more on security than any one company can because if we have a breach of security, we're dead.