Salesforce CEO: We Are ‘Transforming From Being Not Only The No. 1 CRM, But To The No. 1 AI CRM’
Wade Tyler Millward
‘Our AI, data, CRM plus trust platform, well, it’s propelled us to become the third largest enterprise software company by revenue in the world,’ said Salesforce CEO Marc Benioff on the company’s second fiscal quarter earnings call.
Salesforce co-and CEO founder Marc Benioff hyped his company’s forays into generative artificial intelligence—while also complimenting Google Gen AI application Bard and Microsoft-backed GenAI company OpenAI—although his team doesn’t expect to see revenue from their Gen AI offerings in the short term.
On the San Francisco-based vendor’s earnings call Wednesday for the second fiscal quarter ended July 31, Benioff said that Salesforce is “at the dawn of an AI revolution” that will boost its classic CRM software offerings and spark “a massive tech buying cycle over the coming years.”
“CRM will become more important to our customers than ever before,” he told listeners on the call, “because you’re going to be able to get more automation, more intelligence, more productivity, more capabilities, more augmentation of your employees.”
Salesforce Q2 Earnings
However, Salesforce CFO Amy Weaver told listeners that Salesforce’s “opportunities around AI”—along with price increases that took effect in August—do not have “a significant influence on our guidance for this year.“
Salesforce COO Brian Millham further clarified that the price increases should “hit the customer base over the next one to two to three years. So no big material change in this fiscal year.”
Instead, Salesforce subsidiary MuleSoft proved a driving force for the company’s reported $8.6 billion in the second fiscal quarter, up 11 percent year over year.
Customer Spending Still An Issue
Salesforce, much like other tech vendors, continued to see a reduction in business spending on digital tools since the height of the global pandemic.
Millham said that “compression of larger transformational deals continued in the quarter,” although Salesforce still beat expectations in the quarter.
Weaver said that Salesforce saw strong new business growth in France, India and Canada “while the United States continued to be constrained.”
The manufacturing, automotive and energy sectors saw greater resilience, she said. High tech, retail and consumer goods customers were more measured in their spending.
Salesforce’s current remaining performance obligation (cRPO) “will continue to be materially impacted by the cumulative effect of the previous five quarters of measured sales performance,” she said. The vendor, however, expects growth in bookings “to begin to normalize.”
“The measured macro environment continues to impact customer decision-making,” Weaver said. “And we’re still seeing elongated sales cycles, additional deal approval layers and deal compression in our subscription and support and professional services businesses.”
Benioff Likes Bard
For Salesforce, the Gen AI potential in the vendor’s products is helping customers deepen relationships with their own customers while reducing costs and increasing productivity.
Benioff foresees customers using Salesforce Gen AI for survey generation, automatic marketing segmentation, call summaries, mobile work briefings, in-product assistance and other use cases.
But one Gen AI use case Benioff took time on the earnings call to shout out came from the consumer-facing Google Bard, which helped him on a recent shopping excursion for flashlights.
“I couldn’t figure out what flashlight I wanted to buy,” Benioff said on the call. “And I was on Amazon trying to figure out what’s the flashlight. And so I took a picture of the Amazon picture of what was happening on the app and I gave it to Bard because Bard has this multimodal capability to ingest the photo. And then it ingested the photo, and it told me not to buy the flashlight, that it was poor quality and recommended one that was better for me. And it was incredible to see that I was, once again, working with the next generation of artificial intelligence.
“And that is inspiring me and I think many of our customers and ultimately all of them believe they can grow their businesses by becoming more connected to their customers than ever before through AI. And at the same time, [they can] reduce costs, increase productivity, drive efficiency and exceed customer expectations through AI.”
Benioff also congratulated OpenAI on its reported $1 billion-plus in revenue expected over the next 12 months.
OpenAI CEO Sam Altman is expected to speak at Salesforce’s annual Dreamforce event in September, an event Benioff called “the world’s largest AI conference.”
“It’s just awesome to see this growth,” Benioff said about OpenAI.
Benioff said that Dreamforce 2023 will showcase enhancements to Data Cloud with full integration with the company’s Sales Cloud and Service Cloud products. Attendees will also see new versions of Einstein and extensions to the core platform.
“Salesforce is transforming from being not only the No. 1 CRM, but to the No. 1 AI CRM,” Benioff said.
“Our AI, data, CRM plus trust platform, well, it’s propelled us to become the third largest enterprise software company by revenue in the world. And I think in Japan, we just became the second-largest company.”
The Data Cloud offering—Salesforce’s fastest-growing organic product, Benioff said—promises to enable customers to take action with data from any source without an integration project, he said.
In the second quarter, Data Cloud ingested more than 6 trillion records and triggered more than 1 trillion activations to drive customer engagement, he said.
Customers “have been forced to buy and create more islands of information and all of these independent systems and independent teams versus having one integrated data architecture,” he said. “We’re moving our customers from having islands of data to having a single source of truth for all of their data. This is our greatest dream.”
As for Salesforce subsidiary Slack, Benioff told listeners that the collaboration app has the potential as a front end not only for Salesforce products, but for AI systems.
“Every AI company that we’ve met with is a Slack company,” he said. “Slack is just a treasure trove of information for artificial intelligence. And you’ll see us deliver all kinds of new capabilities in Slack along these lines. And we’re working … to get Slack to wake up and become more aware.”
Dreamforce attendees will see Slack Sales Elevate, the Salesforce Sales Cloud system usable within Slack. The vendor is at work adding more Salesforce services in Slack, Benioff said.
Acquisitions Possible, No More Mass Layoffs
Benioff said on the call that acquisitions are a possibility in the future and that he doesn’t have plans for another mass layoff this year.
On acquisitions, he said “we are very thirsty to make sure that Salesforce is the No. 1 AI CRM, and we have done a lot organically to do that in the last six months.”
“Of course, there’s things out there that we could do to help us with inorganic as well,” he said. “We’re looking at those things. We’re looking at everything.”
On layoffs, Benioff said that Salesforce is “not planning any other major restructuring efforts in the company today like what we saw earlier this year. We hope that that is one and done and behind us.”
Salesforce Q2 Results
Salesforce saw subscription and support revenue of $8 billion, up 12 percent year over year. The rest came from professional services and other sources of revenue, an increase of 3 percent year over year. Weaver said that MuleSoft momentum helped fuel that growth.
More than 400 customers invest more than $10 million annually and in an average of seven clouds, she said. In the past five years, the number of $10 million-plus customers has tripled. And their average number of clouds has nearly doubled.
The vendor’s cRPO was $24.1 billion, up 11 percent year over year ignoring foreign exchange rates. The quarter ended with $46.6 billion in RPO, up 12 percent year over year.
Salesforce generated $810 million in cash from operations during the second quarter, more than double the number a year prior. Free cash flow was $630 million, up almost fivefold year over year.
Millham said Salesforce benefited from customers consolidating technology platforms to reduce complexity and drive efficiency and growth.
Six of Salesforce’s top 10 wins in the quarter included five or more clouds. Data Cloud was in five of the top 10 deals in the quarter. Nearly half of Salesforce’s $1 million-plus deals and half of its top 10 deals included MuleSoft, he said.
Slack has now launched nearly 8 million workflows weekly, a 71 percent increase year over year, he said. And for the third consecutive quarter, eight Salesforce industry clouds grew at annualized recurring revenue above 50 percent.
Salesforce Q3 Guidance
Salesforce expects to see revenue of about $8.7 billion in the third quarter, which would be an increase of about 11 percent year over year.
The vendor also raised its full fiscal year revenue expectation to between $34.7 billion and $34.8 billion, an increase of 11 percent year over year. It raised its full fiscal year operating cash flow growth expectation to between 22 percent and 23 percent year over year.
Positive performance in MuleSoft is part of the raise, Weaver said.
Benioff said on the call that he expects to deliver 30 percent margin this fiscal year.
“That’s an incredible goal,” he said. “While we thought we were going to do it next year, we’re really going to do it this year. And it’s an amazing achievement of our whole team. It certainly has been a lot of work. It’s been difficult. In a lot of cases, it has been a struggle. But our teams are incredible. And what they have done has been nothing [short of] miraculous.”
Salesforce’s stock rose about 6 percent after hours Wednesday to about $227 a share.