The Big Benioff - Software On Demand at Salesforce.com

By Daniel Roth, Fortune December 2004

Salesforce.com is changing the way you think about software – well, as long as you want to be connected to the internet. What he does is create software that you utilize online, instead of resident on your computer. Why would you ever want to pay someone a monthly fee for a program you could keep resident on your computer? That is the question Benioff is waiting for you to ask.

Step back and look at the bigger picture. Don’t just think of it as a program you pay for as long as you live, think of it as a program that you pay to use, but don’t ever have to worry about updating or upgrading. Think of it as a program that has an increasing number of software add-ons that work seamlessly with this program, and you don’t have to worry about compatibility. This is called Software On Demand.

Benioff’s method of attention-getting has included hiring protesters “to demonstrate outside of archrival Siebel Systems’ events – and even hired fake news crews to “cover” them. The B-52’s performed at Salesforce.com’s launch party (at that time the company had no customers). David Bowie sang at a fundraiser sponsored by the company, and Arnold Schwarzenegger helped kick off an update of the service.
Benioff sends out countless trinkets to journalists – T-shirts, footballs, chocolates (all with Salesforce.com’s Ghostbusters-style logo: the word “software” surrounded by a circle with a line through it.) Clients and prospects alike get the royal treatment, with much communication and many invitations.

Though small, his company is the largest in this arena. His customers include Cisco, Staples, Sun Trust Banks, AMD, and Nextel. He averages 7,500 new subscribers a month and will have 220,000 users by the end of January. An 80% increase in annual revenues spurred stock trading at prices 138 times that expected in 2006. Benioff’s 28% nets him $500 million.

Now, the companies that decried him are following suit by creating their own on demand software services. Siebel has gone after Benioff’s small and mid-sized business base, and IBM is moving to on demand Lotus products and services. SAP is tip-toeing into the arena as well. “Spending on on-demand software is expected to grow at a compounded 25% a year to $9 billion by 2008, vs. just 5% to 6% for the rest of the industry.”

Benioff is hiring seasoned executives from the bigger companies, and getting outside companies to create add-ons that he doesn’t have the time or resources to develop. The advantage over purchasing software is that you don’t spends thousands (or tens of thousands) of dollars buying, customizing and upgrading software programs, and buying service and support contracts. “Companies pay $6 to $8 in extras for every $1 they spend on the software.”

On Demand Software means paying a monthly fee for each employee who has access to the service. Small company set up time is minutes, and larger companies possibly months as data is transferred. Data is kept at the on demand service’s centralized server, which cuts down on costs. Updates are universal and across the board for all customers. All that is needed is a web browser, so IT need not be involved.

From a sales perspective, once a product is sold, the game is over. With Benioff, it has just begun, as the trick is to keep the customer and gain an increasing number of employees who subscribe. That’s why Salesforce.com will do just about anything to retain a customer – up to 50% of their revenue’s worth. “If a trial account calls me and complains, I’ll deploy a whole team for that person.”

The downside? Bad connection, no access. Not quite as customizable as purchased systems. Your precious data far away on someone else’s server. ADP, the payroll company, has 5000 subscribers from its sales force, but is slow to give up the additional 38,000 employees and the corporate information that would go with them. Benioff is pursuing subscribers now at any cost, since a million dollars in IT costs versus a small monthly fee looks very good at this point in time.

Siebel is going after business in a slightly different way. “When people want a CRM system, they don’t think, ‘I need a hosted CRM application’ or ‘I need an on-premises application,’ they think, ‘I have a business problem.’” So Siebel is trying to offer both – interchangeably – which won’t be easy.

Another shift in attitude for Benioff’s leaders included forgetting target marketing to just the top 10 money makers. “Here, the idea is that one guy likes it and tells ten of his friends. What I’m doing is trying to stoke up the viral effect.”

BRAINSTORM:
Benioff turned a simple idea into a mountainous success. Offer software via the internet, and every morning, when subscribers log on, they know they are using the latest version of the software, with an array of add-ons that they know are compatible, and with a company that knows how valuable you are, and is willing to do back-flips to keep you on board.

What product or service that you now offer as a stand-alone product could you convert to an online service?


Are you working with other vendors to offer an array of adjacent services and products that will work seamlessly with your product or service? Where could you find such complementary companies? What products would be the most logical companions to your service or product?


Benioff is known as a show-off. The B52s, David Bowie and Arnold Schwarzenegger? I think show-off is a slight understatement. But he’s doing something that is working, so maybe we should review this as well.

He shone in the spotlight by doing corporate fundraising and drawing big names, offering outrageous and non-traditional entertainment, and basically getting high-profile theatrical (and governmental) nods. What organization would you like to benefit? How could you combine philanthropy with marketing that will benefit the cause as well as bring attention to your company?


How can you grab attention by doing the unexpected? Write down a list of people that your customers or investors would expect you to bring in as speakers, leaders and entertainers. Then write down a list of the antithesis of those people – the opposite end of the spectrum – that would still fit your company philosophy and corporate identity. Imagine the “shock appeal” that would come by having a punk rock band or possibly someone like the Eagles or Skynerd perform at your company launch. Find an organization that is a shared favorite with a celebrity, and invite them to be a part of the festivities. (Anybody know what Brad Pitt’s favorite charity is?)



Notice his use of novelty items with their tongue-in-cheek logo. A little bit of humor (and generosity) can go a long way, especially when you are courting the media. Are you utilizing promotional items? Some frivolity is fun, but are you thinking about providing promotional products that are actually practical and they will use on a daily basis, and therefore keep you in the forefront of their mind?


Having major players, such as Nextel and Cisco, as customers doesn’t hurt either. The difference I find, however, is that his focus is not only on the big companies, but that he will do back-flips for small and medium-sized companies, too. His method of expanding is not by corralling Fortune 500 companies alone – he wants the little guy to love his system and then tell his friends about it – viral marketing.

Are you focusing solely on big money players, instead of trying to please the “little guy”, who may just get on the internet and tell his network of 1,000 people what a great service you have? What different strategies would you need to develop for the large companies, as opposed to for the smaller companies? How can you encourage viral marketing? He must be doing something right, with 7500 new subscribers a month.


If imitation is the sincerest form of flattery, then Benioff must be VERY flattered, as those who once poo-pood him are following in his footsteps. Any successful business idea will eventually be followed by copycats – that’s why you need to strike while the iron is hot, and make your stand – and your brand – public. Are you moving on business ideas whose time has come, or are you waiting around to see if it will work?


One of the major advantages of this type of service is the ease of “installation” (an internet link and a subscription), and the lack of high up front costs. Even a one-man-band can afford $75.00 per month. How can you present your business or product as a “one-step” type of arrangement that is non-threatening and affordable? What hoops must prospective customers jump through in order to obtain and reach your valuable service? Have you asked someone from the outside how easy or hard it is to access your service? If it takes them more than 2 clicks, you’re probably going to lose them along the way.


On the other hand, there will be die-hards that refuse to give up their resident software. That shouldn’t really bother us, since these people end up spending an additional $6 to $8 for every $1 they spent on the software. How can you market to the die-hards? What kind of options and accessories can you offer that would interest them and make their present system more valuable?


Now, placing all of your data in the hands of someone with a centralized server takes a LOT of trust. Perhaps, if your data isn’t that sensitive, it wouldn’t matter to you. But the ADPs of the world worry about it, and it holds them back from turning everything over to Salesforce.com. What kind of security and accessibility guarantees or assurances can you give your customers if you are “holding their baby” in your hands? Benioff has stringent auditing done on his company, which bolsters some people’s confidence.