Salesforce has a big vision for its new CRM software. Source: salesforce.com.
salesforce.com (CRM +0.06%) is holding court at its Dreamforce developer and customer conference this week, and you know what that means: lots of new products announcements.
None matter so much as Salesforce1, a unified platform for controlling every element of a client's Salesforce implementation. New programming interfaces pulls together homegrown apps with apps available in Salesforce's AppExchange library. And all of it is available to users via a new mobile app.
In that sense, Salesforce is stealing from Apple with iOS. Create enough interest from developers, and the apps sell the hardware. Only Salesforce isn't selling handsets, but rather an entire platform for managing how a business sells to, serves, and supports its customers.
"With Salesforce1, every [software vendor] can accelerate their growth by building, selling, and distributing apps for the connected customer. [Vendors] such as Evernote and Kenandy are building mobile-ready apps on the platform and leveraging the power of the Salesforce1 AppExchange to market and sell these apps," the company said in a press release announcing the product.
The Dreamforce, not yet realized
How much should investors care about Salesforce1? A lot, I think. Recent financial reports, including the latest one, reveal a troubling trend. The sales team is writing much longer (and presumably bigger) contracts that cost plenty to service up front:
| Metrics | Q3 2013(% YoY Growth) | Q2 2013(% YoY Growth) | Q1 2013(% YoY Growth) | Q4 2012(% YoY Growth) |
|
Revenue |
36.5% |
30.8% |
28.4% |
32.1% |
|
Cost of goods sold |
44% |
34.1% |
37.9% |
34.6% |
|
Operating expenses |
38% |
33.7% |
28.6% |
33.9% |
|
Accounts receivable |
70.7% |
67.8% |
35.3% |
27.6% |
Sources: S&P Capital IQ, TMF estimates.
Notice the pattern? Over the past two quarters, accounts receivable has far outgrown revenue. Expenses also continue to rise faster than sales. Neither bodes well for the company over the short term. The good news? Salesforce has nearly $6 billion worth of billed and contracted business. Normalizing the platform could moderate expenses as those commitments transform into bankable checks and consistent cash flow.
We've seen Salesforce make these sorts of moves before. Remember when the company wanted to make its Chatter social network a part of everything it did? In helping clients create a "Social Enterprise," Salesforce promised to make it easier for employees, partners, and customers to connect and collaborate. The two years since have been good for Salesforce stockholders, who've seen their shares rise 74% versus 52% for the S&P 500.
Playing with giants
We don't yet know if Salesforce1 can be a similar catalyst, but give CEO Marc Benioff credit for not taking chances.The company this week also announced a deal with Hewlett-Packard (HPQ 1.14%) -- one of its largest customers -- to introduce what it calls a "Salesforce Superpod," a dedicated instance of its cloud that's in part powered by HP's Converged Infrastructure, a combination of servers, and network technology.
HP will be the first to host apps in the Pod, but the two companies said in a press release that they also intend to market the service to "the world's largest enterprises". Smart move. Amazon.com, Google, and Microsoft are all making big investments in their cloud offerings as users spend more time working inside their browsers. Teaming with HP might help Salesforce to serve more of them.
That's what Dreamforce is about, after all. Articulating the dream for cloud computing ahead of actually realizing it. Count Salesforce1 and its platform ambitions as a step in the right direction.
