Salesforce.com adds big customers as IPO nears

Salesforce.com Inc. unleashed this week a high-profile executive poaching, a pair of significant customer wins, and details of its product road map for the next year, as it positioned for a public offering likely to be one of the IT industry's splashiest since the dot-com meltdown.

After several years of building its "software as a service" CRM (customer relationship management) system and attracting a user base now totaling 130,000, Salesforce.com filed for an IPO (initial public offering) in December. The company, which never met a marketing hook it didn't love, drew headlines last week for its announcement in a regulatory filing that it expects to trade under an attention-grabbing ticker: CRM.

The company built on that publicity this week at its annual customer event in New York, timed to coincide with a glitzy Tibet House benefit concert which Salesforce.com helped sponsor. The company packed the day with a spate of announcements, including new development tools for use with IBM Corp.'s WebSphere software and plans for a deeper integration with technologies from Sybase Inc. Salesforce.com capped its event with news that Sun Microsystems Inc. services head Patricia Sueltz has left Sun and is joining Salesforce.com as its president of marketing, technology, and systems.

It also unveiled two new customers with deployments of more than 2,000 seats -- big wins for a company whose average deal size is 15 licenses.

Atlanta-based SunTrust Banks Inc. said it hopes to scrap its mishmash of CRM systems and standardize on Salesforce.com. Meanwhile, human resources outsourcing firm ADP Inc., in Roseland, New Jersey, said it will roll Salesforce.com out to 2,000 employees over the next three months, and will consider increasing its deployment to cover all 5,000 employees in its worldwide sales force.

"The number-one reason why we went with Salesforce.com is its business model," said John LaMancuso, ADP's senior vice president of sales. Like ADP, Salesforce.com maintains that companies are best off outsourcing functions that are not core to their business. "Their business model is us, and we are them," LaMancusco said.

Salesforce.com's scalability was also a factor in its favor, he said. ADP spent eight months evaluating its CRM options and, after meeting with "every CRM vendor out there," the company is convinced Salesforce.com best meets ADP's needs, he said. ADP was previously running custom-built, legacy sales software.

SunTrust Banks had been running nine different CRM systems across its various divisions, including software from SAP AG, Onyx Software Corp., Pivotal Corp., PeopleSoft Inc. and Siebel Systems Inc., according to Ernie Megazzini, the company's senior vice president of enterprise information services. It intends to phase out those systems and migrate most of its sales staff to Salesforce.com.

Both Megazzini and LaMancusco cited Salesforce.com's hosted, remote-management model as a selling point. For major enterprise deals, Salesforce.com will now face competition from Siebel, which launched its own, similarly priced hosted CRM service late last year, called CRM OnDemand.

Megazzini said he did not consider CRM OnDemand during SunTrust's evaluation phase. LaMancusco declined to comment on whether ADP considered Siebel's system, but he noted that ADP uses Siebel's software for its customer account management. ADP plans to integrate Salesforce.com with its existing Siebel deployment, he said.

Salesforce.com co-founder and product development head Parker Harris used the customer event to preview forthcoming updates to Salesforce.com's software. In April the company will introduce new contract management tools with more detailed approval workflow capabilities, enhanced calendaring features, automated e-mail options for pipeline summaries and other reminders, and Lotus Notes synchronization features similar to those already offered for Outlook. It will also soon begin pilot-project testing of more advanced forecasting tools, allowing additional granularity in developing specific forecasts.

Salesforce.com's incipient IPO, expected to happen within the next few months, is likely to draw widespread attention to both the company and to the pack of similar vendors who are reviving an ASP (application service provider) model that buzzed brightly in the late '90s before being left for dead, alongside other wreckage from the dot-com collapse. In the sales software space, the company's competitors include NetSuite Inc. and Salesnet Inc., while others such as collaboration software provider Intranets.com Inc. and customer service system developer RightNow Technologies Inc. push the outsourcing model for other IT needs.

Since Salesforce.com is one of the few companies to test the IPO market since the bubble popped, Wall Street is closely tracking the company's progress.

Like many of the dot-coms that raced toward IPOs during the boom years, Salesforce.com has a tenuous grasp on profitability: It has posted losses in each of its full fiscal years, including the most recent, and the $4.7 million profit it recorded for the first nine months of its fiscal 2004 year included a $4.3 million one-time, non-cash gain related to real estate maneuvers. But the company is eager to distinguish itself from the dot-bomb ranks, and one way it is doing that is by choosing to trade on the New York Stock Exchange (NYSE), rather than the tech-heavy Nasdaq.

The older and more staid NYSE has stricter revenue and earnings requirements for entering firms. Salesforce.com's financials, as outlined in its U.S. Securities and Exchange Commission registration statement, don't meet the NYSE's listing criteria, but a company representative said it will be using its 2004 fiscal year, ended Jan. 31, to qualify for NYSE entry. Those numbers have not yet been released, but will be public before the company commences its public offering, a spokeswoman said.

Salesforce.com posted revenue of $66 million in the first nine months of its 2004 fiscal year, setting it on pace to qualify for an NYSE listing on the basis of its valuation, a criteria that requires $75 million in revenue for the most recent fiscal year.

That criteria also demands that Salesforce.com's underwriters, a group led by Morgan Stanley & Co. Inc., certify that the company will have a market capitalization of at least $750 million upon the IPO's completion. That valuation would give Salesforce.com more heft in the financial markets than most of its midmarket CRM competitors combined, including E.piphany Inc., Kana Software Inc., Onyx and Pivotal.

Salesforce.com Chairman and Chief Executive Officer Marc Benioff likes to evangelize about his company's business model and how it heralds "the end of software." If the next few months proceed according to his plans, with a dramatic IPO and growing customer momentum, the company might manage to live up to its sweeping CRM ticker.

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