Salesforce.com turns profit, set to expand offerings

Four-year-old CRM (customer relationship management) software vendor Salesforce.com Inc. announced Monday that it became profitable in its first fiscal quarter, marking a milestone in the history of a company that has been on the forefront of the trend toward hosted application services.

In its first quarter, February through April, Salesforce.com generated approximately 1 percent profit on revenue of more than US$18.8 million, according to an announcement made in conjunction with a company overview presented at the J.P. Morgan 31st Annual Technology and Telecom Conference in San Francisco. The revenue compares with $9.6 million for the year-earlier period and $15.9 million for the fourth quarter of 2002, the company said.

Information on the size of losses the company has incurred up to now was not immediately available. The company is private and is not subject to the U.S. reporting requirements that cover publicly-held companies.

"Salesforce.com has proven that the software service model is profitable, sustainable and bankable," said company Chief Executive Officer and Chairman Marc Benioff, in an interview with the IDG News Service.

"(Salesforce.com) customers such as AOL can afford any type of software they want, but they have heard about the system-implementation horror stories," Benioff said, referring to in-house implementations of CRM software. What attracts customers of all sizes to the concept of hosted applications is the relatively short amount of time required to get up and running and make use of hosted software, compared to implementing applications in-house, Benioff said.

By the end of its first quarter, Salesforce.com had more than 86,000 active users in 6,400 accounts, running the system in 10 languages and in 110 countries, the company said. New accounts it announced during the quarter included Pearson Packaging Systems, advertising and marketing software maker Engage Inc. and online document production service Mimeo Inc. The company has users in Fortune 500 companies as well.

During the first quarter, the company announced enhancements to its Enterprise Edition, including features designed for large businesses. New capabilities include improved activity management, easier ways to update sales lead information and the ability to view attachments and hyperlinks in the self-service portal feature.

In the past few months Salesforce.com officials have said that the company plans to expand its line of software to include ERP (enterprise resource planning) programs. Benioff confirmed that Monday.

Salesforce.com is running, internally, its own order management, contract management, and billing and invoicing software modules, and plans to release them to external customers by the end of the year, he said. Over time, the company plans to offer the variety of software modules that major ERP companies such as SAP offer, he said.

In the hosted CRM market, Salesforce.com currently competes with companies such as UpShot Corp., Salesnet Inc. and NetLedger Inc., according to Sheryl Kingstone, an analyst with The Yankee Group in Boston. Salesforce.com is perceived to be a leader in this market, she said.

"Salesforce.com has done extremely well," Kingstone said. "They have spent a lot of money marketing and educating potential customers to the benefits of hosted application services."

Now that the market understands the advantages of hosted applications, resistance to the idea is mainly cultural, rather than technical, she said.

Many of Salesforce.com's first customers were in companies that had already tried to implement in-house systems and failed, she noted. "The company has done extremely well with people who have already felt the pain of implementing CRM solutions."

However, the company has not picked all of the low-hanging fruit in the hosted applications field, she said. "There are still a lot of good apples to be picked," she said.

As the company expands its line of software, it will run into new competitors in the accounting and ERP field. The market for this type of software for medium-sized companies is fragmented, she noted. Big vendors such as Microsoft Corp. also are looking to make headway with medium-sized companies.

One area that Salesforce.com could improve upon is offline reporting, she said. Users often need to edit reports while disconnected from a network and would like more sophisticated features that allow them to do that in Salesforce.com's software, she said.

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