Cloud SaaS ISVs Develop Sales Strategies for Enterprise Prospects

The days of dramatic sales growth for Cloud SaaS ISVs like Salesforce.com are, apparently, over. A new emphasis, as Keith Block, President and Vice Chairman of Salesforce.com voices in an interview during Piper Jaffrey’s March, 2014 Media and Telecommunications Conference, on the enterprise business market for CRM solutions is the biggest sales imperative.

As Mark Murphy, a software analyst for Piper Jaffrey, notes at the start of this interview, Block brought to Salesforce.com 26 years of experience, exclusively with Oracle® Corporation. Prior to his time at Oracle, Block had spent his first 2 years of professional experience with Booz Allen Hamilton as a Senior Consultant. When he left Oracle he held the position of Executive Vice President, North America, for nearly 10 years straight. Murphy summed up Block’s tenure at Oracle as an opportunity ” . . . to run, arguably, the largest and most profitable enterprise software business in the world.”

So it’s by no means a stretch to sum up Block’s experience as a very deep involvement with the sale of complex solutions to enterprise businesses. One might ask, of what value would this type of experience set be to Salesforce.com, which is synonymous with the notion of “No Software”? The majority of its customer base is a cross section of small to medium sized businesses (SMBs).

Evidently, Salesforce.com has thoroughly tapped out its niche in the SMB market, and, now, needs to look to enterprise business for an altogether different type of revenue stream. Murphy moves the conversation in this direction with a big question:

” . . . let’s talk, for a minute, about profitability in the software industry. So Oracle is an earnings machine. There are nearly 50% operating margins for the past half decade, and, obviously, you were a part of that equation. But it is a perpetual license model with a very low growth trajectory. So there’s a big difference there [when compared to the very high growth trajectory at Salesforce.com]. I’m wondering in your mind, do you think over time, could it be possible for Salesforce, you know, with a subscription model, that does generate a ton of cash flow, already, to generate that type of profitability on the income statement?” (quoted from a webcast recording of an interview with Keith Block, a link to which has been provided above).

Block starts to answer the question with a caveat: He claims Oracle wasn’t always as profitable as it is, today. The key factor, for Block, is scale. As Oracle grew the scale of its business, the profitability followed. Therefore, he is comfortable with a notion of Salesforce achieving comparable profitability, as it adds comparable scale.

So the big question on the table is what Block means by scale? Anyone listening closely to this interview can find the answer in an important note made by Block: ” . . . as our deals get larger, there’s certainly an opportunity there. . . . one of the reasons Oracle could grow those margins was the deal size.” Block’s scale is synonomous with deal size.

If Block is going to head up Salesforce.com’s sales effort, then it’s reasonable to assume a much longer sales cycle on most new opportunities, a training and development curve for the sales force as they transition from a focus on SMBs to a focus on big ticket, complex sales to enterprise customers. Therefore, in my opinion, it’s reasonable Salesforce.com’s stock would have taken nearly a 16% hit from a high of $66.22 on February 22, 2014, to Friday’s closing price of $55.75.

Disclaimer: I have no position with Salesforce.com

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

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