How Salesforce Built a $13 Billion Empire from a CRM
In 2000, Marc Benioff staged the first theatrical protest that Silicon Valley had ever seen. The CEO of a tiny startup…
1999–2004: CRM — Making it easier for people to use software
Salesforce’s vision to bring all software to the cloud was revolutionary. They started with just one product, CRM.
Competition between big enterprise companies, like Oracle and SAP, was encouraging companies to add more and more features and offerings to their products, making them bulky and complex. But companies still used them because they needed a centralized system to keep track of sales and customer data.
The co-founders of Salesforce all had experience working on CRMs and sales force automation. Salesforce set out to make a product that was simpler and easier to use than the bulky products that were available. Theirs would be quick to set up, integrated easily with existing systems, easy to pay for per user, and would always run fast.
1999: Salesforce co-founder Marc Benioff left his role as Vice President of database company Oracle after working his way up from customer support over the course of 13 years. In that time, he’d developed a close working relationship with Oracle founder Larry Ellison. He’d also formed ideas about how CRM software — and software in general — could be improved:
“This [cloud delivery] model made software similar to a utility, akin to paying a monthly electric bill. Why couldn’t customers pay a monthly bill for a service that would run business applications whenever and wherever?” — Marc Benioff
When Benioff left Oracle, he recruited three consultants from a startup he had invested in to work with him on “a better CRM”: Parker Harris, Dave Moellenhoff, and Frank Dominguez. First version:
2000–2002: Salesforce launched an aggressive marketing strategy around their CRM. It started with the Siebel protests and the “End of Software” party. According to their “anti-software” marketing message, software (or the incumbent, on-premise software) was making life more difficult for salespeople working in CRMs. The messaging on the Salesforce website at the time showed how focused the team was on better product, quicker set-up, and more accessibility.
A product description from the Salesforce website in 2000. Source: Web Archive
2003: The company also held its first annual Dreamforce user conference. They started a tradition of announcing new products and ideas at the conference each year. This was the next step in formally building out a Salesforce community and creating enthusiasm around the cloud.
2004: Salesforce announced their IPO. On the first day of trading, the company made headlines as their stock gained over 55% appreciation.
In these years Salesforce grew by keeping their product, marketing, and sales strategies tightly aligned. One proposition: a better CRM.
That’s exactly what Salesforce delivered on. Though the team believed their early product was “bare bones to a fault,” that’s exactly what customers were looking for. Compared to the complicated and buggy CRMs of Siebel and SAP, Salesforce’s tool was streamlined and simple.
That these early users were salespeople — and not any other role in the customers’ companies — was a critical part of Salesforce’s marketing strategy. For most companies, sales is a revenue center — and sales teams are often willing to invest in new tech if it means reaching their revenue goals more effectively. As a result, Salesforce could directly show how its product helped a company make more money.
Salesforce essentially invented the free trail and a new model for selling software. The product was a software-as-a-service product delivered over the cloud, which created a powerful viral distribution channel among these early users. Since the product didn’t require any setup, it was technically possible for Salesforce to offer the tool for free. So they created a plan where the first five users at any company could use the CRM free of charge.
Once a team member tried it and liked it, scaling up the team was easy thanks to Salesforce’s straightforward pricing plan. They could scale up by seat or by upgrading to more functionality. Giving customers two ways to expand also helped fuel geometric revenue growth for Salesforce.
Selling an easy-to-use product with a viral distribution model to an amenable market helped Salesforce achieve high capital efficiency. This allowed the company to keep investing back into their growth engine.
From 2002 to 2006, Salesforce’s sales efficiency metric was >1, meaning the company made $1 or more on every dollar of sales and marketing than they spent. Source: Tom Tunguz
These sales and marketing practices also fueled unusually high revenue growth. The company had over 100% compounded annual growth rate from 2001–2003.
The combination of a user-friendly product and a viral distribution channel helped the company to grow from $5.9 million in revenue in 2001 to $50.9 million in 2003, when they filed for IPO. During their 2004 IPO, the company was doing $96 million in ARR, and was valued at $1.1 billion.
Salesforce was establishing the company as a CRM disruptor in the cloud — and still relied on their CRM as the main product. But Benioff’s vision was much bigger than a CRM.
2005–2014: Scaling up into a platform-as-a-service
Salesforce’s early success heralded the rise of many new cloud businesses. Companies saw that this delivery model allowed them to build and distribute products to more users, faster.
After Salesforce’s IPO in 2004, the compounded annual growth rate of the SaaS industry was at a historical high around 15%, and would only continue growing. Meanwhile, the CAGR of traditional software was around 5% and dropping. Source: CRM Landmark
Instead of adopting a hostile attitude toward these new SaaS companies, Salesforce leaned in. They built a platform where developers could build custom applications on top of Salesforce, and created a central community where Salesforce users could build and sell their apps. They also started expanding their core offerings beyond a CRM by acquiring other SaaS companies and repurposing them within their own suite of products.
By expanding to offer more cloud products — like support and collaboration tools — they cast a wider net to bring users into Salesforce. That made the ecosystem more attractive for developers to build on, which in turn increased the value of Salesforce’s offerings. The more the cloud grew, the more Salesforce grew.
2005: Salesforce built the AppExchange. Here, third-party developers could create their own apps and sell them to a community of other Salesforce users.
The AppExchange page in 2005. Source: Web Archive
This was the next logical step in nurturing a growing cloud computing industry, because it gave developers a supportive community and audience.
2006: The Salesforce team laid more bricks by releasing Apex, an on-demand programming language that allowed third-party programmers to write and run code on Salesforce’s multi-tenant, shared architecture. Parker Harris also created Visualforce, which allowed users to create any user interface they wanted and build forms, buttons, links, and embed anything.
From a 2006 version of the Salesforce homepage. Source: Web Archive
2008: Salesforce released an official platform for developers, Force.com. This was the world’s first platform-as-a-service. It allowed third parties to deploy apps on Salesforce’s architecture. It also created a new revenue stream for Salesforce, as third parties paid per login to use the platform.
From a 2008 version of the Salesforce homepage. Source: Web Archive
2011: Salesforce repurposed the acquired crowd-sourced data company Jigsaw as Data.com. Acquisitions like these helped Salesforce extend their reach in the SaaS industry with different arms, adding new revenue centers along the way.
Data.com announcement in 2011. Source: Data.com
2012: Salesforce repurposed the acquired social customer service tool Assistly as Desk.com. Salesforce had made an earlier investment in the startup, and finally bought it in 2011 for $80 million. The acquisition helped Salesforce turn Desk.com into a social help desk. The tool could draw on data from the Salesforce CRM to provide a more integrated experience for customers. This new product offering continued to expand their products’ use cases, and the company’s revenue centers.
2013: Salesforce repurposed the acquired social media monitoring platform Radian 6 as Social.com to allow customers to integrate social media data and CRM data. The company continued to expand their offerings on their Marketing Cloud.
That same year, Salesforce hit a milestone with 2 million apps downloaded and installed on the AppExchange. This demonstrated the success and growth of the company as a platform provider, not just a CRM provider.
Over these years, after early marketing around the CRM had started generating excitement about the cloud, Salesforce began building out other products. Now they weren’t just selling the cloud vision alongside their CRM. They were evangelizing the vision to other developers, who were also starting to build cloud apps through the Salesforce PaaS. At the same time, they invested heavily in acquiring other SaaS companies. This helped them create even more ways for people to use Salesforce.
The company’s new platform product was the first of its kind for SaaS. It provided just the right amount of functionality and support to get the ball rolling for new cloud projects. With their platform, Salesforce legitimized SaaS for outside developers and gave people incentive to start building. Alan Pelz-Sharpe from Digital Clarity Group put it this way:
“On demand and ASP (application service providers) had all tried without success to push what we now call the cloud model. But an open B2B exchange, exposing the underlying platform to developers meant the number of applications available exploded.”
Salesforce’s value proposition ballooned — in addition to providing a great product for you over the cloud, they also helped you build and run your own great cloud products. The Salesforce website read:
Salesforce.com delivers more than just a powerful, easy-to-use customer relationship management (CRM) product. We offer a complete architecturethat empowers every business to experience the benefits of on-demand throughout its entire organization.
This value proposition demonstrates Salesforce’s leadership in the SaaS industry, as well as their continued commitment to making software more accessible.
In the same vein as their very first product, the CRM, Force.com’s introductory-friendly pricing drove acquisition and distribution. At just 99-cents-per-login, the price tag made it really easy for companies to get started building and deploying on Force.com. The pricing scaled by usage, which meant that as customers’ apps became more successful, Salesforce profited, too.
Salesforce was intentionally building many revenue centers with their CRM product, Force.com, Data.com, Desk.com, and Social.com. Their revenue growth during this time was hundreds of millions of dollars higher than the public SaaS median.
Salesforce revenue growth from 2004–2006.
Now, the company was expanding beyond a CRM product and helping customers across many services. The CRM had simply provided an entry point to what Benioff and Salesforce had always envisioned: a world without software, entirely on the cloud.
2015-Present: Innovating, even as the incumbent
By the time Salesforce was around 15 years old, the company had become the incumbent in the industry they pioneered. As they move forward, they’re seeing smaller, nimbler startups enter their turf. They’re also seeing competition from other incumbents, like Microsoft and Oracle, who have now moved their products to the cloud.
In order to survive against threats of competition from companies like Microsoft and Oracle, Salesforce has shifted their strategy. Instead of nurturing up-and-coming SaaS companies, they’re competing head-to-head with the ones that threaten Salesforce’s growth. They are no longer primarily focused on creating tools, resources, and communities where others can build. Instead, they’ve doubled down on utilizing the latest technology to improve their own products in direct response to competitors’ moves.
This has resulted in horizontal and vertical expansion. They’re focused on improving their CRM by quickly adopting and integrating the newest technology and making it available to customers of all sizes. At the same time, they need to keep adding new cloud services to serve a wide breadth of use cases and compete with other enterprise providers, like Microsoft and Oracle.
2015: Salesforce released SalesforceIQ, a CRM for small businesses. As Salesforce grew into an enterprise solution, they left room for other companies to come in and capture the SMB market. To counter this, Salesforce acquired the relationship intelligence platform RelateIQ in 2014 and rebranded it as SalesforceIQ. The value prop sounded similar to Salesforce’s original CRM from 1999: an easy-to-use, out-of-the-box solution that a team could start using in minutes on a free trial.
2016: Salesforce acquired Quip, the productivity software company, which allows users to create documents and spreadsheets. This productivity arm provides a huge new breadth of use and competes directly with Microsoft Office and Google Docs.
From a 2016 announcement on the Quip blog. Source: Quip
In the same year, Salesforce acquired e-commerce platform Demandware. This helped them build out Commerce Cloud and start offering e-commerce services within the Salesforce Suite.
From a 2016 announcement on the Salesforce blog. Source: Salesforce
In 2016, Salesforce also released Salesforce Einstein. This brings AI technology to their now-huge range of products, and allows Force.com users to build AI-powered apps. Salesforce announced Einstein in the same week that Oracle released an AI initiative for their CRM with their Adaptive Intelligence Apps. A few months later Microsoft announced AI developments in their CRM with Microsoft Dynamics 365.
As Salesforce faces competition from other CRMs and other business software, they keep creating more “clouds,” or products that served specific functions, to get users into the Salesforce suite. Once they start using one product, it’s easier to cross-sell them on others. The product sprawl is also necessary to compete with other large cloud CRMs.
By improving their existing products with new technology like AI, and giving developers the tools to build AI-powered apps, Salesforce can continue to make really powerful technology easier for people to use.
This doesn’t mean that new technology like AI is enough to keep Salesforce competitive — especially since other companies are also making strong pushes to incorporate AI. But in combination with their other cloud acquisitions that allow them to provide more product offerings to users, Salesforce can continue to strengthen itself as a platform and suite that has grown much, much larger than just a CRM.
Salesforce’s revenue growth and growth rate. As of 2017, their revenue for the year is exceeding $8 billion and their growth rate is just under 30% YoY.
The company is facing threats from many sides, but they’re still pushing forward.
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