Salesforce wins bet on the cloud, doubles down on social

Feb 25, 2011

Michal Lev-Ram has been a senior writer at Fortune since 2011, writing frequently about technology.

Salesforce.com CEO Marc Benioff is the kind of guy who could sell customer relationship management software to Eskimos. But can he convince IT departments to buy into Chatter, his company’s enterprise collaboration tool?

Benioff certainly thinks so. According to Salesforce.com’s (crm) recently released quarterly earnings report, he’s been investing heavily in both enhancing and promoting Chatter. In January, Salesforce.com paid $31 million for an online meeting service called DimDim (earlier this month it also acquired collaboration software startup Manymoon for an undisclosed amount). Both companies’ products could be woven into Chatter. The goal, Benioff said during Salesforce.com’s conference call with investors on Thursday, is to make Chatter a communication utility for clients.

Benioff calls Chatter his company’s most successful product. But Salesforce.com’s growth is mainly due to an overall uptake in cloud-based services in the enterprise. Despite a 46% drop in its fourth-quarter profit (mostly due to hiring costs and stock-based expenses), the company's revenue is growing strong and its stock is up about 93% over the past 12 months.<!-- more -->

“We maintain that Salesforce.com is a long-term secular winner and leader in cloud computing—a paradigm shift which has only just begun,” Macquarie Securities analyst Brad Zelnick wrote in a recent note.

While Salesforce.com’s signature product is its web-based CRM software, Chatter has enjoyed some early success. According to the company’s recent earnings release, more than 85% of its 92,300 customers have deployed the social networking service since it was released last June. About 10,000 customers signed up after Salesforce.com aired a pair of not-so-entertaining Super Bowl commercials, which featured an animated version of the Black Eyed Peas and a cartoon cloud named Chatty.

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Salesforce.com likes to boast that large customers like Dell (dell) use Chatter. But not all Chatter users are actually paying to use the service. When Chatter launched last June, the company charged a monthly fee of $15 per user. But in December it jumped on the freemium bandwagon and unveiled Chatter.com, which gives users free access to Chatter’s basic features. The hope was that the freemium model would help spread Chatter (and other Salesforce.com products) virally. But giving away a free version of the service also means it probably won’t turn into a big moneymaker anytime soon.

And despite Chatter’s growth, it wasn’t the first (and won’t be the last) social enterprise software play. Smaller companies like Yammer, which specializes in bringing Facebook-like features to the workplace, launched several years before Salesforce.com came out with Chatter. Yammer has also managed to amass an impressive following. Its founder and CEO, David Sacks, says Salesforce.com copied Yammer (and released a snarky video about it).

“Being a follower in the internet space is generally not the best strategy,” says Sacks.

Sean Whiteley, Salesforce.com’s senior VP of product marketing, says the inspiration for Chatter came from customers, not anybody else.

Of course, who came first doesn’t matter as much as who ends up winning the most enterprise deals. And convincing IT departments that they should pay for social networking features for their employees can’t be all that easy—even if you’re Benioff.

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