Salesforce.com's Balancing Act

As the maker of CRM software expands into new areas, it risks rankling rivals small and big alike

by Aaron Ricadela

Sooner or later every software company succumbs to the law of gravity that pulls down its pace of growth as it swells in size. Case in point: Revenue at Salesforce.com (CRM), the maker of software that helps corporations manage customer relationships, is expected to grow 45% this year, compared with 60% growth in 2006 and 76% in 2005. Like its peers, Salesforce.com will try to buck the trend by mining new areas, but it needs to do so without treading on the toes of the companies that build add-ons to its products that boost its own sales.

Salesforce.com Chief Executive Marc Benioff plans to unveil a potential solution at an Apr. 10 press conference in San Francisco, where he will announce the acquisition of startup software maker Koral Technologies and plans for a pair of products that can help companies manage the slew of documents, spreadsheets, PowerPoint presentations, and drawings that underpin their business—all from within Salesforce.com's existing software.

Later this year, Salesforce.com plans to deliver software based on Koral's technology that can help users find computer files that don't reside in a database, based in part on how much weight other employees assign them, and a programming tool to let companies weave those functions into their daily work flow. Kendall Collins, senior vice-president of product marketing at Salesforce.com, says the company plans to knock on software buyers' doors in departments outside its traditional domains of sales and marketing. The new targets include human resources, finance, and legal divisions. "This is an answer to where Salesforce.com goes next," he says.

Salesforce.com declined to disclose how much it paid for Koral, a nine-person company based in San Mateo, Calif., but said the amount wasn't material. The acquisition closed in late March, Collins says.

Controlled Growth

Salesforce.com's customer-relationship-management (CRM) software helps sales reps schedule meetings, book orders, and view forecasts. It runs inside a Web browser, so Salesforce.com can quickly push updates to users. Benioff has said he's rapidly hiring sales staff, and the company signed up 90,000 new subscribers for its software during the quarter ended Jan. 31, for a total of 646,000 users.

Last year, the company's revenue grew 60%, to $497.1 million, though it broke even because of stock-option expenses. Sales in 2007 will rise as much as 45%, to $720 million (see BusinessWeek.com, 12/12/06, "Strong Sales Spark Salesforce.com"). To boost growth, Salesforce.com needs to enter new areas. But Benioff has also said he's wary of expanding too aggressively into markets beyond CRM, so as not to squelch the prospects of small companies that build additional features for Salesforce.com—and help drive new license sales. Such companies include Rally Software Development, EchoSign, and PowerSkills Solutions.

By entering the market for managing so-called unstructured content including Office documents, HTML code, and video, while also releasing a tool for independent software developers to add new capabilities, Salesforce.com could strike a compromise. "They have the steady CRM growth," says Rob Bois, an analyst at AMR Research. "Now, they're broadening out the footprint."