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Forbes com forbes_2010_1206_features_technology_sale

  1. 1. - Magazine Article Page 1 of 4On The Cover/Top The Webs Big UpstartVictoria Barret, 12.06.10, 12:00 AM ETMarc Benioff simply cant let go. Beefy, intense, talkative, uninterruptible, jovial, sarcastic and relentless--his ferocious tenacitymakes the cofounder of a great pitchman. It also makes him irrepressibly obsessive. Benioff constantly reliveshis public performances (did he prep enough? make his message come across? get the audience right? did they laugh?)--andsometimes revisits and dissects the keynotes of others.As when Larry Ellison recently paid him the ultimate backhanded compliment at Oracle OpenWorld, a big-tent revival for ITconventioneers, calling Salesforce "a very successful application on the Internet." In software terms thats like referring to afellow males assets as "adequate." Ellison--who has been by turns Benioffs boss, investor, mentor and sometime tormentor--didnt stop there. "Its not really a platform," he said. "Its proprietary . . . not virtualized." Translation: Salesforce is a bit player,not yet ready for the majors.Clever one-upmanship but hardly accurate. Benioff left a top spot at Oracle a little over a decade ago to launch Salesforce andhas since created a $1.4-billion-a-year business selling Web software to sales departments. Salesforce tracks a slew of sales-rich data--leads, detailed histories of who bought what when, and how to reach them. Benioff was the first and loudestcheerleader of the software migration from servers (manned by a battalion of techies) sitting inside companies to the Web. Hehas weathered skeptics and detractors and waited for the rest of the industry to catch up slowly. At $15 billion in marketcapitalization, Salesforce is one-tenth the size of Oracle. But, since going public in June 2004, it has returned an average 36.8%a year to investors, compared with 15.1% for Ellisons company. (In fairness Oracle returned an average annual 36.4% during itsfirst six years of public life.)Yet for Benioff, who at age 46 is worth $1.8 billion, thats not enough. Neither is being the leader in a sliver of the $294 billionsoftware industry. Size trumps everything in this business. Customers dont want to deal with dozens of niche players to patchtheir systems together. As they seek to become all things to all clients, tech titans are rapidly getting into one anothersbusinesses (Hewlett-Packard has acquired data services and storage businesses; Oracle bought Sun Microsystems, thecomputer server maker). Silicon Valley watchers are saying that even SAP, the German software firm with a $61 billion marketcap, could soon become a larger companys prey.In the absence of size, Benioff is hustling to convince the world that Salesforces technology is the optimum base--or platform,a.k.a. "cloud"--for the next generation of business software built for the Web. From complex accounting systems to the stuff thattracks employee performance, compensation and inventories, hell bring it all together and run it for customers in his datacenters, saving them the headache and upfront cost of buying hardware from Ellisons shop, HP, Dell or IBM. "In ten years,"says Benioff without a lick of irony, "I want us to be the largest and most important enterprise cloud computing company."On the third day of Oracle OpenWorld, Benioff showed up to speak, stuffing a hall with followers. "We come in peace. We arethe cloud people," he began to laughter and applause. "Were here to show you the potential of a new world." One audiencemember described it "more like Sunday morning at a Southern Baptist church than anything youd find at a tech conference."Where does this evangelist want to lead his flock? To a future where Salesforce is the hub of a sprawling empire of otherpeoples software. Benioff doesnt want to build it all. That would crush his 8% operating margins (compared with 26% forOracle). With only $742 million in cash, he cant acquire his way there. Instead, he is betting that Salesforces mix of softwarebuilding blocks and 82,000 customers will lure developers who arent yet on his payroll. They write apps that tap his existingtemplates and run on his machines; he rewards his salespeople for selling the stuff and takes a 15% to 20% cut of every deal.Thats the idea, first launched three years ago. So far Benioff has 170,000 apps written by other firms running on his technology.Impressive, but half support sales tools (that "very successful application"), and only 1,000 of those are available to the outsideworld. The rest are hidden inside companies that have created custom code alongside Salesforce software theyre alreadyrunning. This increases the stickiness of Benioffs software with existing customers but doesnt help him bust out of his corner. 11/29/2010
  2. 2. - Magazine Article Page 2 of 4His dilemma: Benioff now touches, on average, only 20% of a customers employees, mostly those in sales; he is all butunknown in finance, R&D, IT, human resources, manufacturing, legal and logistics departments. He needs a hefty portion of theother 80% to make it worth a developers time to commit to the quirks of his code. But how to attract the developers if hes notbig enough to get them interested in the first place?Benioffs answer is Chatter, a new program launched in June that acts like a social network inside companies. Just as Facebookmembers post their latest vacation photos and spark conversations with buddies, someone in a marketing department, say, canpost the latest version of a new ad and get instant feedback from his entire team on Chatter. A potential customer deal, newstore opening or marketing campaign can have its own page. Interested parties can post their thoughts and receive automaticnotifications of others peoples posts to the page--without having to claw through a lengthy chain of e-mails. "Why do I knowmore about my friends on Facebook than I do about my own employees?" Benioff quips, leaning back in his SF Giants jerseyand black slacks.He has always been a remarkably in-touch (some would say in-your-face) CEO, one who has that charming knack for recallingothers personal details. He has long broadcast his e-mail address to anyone within earshot and has no handler doing hisresponses. And respond he does, spending an hour each morning firing off a good 150 brief, typo-laden missives from hisBlackBerry while churning his 6-foot-4-inch frame on an elliptical machine in the basement of his home office, a restoredVictorian in one of San Franciscos tony residential neighborhoods. (He does so, he sheepishly reveals, with the Today show onin the background.) Staying connected with customers, the press and Wall Street carries an implied threat with poor Salesforceperformers: A bad run-in with a client might just end up in the big boss in-box.Benioffs larger-than-life reach has been supersized, thanks to Facebook and Twitter. He posts daily updates to both, mixingSalesforce announcements and news of the childrens hospital he has committed $100 million to build, with updates on whichnew phone hes testing out and queries about the best protein powders. "My most popular posts are about The Bachelorette," hesays, in his accustomed dry tone. (Benioff, by the way, is married, with a child.)What do status updates have to do with scaling up in the software industry? Chatter is Benioffs strategy for getting inside thewalls of a company, and spreading beyond the sales group. Easy to use, its designed to reach anyone in a company who canprofit by talking online to someone else inside. "Your business is tweeting you," Benioff argues. "A deal just closed: Tweet. Yourcustomer is very upset with you that you have a bug in this product: Tweet. This person just came to your website: Tweet."Benioff constantly posts to Chatter. Every one of his nearly 5,000 employees is on it, but true disciples--the "Chatterati"--arecalled out, even invited to what was once an exclusive annual gathering of the 250 top managers, where they share their viewsof the company. Benioff singles out the weak participants, too. On his own Chatter page, with the entire company watching, hesarcastically complimented one staffers head shot (the guy hadnt uploaded one).So far Salesforce employees are using e-mail 40% less than in the pre-Chatter era. Roughly 20,000 companies are using theapplication, too, including Sprint, Avis, Dell and McAfee. A few are trying it in nonsales divisions. Chatter is something of a lossleader for Benioff: Existing customers pay nothing for it, and others--constituting negligible revenue--pony up $15 a year.Similar social tools, of course, are all the rage. Oracles upcoming launch of Fusion, which knits together many of its appacquisitions, incorporates social networking features. People can post status updates and join groups. SAP is doing this, too."The heaviest use for Chatter will be around sales," says Zach Nelson, who runs Salesforce rival Netsuite (which is backed byEllison). "Meanwhile, every application will have a social component, and it will be free."The real threat might come from below, as Benioff knows well. Upstarts Yammer and Jive Software are selling similar socialnetworking tools for businesses. In only two years Yammer has lined up 1.5 million members, entirely by word of mouth. Thatsthree-quarters as many people as Salesforce has using its software, though theres one, big difference: Anyone with a corporatee-mail address can sign up for Yammer, free, and connect with others in the same company. But if your IT or legal departmentsare concerned about having to archive those communications or beef up security, Yammer charges up to $5 a month permember; only 15% pay. But they include big names such as Pitney Bowes, Nationwide and AMD. "Salesforce will be a tabinside Yammer," boasts cofounder David Sacks.Salesforce customers seem divided. "Chatter lets me see the whole, unvarnished picture," says Michael Dell. "It hasdramatically increased my knowledge of whats going on here." One big Salesforce customer is more hesitant. "Does every CEOreally want to give every one of his employees that much visibility inside?" he asks. "It could backfire. Theres a fear of thatrogue employee who uses the system to embarrass the company."Benioff, of course, doesnt view the world that way. "Salesforce is a culture of no secrets, and that includes me," he says. Hebelieves transparency keeps his company in synch with customers and is one way to constantly poke the status quo. UsingChatter, he publishes his professional goals each quarter and expects others to do the same. Compensation is in part based on 11/29/2010
  3. 3. - Magazine Article Page 3 of 4reaching those goals. He recently asked his nearly 5,000 Facebook friends to vote on two competing Salesforce advertisementmock-ups; theirs was the final call. Before Dreamforce, his big annual conference in December, Benioff spends weeks laboringover his speech, but the real test is when he has ten or so customers come in to critique a rehearsal over pizza and soda."Nothing is sacred," says Parker Harris, his buddy, cofounder and head of Salesforce technology. Case in point: The twoclashed over Chatter, with Harris insisting it was merely a feature to tuck inside the core sales offering. On a flight back from asales event in Las Vegas last year Harris showed Benioff an early version of the app. Benioff said it wasnt enough, and Harrisexplained that other projects, including forecasting and calendar tools already in the works, would suffer. Benioffs response:"Everything cant be important."But is Chatter the best lure for developers--and for Benioffs grand plan to lead Salesforce to softwares promised land? "Norespectable developer wants to be on Salesforces platform: The code base is old, a lot has changed since 1999; newerdevelopment tools are better for rapid, iterative work," says John Dillon. He should know. Dillon ran Salesforce for two yearsafter its founding (before Benioff decided he wanted to be both chairman and chief executive). Today he runs Engine Yard, company that sells developer tools for the Web--competing with Benioff for the same programmers.Narinder Singh, cofounder of Appirio, which develops software alongside Salesforce, disagrees. "It gives you the frame of thehouse to build on top of. All the crucial but tedious stuff developers hate doing--reporting, data mining, security--is taken care of,"he says. Benioff has been savvy about opening his technology to developers who cant be bothered with Salesforces language.In April he linked with VMware, the virtualization company, so that 6 million Java developers can easily tap into his technologywhile still writing Java code.Benioffs biography is punctuated by deliberate effort and showmanship--constantly proving the doubters wrong. Growing up inHillsborough, Calif., a leafy, affluent suburb 20 minutes south of San Francisco, he spent weekends schlepping inventory amonghis parents chain of local womens clothing stores--for no pay (he earned money cleaning cases for a jewelry store). With hiseye on a RadioShack TRS-80 Model 1 computer, Benioff saved enough to buy it. When the jewelry store fired him after heslicked up the floors with the wrong soap, he decided to fatten his bank account by programming. He wrote his first code, a how-to guide to juggling, then started writing reviews of software games.One of the publishers he covered invited him to develop games. Armed with his new drivers license, Benioff took off in hisgrandmothers Oldsmobile Cutlass to meet his new boss. Soon after, he roped in his friend Steve Fisher, and the two spentweeknights and weekends coding fantasy games. Fisher now heads the platform technology effort at Salesforce.Benioff paid for college at USC working summers as a programmer for Apple. He deliberately majored in business, knowing hewanted to run a technology firm. His inspiration came, in part, from a series of lunches with Henry E. Singleton (1916-99), thebrilliant electrical engineer and cofounder of Teledyne, who reached out to Benioff after using some of his Apple code to createa chess game. "He lived in a palace in Bel Air," recalls Benioff. "I still remember the fresh-squeezed orange juice. He was onThe Forbes 400, and I thought that was amazing." Singleton urged him to become an entrepreneur. Taking that to heart, Benioffmethodically mapped his career, starting in sales, after a professor told him that every great entrepreneur knew how to sell.At 21 Benioff joined Oracle as the only guy answering the companys then new 1-800 sales number. By 25 he was thecompanys youngest vice president; later he ran marketing. Ellison became his mentor, but by 32 Benioff was burned out. WithEllisons blessing he took a five-month sabbatical in Hawaii and India. He came back itching for a different kind of job. Heheaded Oracles philanthropic efforts but then left in 1999, with $2 million from Ellison to launch Salesforce. That stake, likelyuntouched, is now worth $600 million.Ellison was on Salesforces board until 2000, when Benioff got wind of a similar software effort inside Oracle. At first Ellisonrefused to step down. He did only after Benioff went public with his complaint, telling a Wall Street Journal reporter, "I askedLarry if something was up, and he was noncommittal."Before most app apostles did, Benioff saw that business software was moving to the Web. This was heresy, at a time whencustomers were paying billions of dollars for complex installations of software that required constant configuring. Benioff alsosaw that as these chunky apps went online, where customers could test-drive them (instead of taking a salesguys word for it),they had to be marketed more like soda pop than spreadsheets. "Everything about Salesforce had to be fun. Why? Becauseenterprise software is the antithesis of fun," says Adam Gross, an seven-year marketing vet at Salesforce who is now at startupDropbox, a file-hosting service.Benioff tirelessly promoted this new model with his "No Software" mantra (in the ubiquitous red circle with a slash through theword "software"). It appeared on lapel pins, balloons, T-shirts, chocolates for journalists and a mascot who posed for photos atconferences. Once he staffed paid actors to protest, in jest, "the end of software" outside rival Siebel Systems annual customerconference and hired fake journalists to cover it. Never mind that Salesforce sells nothing but software.His stunts were over-the-top but worked. Early on Benioff became a thorn in the side of Siebel, the industry incumbent. Its 11/29/2010
  4. 4. - Magazine Article Page 4 of 4founder, Tom Siebel, compared Salesforce with and eToys. "Theres no way that company exists in a year," he said inthe spring of 2001. Salesforce went public three years later; Siebel Systems got swallowed by Oracle in 2005.Benioffs antics have backfired. As part of a ticket giveaway to viewings of Arnold Schwarzeneggers Terminator 3, Benioffinsisted Salesforce put the movie poster image on its website. A marketing chief disagreed, drawing Benioffs riposte: "Do youwant to be remembered as a marketing genius--or a pussy?" The poster went up, and shortly thereafter appeared legal threatsfrom Warner Bros. The poster came down. Benioffs takeaway: "Many leaders are scared of putting themselves out there. Theyshould be. Its scary. You learn by doing it, and you cant be afraid to make mistakes, because, certainly, Ive made them."Apparently they dont include locking horns with Ellison, in a spirited older/younger-brother rivalry that often veers off into thebizarre. While Benioff watched Ellisons recent putdown at Oracle OpenWorld from a laptop in his kitchen, he thought, "This isgoing to be good," and planned his tit-for-tat on Twitter. With Ellison still onstage, Benioff retweeted other peoples tweetsdissing Ellisons view. Each set him up for his next move. "Guess @Benioff will have a good response," wrote one. Then, just asEllison was rolling out Oracles massive box of database depth, server power and the stuff that glues it all together, Beniofftweeted: "Beware of The False Cloud."That message went out to his 6,100 followers on Twitter, and within a few hours more than a dozen people had retweetedBenioffs post. He had managed to counterattack Ellison without putting on his shoes. "It was the first time Id done that onTwitter," he says. The teacher and his pupil still exchange a call or e-mail every few months. "I still look up to Larry," saysBenioff. Then comes the jab. "But he has consolidated the past. My job is to create the future."Special Offer: Free Trial Issue of Forbes 11/29/2010