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Summary

• We're still bullish on Salesforce.com, as it continues to deliver significant value for customers.
• Salesforce is now easier, faster, and less risky to deploy for customers. These lower-cost, lower-risk ways to deploy Salesforce will be particularly important given current economic uncertainty.
• We'll be closely watching Salesforce's partner programs and channel, as they're going to be crucial in delivering recurring revenues by ensuring customers of new clouds actually get deployed.
• We'll be keeping an eye on lower-cost competitors to Salesforce.  
• We'll be closely tracking traction with Genie as it has the potential to make Salesforce stickier than ever within enterprises.

On Salesforce’s (CRM) recent earnings call, it announced record revenues, but unlike a typical Salesforce earnings call, there was little mention of customer wins. Instead, the theme of the call was increasing efficiency, long and short-term expense restructuring, and, as CEO Marc Benioff said, “making sure every executive knows profitability is our highest priority.” With increasing pressure from activist investors, Salesforce is having to make some difficult decisions about how to continue to deliver growth while reducing costs.

Salesforce is, to a large extent, the victim of its own success. For years Salesforce has set the pace for growth of cloud companies, but it has paid for that growth with a higher cost of revenue than many of its competitors. Although Salesforce is the dominant player in CRM, it has more challengers than ever:

-        Zoho is continuing to invest in its sales, marketing, and service capabilities, and also benefits from a common platform and integrated collaboration and productivity tools at a far lower subscription cost than Salesforce.

-        Oracle (ORCL) is continuing to invest in its integrated suite with a common platform and UI across sales, marketing, and service, with Oracle Fusion Sales and Oracle Fusion Marketing. It’s also highlighting the benefits (and cost savings) that Oracle customers gain from CRM that is integrated with ERP and supply chain management running on a single platform.

-        Although Microsoft (MSFT) has struggled to compete against Salesforce in CRM, its Viva Sales product (which it introduced last year) sits between CRM (Salesforce or Microsoft’s own Dynamics product) and Microsoft’s desktop productivity tools – making sales people more productive and reducing the need for users to interact directly with Salesforce. If Microsoft can execute on Viva Sales, it could be a trojan horse for unseating more Salesforce accounts.

-        SugarCRM, Freshworks (FRSH), and others are attacking certain sectors such as the midmarket with targeted suites of products, and companies like Spiro are delivering innovation with AI and automation for specific industries.

There are a number of things Salesforce needs to do to address both investor confidence and chart a continued path for growth:

-        Articulate a new succession plan. With Bret Taylor (and others) departing, Salesforce still has a strong leadership team, but needs a new succession plan in place. This is a tough one, as the co-CEO role seldom works well, and Marc is such a presence in the CEO seat.

-        Execute on Slack. Let’s face it, Salesforce paid a lot of money for Slack and hasn’t visibly done a lot with it – as compared, certainly, with Tableau and MuleSoft, which have become key components of C 360 and Genie. Slack can be Salesforce’s answer to Viva Sales, but also a broader collaboration play that Salesforce needs to capitalize on, with a playbook for how it delivers more effective and valuable collaboration and can be the desktop glue that integrates other application data and reduces reliance on other applications.

-        Reframe the Ohana versus cost conversation. Without a clear and attractive plan for cost-cutting measures that appeals to shareholders, employees, and customers, Salesforce will continue to face the wrath of activist investors – and some of the recent optics have not been great. Ohana isn’t dead, but it needs a reset, and that will have to start at the top. A good start would be articulating how cost cutting isn’t antithetical to Salesforce’s key values of trust, customer success, innovation, equality, and sustainability, and how those core values are underlying its cost reduction strategy.

Other things to keep in mind:

-        Digital transformation has accelerated over the past 2 years, and Salesforce plays a key role in it for many customers. These are not 1-time projects, but multi-year, multi-phase evolutions, and we’re seeing Salesforce customers continue to sign off on phase 2 and 3 based on the real value phase 1 has delivered – both in terms of bottom-line savings and top-line growth from support for new business models. Customer revenue attrition at Salesforce is at its lowest in history, and we all know that it costs more to acquire a new customer than to expand with an existing one.

-        Salesforce’s generative AI for CRM – Einstein GPT – leverages Salesforce existing AI research team and language models and focuses on specific uses and processes for sales, marketing, and service as well as developers. The release of Einstein GPT can also highlight Salesforce’s core value of trust and the investments Salesforce has made in its Office of Ethical and Humane use, which is a big differentiator on the generative AI front as companies seek to navigate the uncertainties of generative AI and competitors make very visible missteps.

-        Data Cloud (aka Genie) is a big growth opportunity, but there is also a lot of competition in the space – and Salesforce can’t rely on its incumbency as the CRM vendor to sell its CDP approach. It will need to do more to clearly differentiate the value proposition of Data Cloud versus other approaches.

-        Although Ohana has taken a hit recently, particularly where employees are concerned, the layoffs were more of a correction than a setback. Although it may not feel that way for the employees involved, it was a step that needed to be taken. From a customer perspective, the Salesforce community is supporting, inspirational, and aspirational – and still has a lot of positive momentum.

As many tech leaders are learning the hard way, it’s a lot harder to make difficult cost-saving decisions and have tough conversations than it is to cheerlead toward accelerating growth. The next few quarters will reveal a lot about Marc’s (and the rest of the Salesforce leadership team) ability to lead.