Salesforce.com CEO and dot.com survivor Marc Benioff says that progress will follow from new business and technology models – and so backers must prepare to be patient

Marc Benioff is a rare animal in the business jungle – a thriving dot.com entrepreneur.

His customer relationship management software company, Salesforce.com, is almost unique in the market because it rents products instead of selling them.

Unlike other software suppliers that offer all the discs and manuals that users need to build a service, Salesforce.com delivers its products to customers over the internet for a monthly fee.

Benioff’s decision to rethink both the business and the technology model has already set him apart from other companies in the sector. Unlike most dot.com survivors he does not play down his heritage by promising a traditional, bricks-and-mortar approach to business.  Instead he exaggerates his virtual status by claiming that Salesforce.com heralds “the end of software.”

“The network is the vehicle for a complete transformation of our industry and the catalyst for unparalleled growth”

“The biggest shift that’s happened in the last ten years is that there’s this incredible new technology which is the network itself,” said Benioff on a recent visit to London where he addressed a Renoir Partners’ breakfast seminar. 

“What this network is doing is providing the vehicle for a complete transformation of our industry and the catalyst for unparalleled growth."

Already his tactics appear to be working. In 2001 while other technology start-ups were suffering, the San Francisco-based company’s revenues rocketed 300 per cent. Since the launch of its first product four years ago Salesforce.com’s software has acquired 70,000 users in 4,500 companies around the world, including AOL Time Warner and Siemens – and built an annual turnover of around $50m. He has Oracle, Siebel and other software giants in his sights.

Benioff believes that once in a generation a company invents a new technology that completely changes the way we live. But if other entrepreneurs and investors are to take advantage of the opportunities it opens, they must think laterally and be prepared to alter the way they do business.  

“Whenever you see a big technology shift coupled with a big business model shift, there is going to be value created for somebody – and also entire industries,” explains Benioff, who spent 13 years with software giant Oracle before leaving to launch Salesforce.com.

He points to the example of his new car that can be opened and started with an authentication card instead of a key. The vehicle also has a GPS tracker device and a GSM wireless communication handset. Thieves had broken into the dealership and stolen the car before he collected it but the company was able to locate and retrieve it using the on-board technology.

“The car is just like a computer – just a node of the network – and it has the ability to get stocks and news.  While you’re driving you can ask it ‘what’s my revenue for the quarter?’”

Benioff argues that whether companies manufacture cars or computer software they should think of technology as a network to deliver more and better applications. As a result, end-users will be freed to focus not on building their own networks but on using the facilities already in place.

“Companies do not have to put in their own power plant or water system or sewerage pipes. Why? Because there are modern networks already in place and they can take advantage of them so they can focus on whatever they do,” he says.

The internet should be viewed as just network delivering software so that end users need not build their own system, he insists. But software firms and application-providers are refusing to alter their business models to take advantage of direct access to customers. “The network is the vehicle for a complete transformation of our industry and the catalyst for unparalleled growth. There are so many more applications and concepts and values to be created but we’re not executing very well on it.”

Salesforce.com’s model removes from its customers all of the risk and all of the responsibility involved in creating and running a utility. When firms rent software, they no longer have to employ staff to manage and maintain it. Salesforce.com is accountable for the success or failure of the service it delivers – and for upgrading it as technology moves forward. 

“This is not true of companies like Oracle or the major technology providers. They’re not really known for assuming the problems of their customers or for making them successful. They are mostly known for flying in on a Gulfstream 5, closing a big deal and leaving.”

Benioff argues that Salesforce.com’s network model is good news for smaller companies because it gives them access to exactly the same quality of software and standards of service that bigger businesses enjoy. At the moment one third of Salesforce.com’s revenue comes from companies with a turnover of more than $500m - but another third comes from firms with fewer than 100 staff.

“We see a lot of small companies running on our service and we see a lot of venture capitalists putting their businesses on it too. We can provide the smallest businesses with the same level and quality of application that GE or GM or Nokia uses,” Benioff insists.

“This is a big message for investors because if we can replicate this in other areas we will have a level of democratisation of our technology that was previously not possible.”

Benioff admits that Salesforce.com’s business model can at times appear unattractive to backers. Traditional software providers have a clear and predictable revenue stream because they charge a lump sum covering licence and installation fees in advance. But Benioff’s business – like other utility companies – spreads its billing over many months as the service is consumed. The arrangement can make cash-flow management tricky. 

“Venture investors want Oracles and Microsofts in their portfolios but they’re not willing to wait that first nine or ten years”

“When we sign a deal we take the cash but we don’t recognise the revenue until we deliver the service.  This is a pretty big change for a software company,” he says. 

Critics also argue that rented software does not always suit customers, who find it tough to customize the product and integrate it with other components. For venture capitalists, the advantage of using Salesforce.com’s software is that it allows them to track portfolio companies’ revenues without leaving the office – should they wish to do so.

But the bigger lesson for investors is that technology itself is not the only aspect of the sector that is evolving. The entire industry that supports and nurtures innovation must become more flexible in its attitudes and demands if the sector is to grow.

To move forward, investors must look back to the values and visions that prevailed ten years ago, Benioff argues. If industry giants like Microsoft and Oracle had been launched more recently their backers might not have waited quite so patiently for their returns.

“It took both those companies nine years to go public.  Venture investors today want Oracles and Microsofts in their portfolios but they’re not willing to wait that first nine or ten years to get up to that first $50-100m,” he says. “We have to get back to the principles of venture investing: building and growing a company over time with a solid foundation.”

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Voted Executive Search Firm of the Year at the UK Technology Partnering & Investment Awards 2002, Renoir Partners advises investors and senior management teams of early stage technology companies in Europe and America. Renoir Partners focuses on supporting the acquisition and management of companies most critical resource - people.

For more information: http://www.renoirpartners.com