When Salesforce.com announced its first quarter fiscal 2014 earnings two weeks ago, I made the prediction that it would make a major acquisition in social CRM marketplace because of its decelerating top line growth.
This morning Salesforce.com announced its biggest purchase ever by acquiring ExactTarget for $2.5 billion. It isn’t that we’ve made another good call. It’s just that these days Cloud software companies like Salesforce.com are addicted to top line growth, the aphrodisiac that keeps them going and holds the interest of investors and customers.
There are a few things working in the background as well. By acquiring ExactTarget, Salesforce.com plans to derail the combining forces of Oracle and Eloqua, its former partner in email marketing and social CRM.
With a full portfolio of social CRM apps from ExactTarget, Salesforce.com can control its customers within its sphere of influence. Customers that still want to switch back and forth between Salesforce.com for sales force automation and Eloqua for emarketing will have to decide whether they want to support both platforms.
The stupendous purchase will help Salesforce.com pick up 6,000 more customers including Expedia, Intuit, Molson Coors and Microsoft that run ExactTarget for email campaign, social media analytics as well as end to end marketing automation for all channels of customer interaction. That is going to boost its user count significantly.
Then there is the top line implication. In the first quarter of 2013 ExactTarget’s subscription revenues jumped 41% to $72 million, up from $51 million in year-earlier period. For the full year of 2012, ExactTarget posted $229 million in subscription revenues, up 42% from $161 million in 2011. It has more than 1,600 employees, including more than 400 sales reps as well as the use of 500 outside marketing service providers that resell its products. The combination of Salesforce.com and ExactTarget will vastly expand its footprint and channel presence.
Instead of hitting $3.6 billion in projected subscription revenues for fiscal 2014, Salesforce.com could see that figure reaching $4 billion with the help of ExactTarget. That will remove any doubt that Salesforce.com’s momentum is stalling. Prior to the acquisition, Salesforce.com projected it could grow up to 27% in fiscal 2014, compared with 35% in fiscal 2013 and 37% in fiscal 2012.
In addition, the move could result in adding tens of thousands of ExactTarget’s Cloud users to Salesforce.com’s current base, which in our estimate tops 10.8 million, less than half of what its chief rivals are touting.
Currently Salesforce.com has more than 100,000 customers and it has been a while since it made the number of its users public.
Based on the amount of its subscription revenues and deferred revenues, we estimated that it has 10.8 million users assuming each paying $750 for an annual Cloud subscription. That would amount to a total of $8.1 billion. Before the ExactTarget purchase, Salesforce.com’s projected subscription revenues were $3.6 billion and its deferred revenues $4.5 billion, amounting to $8.1 billion for fiscal 2014.
Counting deferred revenues is important because many of its customers have already signed long-term contracts – ranging from one to three years. Even though their revenues have not been fully recognized because of accounting rules, their usage of Salesforce.com products is ongoing.
The gating factor is how much are Salesforce.com customers paying for the use of their Cloud apps. The $750 figure could go as high as $1,500 as the most popular plan publicized by Salesforce.com. The higher it rises, the small number its Cloud users will be.
Today, its rivals are fighting tooth and nail over their lead in the Cloud applications market by claiming how many users they have been able to nurture, retain and acquire.
Keeping that number as big as possible is going to add more sex appeal to these vendors. And Salesforce.com’s purchase of ExactTarget has done little to dispel that myth.
|Key Cloud Apps Vendors||Number of Cloud Software Users|
|CornerStone OnDemand||11 million|
|Ultimate Software||10 million|
Source: Apps Run The World, June 2013
Here are the footnotes to our estimates on the number of Cloud software users:
Oracle and SAP numbers are based on company statements made on their websites, press releases or by their spokespeople.
In its latest earnings release, Intuit has 459,000 QuickBooks Online subscribers, 11 million online banking users, 4.5 million Bill Pay users, totaling 16 million.
Cornerstone OnDemand announced it has 1,300 customers or more than 11 million users based on its SEC filings.
Ultimate Software said it had more than 10 million people records in its HCM cloud at the close of 2012.
Of Workday’s latest announcement of 450 customers, 290 have gone live and the assumption is that most have at least 5,000 employees using its products. The total number of users would exceed 1.45 million.