賽富時 (CRM) 2011 Q3 法說會逐字稿

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  • Operator

  • Good afternoon, my name is Marvin, and I will be your conference operator today.

  • At this time I would like to welcome everyone to the salesforce.com Q3 fiscal 2011 results conference call.

  • (Operator Instructions).

  • Thank you.

  • I would now like to turn the call over to our host, Mr.

  • David Havlek, VP of Investor Relations.

  • Sir, you may begin your conference.

  • David Havlek - VP IR

  • Thanks, Marvin.

  • I would like to welcome everyone to salesforce.com's third-quarter call.

  • Joining me, as always, for our results today are Marc Benioff, Chairman and CEO, and as well as Graham Smith, CFO.

  • Following our prepared remarks today we will open things up to your questions.

  • We are running on a very tight schedule, so I ask that you respectfully limit yourself to a single question.

  • And unfortunately, I will be muting your calls after you ask your question in hopes of getting to as many of you as possible.

  • A complete disclosure of our third-quarter results can be found in a press release issued about an hour ago, as well as in our Form 8-K filed with the SEC.

  • Additional financial information, including detailed historical financial statements and facts, is available on our website.

  • Our commentary today will include both GAAP and non-GAAP metrics.

  • Reconciliation between GAAP and non-GAAP metrics for both our reported results and our forward guidance can be found in the press release.

  • At times in our prepared comments or in response to your questions we may offer certain additional metrics to provide a greater understanding of our business or our quarterly results.

  • Please be advised that we may or may not update these additional metrics on future calls.

  • With that, let me make this call official with a brief Safe Harbor.

  • The primary purpose of today's call is to provide you with information regarding our fiscal third-quarter 2011 performance.

  • Some of our discussion or responses to your questions may contain forward-looking statements.

  • These statements are subject to risks, uncertainties and assumptions.

  • Should any of these risks or uncertainties materialize, or should our assumptions prove to be incorrect, actual Company results could differ materially from these forward-looking statements.

  • All of these risks, uncertainties and assumptions, as well as other information on potential factors that could affect our financial results are included in our reports filed with the SEC, including our most recent report on Form 10-Q, particularly under the heading, Risk Factors.

  • To access our Q3 press release, including the GAAP to non-GAAP recons, our historical results, any of our SEC disclosures or simply to learn more about the salesforce.com, I encourage you to visit our Investor Relations website at salesforce.com/investor.

  • In addition, a webcast of today's call will be available for 90 days and a dial-in replay will be made available through December 17.

  • Finally, before I turn the call over to Marc, please be advised unreleased services or features referenced in today's discussion or in other public statements are not currently available, and are thus may not be delivered on time or at all.

  • Customers who purchase our services should make their purchase decisions based on services and features that are currently available.

  • With that, let me turn the call over to Marc to discuss our results.

  • Marc Benioff - Chairman, CEO

  • Hey, thanks very much, David, and I am delighted to share our outstanding third-quarter results with everyone today.

  • Here's the highlights from the third quarter.

  • First, the Giants won the World Series.

  • Amazing.

  • In other news, salesforce.com revenue for the third quarter rose to $429 million, an increase of roughly 30% from a year ago.

  • This was our best growth performance in seven quarters.

  • And our annual revenue run rate is now more than $1.7 billion.

  • Non-GAAP EPS of $0.32 rose from $0.28 a year ago.

  • We exceeded our EPS guidance, even as we increased our investments in areas that are key to future growth.

  • Third-quarter operating cash flow was approximately $74 million, an increase of more than 100% from a year ago.

  • Year to date we have generated almost $300 million in operating cash flow.

  • That is up more than 60% from the same period last year.

  • Our cash generation continues to be outstanding.

  • And, finally, while we have our important fourth quarter ahead of us, as we close out fiscal year '11, I am thrilled to announce a preliminary revenue estimate for fiscal year '12 of $1.97 billion to $2.0 billion.

  • The high end of that range would make the salesforce.com the first cloud computing company ever to achieve $2 billion in annual revenue, and puts us in an elite group of software companies to break through the $2 billion revenue threshold.

  • As evidence of our incredible growth, after taking a decade to record our first $1 billion year in fiscal year 2009, we now expect to double in size to $2 billion in just three years later in fiscal year '12.

  • Customer momentum continues to be strong.

  • During the third quarter we added approximately 4,800 net new customers, taking our global customer community to more than 87,200.

  • With more than 19,000 net new customers over the past year, we have got our customer base by more than 28%.

  • The market opportunity for cloud computing is enormous and growing.

  • And the shift to Cloud 2, the next generation of cloud computing that is social, mobile and real-time is undeniable.

  • And now we would like to walk you through the performance of each of our five product lines, or as we call them, the five clouds.

  • Now as many of you know, we made Chatter generally available to all of our customers in June, and today less than five months into its debut, we now report that over 60,000 -- that is 60,000 -- of our more than 87,000 paying customers have now deployed salesforce Chatter.

  • That means that it is the largest enterprise social network in place today.

  • And it means that we have more than tripled the number of deployments since we first reported on Chatter adoption only one quarter ago.

  • We have just never seen companies adopt any technology this widely, this fast.

  • And we think we are just getting going.

  • New Chatter deployments in the third quarter included Amazon.com, Bausch & Lomb, Bank of America, Deloitte, Harrah's, Kelly Services, Motorola, Nikon, Siemens and Vodafone.

  • And customers tell us Chatter has made them more productive.

  • In a survey we commissioned customers reported that Chatter has directly resulted in a 10% boost in productivity and cut e-mail traffic by 13% on average.

  • And as companies see how Chatter improves communication and collaboration, many are expanding their deployments into new departments and functions across their enterprises.

  • And as we have noted, Chatter represents a huge opportunity for salesforce to expand outside of its current subscriber base and into new departments.

  • This quarter customers including Nokia, Panasonic, Sony, have all purchased additional salesforce subscriptions for Chatter.

  • And I am pleased to announce that Dell has now made Chatter available to more than 90,000 employees around the world, making it the largest customer of salesforce Chatter.

  • That is amazing.

  • Over 90,000 employees now are live at Dell on salesforce Chatter.

  • And Chatter is also helping salesforce.com reach entirely new customers.

  • Companies that were previously not salesforce customers, including Yahoo, bought subscriptions to use Chatter as a standalone collaboration platform.

  • And customers using Chatter tell us they are thrilled with the productivity gains and the open communication it brings their organizations.

  • It is safe to say that Chatter has become a major differentiator for our sales and service applications, and our Force.com platform.

  • It only makes us stickier, improving retention, improving adoption.

  • And it helps us expand our presence with existing customers and win deals against our competitors.

  • And that is why we believe Chatter is the next killer app from salesforce.com.

  • Nothing speaks more to the shifts in our industry than when a large industry-leading company replaces its legacy software in favor of the cloud.

  • And this quarter I am delighted to announce the storage leader, NetApp, unplugged their failed Oracle deployment and became a customer of our Sales Cloud, Service Cloud and Force.com platforms.

  • The NetApp win highlighted an outstanding quarter for our flagship Sales Cloud, which delivered its biggest third quarter of new business ever.

  • During the quarter we added new Sales Cloud business or expanded existing deployments at a long list of customers, including FedEx, Ryder, Fuji Film Medical, Level 3 Communications, Ingram, Groupon, British Columbia Lottery and Vodafone.

  • And because every business, regardless of size or industry, wants to optimize sales and improve customer relationships, we believe the growth opportunity for the sales cloud remains large.

  • And our sales cloud customers are now enjoying the benefits of more accurate contact information with the data cloud based on the acquisition of Jigsaw.

  • Integration of Jigsaw is progressing well and new deals this quarter included Sharp, Amazon, Kaplan, and Areva.

  • For our customers better data means greater productivity, higher sales and higher levels of customer satisfaction.

  • For salesforce.com the data cloud provides greater differentiation for our core Sales and Service Clouds, lower attrition, and a huge opportunity as we look to cross-sell to our large global community of roughly 87,000 customers.

  • We welcome them all to salesforce.com's new Jigsaw product line.

  • And while we expect Jigsaw to become a future driver of growth, the Service Cloud is already delivering this significant growth today.

  • By fully integrating our Sales and Service Cloud solutions companies now have access to a single integrated view of their customers.

  • And with Chatter they are able to resolve customer issues faster and more effectively than ever before.

  • These benefits helped power another huge business quarter for the Service Cloud, which once again was our fastest growing business in the third quarter.

  • Major wins or deployment expansions of the Service Cloud included Univision, RSA, Merrill Lynch, Mosaic, Paychex and the US government Department of Commerce.

  • Strong cross-selling into our installed base, along with sales to new customers, has helped us to grow our total Service Cloud community to now approximately 30,000 -- sorry, 13,000 customers globally.

  • But with a total customer community of more than 87,000, we are just scratching the surface of what is possible with salesforce.com's Service Cloud.

  • Custom application development on our Force.com platform continues to be another massive opportunity for salesforce.com.

  • Honestly, we think application development and deployment remains our largest and most exciting opportunity that we continue to execute through the Force.com platform.

  • This quarter we closed a deal with the New York City Department of Education for the 100,000 Force.com licenses.

  • That is 100,000 Force.com licenses at the New York City Department of Education.

  • Together with salesforce.com partner, Acumen Solutions, the New York Education Department plans to build eight apps that teachers and administrators will use to track and boost students' performance.

  • Additional Force.com wins include ThinkTech, [Nippon Ichi], Lawson Software, and Fast Retailing.

  • And we also continue to see terrific adoption of the platform by partners and developers.

  • Our developer community has grown to more than 310,000, up more than 100,000 in the last year alone.

  • This growing community of developers is putting the Force.com platform to good use, creating nearly 25 million customizations, an increase of 38% year-over-year; more than 960,000 custom database tables, up nearly 50% year-over-year; more than 185,000 custom apps, an increase of more than 50,000 year-over-year.

  • And just last week we celebrated another platform milestone, 1,000 apps on our AppExchange.

  • The traction, the excitement, the movement around Force.com gives us a lot of faith and a lot of confidence in the power of platform as a service becoming the dominant way that application developers build applications in the future.

  • And we are making more investments in that area.

  • Of course, products are only great if people use them, and that is why usage is such an important indicator of customer success.

  • And while trust, security, performance, reliability and availability are our top priorities, our focus on building cloud services that customers love and use every day and adopt continues to yield some amazing results.

  • During the third quarter the Force.com.

  • platform delivered roughly 25 billion transactions -- that is 25 billion -- an increase of more than 50% from a year ago.

  • That is amazing traction of a product in usage and capability, and a 50% increase to 25 billion transactions.

  • That is more than 3,000 transactions every second of every day during the quarter.

  • And we delivered these transactions with four 9s availability, and with an average transaction speed of less than 300 milliseconds.

  • Amazing.

  • And all of this performance is transparent.

  • You can see it today in real-time at trust.salesforce.com.

  • I encourage you all to visit that site.

  • It is the site that has given our customers the transparency that has resulted in the trust they have with salesforce.com.

  • With 87,200 customers globally, and a viral app in Chatter that can take us enterprisewide, we are creating a great foundation for the future of our platform business.

  • Together with a surging community of developers and ISVs, the long-term growth opportunity for the platform has never been brighter.

  • In my opinion there has never been a better time to be in the cloud computing industry.

  • According to IDC, the cloud market is expected to grow by a CAGR of 25% through 2014 to roughly $40 billion.

  • And with our industry-leading lineup of cloud services and our five clouds and our strong financial performance, the time to invest for growth and market leadership is absolutely now.

  • And that is exactly what we are doing.

  • First, people are our biggest growth driver, particularly in sales and engineering.

  • And in Q3 we accelerated hiring by adding more than 300 net new employees.

  • And we continue to grow our work force globally.

  • Second, we are continuing to build out our data centers to support our accelerated transaction growth and international expansion plans.

  • And as I indicated in our last call, we expect to have two additional data centers operational in the United States by the end of this year.

  • And then next year we will be live with our new production data center in Tokyo, Japan.

  • Third, we continue to see the international market as a large and mostly untapped growth opportunity.

  • Rather than spread our resources too broadly, we are focusing our efforts on the top software markets of the world.

  • We believe very strongly in this focused strategy of the top software markets.

  • And we believe scale and focus will allow us to accelerate our growth in these important markets.

  • That focus is why we acquired sustainability -- sorry, that focus is why we acquired substantially -- though we do have the sustainability -- all of the noncontrolling interest owned shares in our Japanese subsidiary during the quarter.

  • And, fourth, earlier this month we had made the decision to buy 14 acres of land here in San Francisco, along with the long-term goal of developing a corporate campus.

  • Having a world-class campus will enable us to better serve our customers, drive employee productivity by keeping our people together.

  • And most importantly, we believe it is going to allow us to attract and retain the best employees in the world right here in San Francisco, California.

  • And we are still in the early planning stages (technical difficulty) of this project.

  • We are going to announce more exciting details as they shortly become available.

  • And, finally, we are evangelizing the cloud business model, so you should expect more global events.

  • Speaking of events, today we are only 10 business days away, that is only 10 business days away from what has become the largest cloud computing event in the world, Dreamforce 2010.

  • And it is an event like no other.

  • First of all, we have already had more than 20,000 people registered.

  • And our internal estimates are that we will have more than 25,000 in attendance at Dreamforce.

  • That will be spectacular, and it will have the biggest selection of cloud computing products under one roof, with more than 250 cloud vendors in the expo, the largest gathering of cloud experts leading more than 700 sessions.

  • It is going to be the place to learn about the cloud, to experience the cloud, and to meet the customers and partners that are putting it into place and creating the cloud computing industry.

  • On December 6 we have Cloudstock, which is our first worldwide developer conference that is linked to Dreamforce.

  • And I expect all of you to come and see the power of the platform as a service and its momentum and the growth in our customers at Cloudstock.

  • Then on December 7, I will open up the keynote session at 9 AM, where we will introduce new products and introduce you to customers who are making major deployments with salesforce.com's cloud solutions.

  • And that night on December 7, we will have Stevie Wonder and will.i.am, the head of the Black Eyed Peas, entertain attendees at a special concert.

  • And then on December 8 we will have our platform keynote, where we plan to unveil the future of platform as a service.

  • And then at 5 PM President Bill Clinton will join us for a keynote on stage.

  • That evening at 7 PM Colin Powell will open our benefit concert for the UCSF Benioff Children's Hospital at the Masonic Hall.

  • And then Neil Young will play for all of us.

  • We look forward to seeing all of you in San Francisco for December 6, 7, and 8, to join us in meeting some of these great leaders of our world and of our industry, and great entertainers.

  • And we want to thank all of you for your continued support of salesforce.com.

  • Now, with that, let me turn the call over to Graham for the financial details of our outstanding third quarter.

  • Graham Smith - CFO

  • Thanks, Marc.

  • Our third-quarter results, as you have heard, were outstanding across all key financial measures, with our revenue, operating cash flow, and attrition results all showing strength.

  • Let me get into the details.

  • Revenue of $429 million rose 30% year-over-year.

  • And year-to-date our revenue of $1.2 billion is up more than 26%.

  • Subscription and support revenue grew even faster, posting year-over-year growth of more than 31% for the quarter and 27% year-to-date.

  • In addition to the strong new business performance that Marc mentioned, three other factors contributed to our revenue results this quarter.

  • First, a continued modest reduction in our attrition rate; second, a solid pricing environment; and, third, a weakening dollar.

  • Let me briefly touched on each of these factors.

  • First, our dollar attrition when compared to the year-ago quarter is now back in the mid-teens percentage range.

  • In fact, the dollars we lost through attrition in Q3 were less in absolute terms than in the same quarter a year ago.

  • Q3 marked the fifth quarter in a row in which attrition has declined slightly.

  • This trend is encouraging and has clearly been supported by an improving economic environment.

  • Having said that, we have been reluctant to anticipate improvements until they happen, as a lot of different factors can affect the rate.

  • As you are all aware, the fourth quarter is by far our largest renewals quarter, so we will obviously provide an update for you in February.

  • Mitigating attrition is important to our long-term growth and we continue to focus on customer lifecycle and how we can best help our customers realize maximum value from their implementation of salesforce.

  • We believe this focus will have a beneficial, long-term impact on retention.

  • Turning to pricing, when we compare the net price per seat for the Professional, Enterprise and Unlimited Service editions over the past eight quarters, we continue to see very little change.

  • We believe that our investments in new technologies, like Chatter and Jigsaw, have helped us maintain our compelling value proposition.

  • And then, finally, the weakening of the dollar over the past three months helped make an already strong quarter even stronger.

  • $7 million of our sequential quarterly revenue increase was a result of changing FX rates.

  • Conversely, our year-over-year revenue was actually reduced by $4 million due to a small currency headwind.

  • Third-quarter revenue growth from a year ago in constant currency was 31%.

  • In terms of the performance by region, in the Americas revenue rose by 26% to approximately $293 million.

  • In Europe revenue of just over $76 million was up 26% in dollars and up 38% in constant currency.

  • And in Asia revenue of $60 million rose 62% in dollars and 53% in constant currency.

  • In total, our international business rose by 40% in dollars and 44% in constant currency.

  • International revenue now represents 32% of total revenue.

  • As Marc indicated, our international growth strategy is to focus our resources in the top markets in the world -- the top software markets in the world, and dominate in those markets.

  • We continue to see very strong growth in Service Cloud, and approximately one-third of our new business came from non-SFA products.

  • Turning to the income statement.

  • Our third-quarter non-GAAP gross margin was -- of 82% was up slightly versus both last quarter and Q3 last year.

  • As in past quarters, the improvement in gross margin is primarily the result of a changing mix in our revenue line items.

  • Our subscription and support revenue is growing much faster than our low-margin professional services revenue, as we continue to expand our ecosystem of consulting partners.

  • Non-GAAP operating expenses were 67% of revenue for the third quarter, up slightly from 66% a year ago, and essentially flat sequentially.

  • R&D expense was 10% of revenue, and sales and marketing expense was 44%.

  • They are both up slightly from the year-ago quarter, primarily as a result of our aggressive hiring in both those groups.

  • G&A remained essentially unchanged at 13% of revenue from the year-ago quarter.

  • The biggest driver of expense growth in Q3 was accelerated hiring.

  • During the quarter we added just over 300 people to finish the quarter with approximately 4,750 employees.

  • This represents an increase of almost 950 employees, or 25%, from a year ago.

  • And that, of course, includes the 150 people we added through the acquisition of Jigsaw.

  • Given the importance of growing our distribution capacity and product development organization, we expect to hire more people in Q4 than we did in Q3.

  • Non-GAAP operating margin of 15.4% was down slightly from last year due to the acquisition of Jigsaw.

  • Our new business performance has been particularly strong through the first three quarters of the year.

  • As a result, many of our sales commission, bonus and partner referral fee plans are trending well above 100% payouts.

  • Although we do capitalize and then amortize most of our direct sales commissions, it is important to remember that the great majority of our total sales costs are expensed as incurred.

  • As I mentioned a moment ago, we have also hired aggressively to continue our strong growth trajectory.

  • Our fourth-quarter performance will affect our revenue exit rate at the end of the year, and, hence, will inform our hiring investment decisions for fiscal 2012.

  • We continue to believe the best way to create long-term shareholder value is to extend our leadership and dominate our markets through aggressively growing our business.

  • Moving onto cash flow.

  • Operating cash flow for the third quarter was approximately $74 million.

  • That is an increase of roughly 108% from a year ago.

  • Year to date we have generated more than $293 million in operating cash flow.

  • That is an increase of more than 64% from a year ago.

  • Capital spending for the quarter was $21 million.

  • The primary drivers of CapEx are the buildout of the two US data centers that Marc mentioned, and leasehold improvements generally to support our growing employee population.

  • Free cash flow, defined as operating cash flow less capital expenditures, was also strong at $53 million.

  • That is an increase of roughly 112% from last year.

  • Over the last four quarters we have generated $317 million in free cash flow.

  • Given our ratable revenue model and the fact that roughly two-thirds of invoiced dollars are for 12-month durations, we believe that cash flow is an important measure of our operating performance.

  • Looking to Q4, we expect our cash flow growth rate to be a few points slower than our revenue growth rate, as we pay Dreamforce-related expenses, fourth-quarter rent commissions and continue to hire aggressively.

  • Cash and cash equivalents overall, including marketable securities, finished the quarter at approximately $1.8 billion.

  • Deferred revenue rose by approximately 27% year-over-year to finish the quarter at $695 million.

  • We had a small headwind on deferred revenue of approximately $2 million on a year-over-year comparison basis.

  • This was our fifth consecutive quarter of improving deferred revenue growth, reflecting strong new business, reduced attrition and continued stability in invoicing durations.

  • On a sequential basis deferred revenue rose by approximately $11 million in dollar terms, but was flat in constant currency terms.

  • Looking to the fourth-quarter we expect deferred revenue to grow at just a slightly slower rate year-over-year than in Q3.

  • Let me close with our outlook.

  • As we enter Q4, demand for our products continues to be strong.

  • I have already mentioned Dreamforce, ramped commission and bonus plans, and aggressive hiring as some of the reasons why operating income in the fourth quarter will be slightly lower than in Q3.

  • With that context, we expect fourth-quarter revenue to be in the range of approximately $447 million to $449 million, and project non-GAAP EPS to be in the range of approximately $0.27 to $0.28.

  • All of the underlying assumptions for this non-GAAP guidance, as well as our GAAP guidance, and a complete GAAP to non-GAAP conciliation, can be found in our earnings press release.

  • Looking forward to fiscal 2012, as Marc indicated, we currently anticipate revenue to be in the range of $1.97 billion to $2 billion.

  • It is important to note that we will be adopting the new revenue recognition standard EITF 08-01, which we estimate will increase next year's revenue by approximately $20 million.

  • This extra amount is included in our guidance range.

  • Clearly growth is still our number one priority, and so you should expect us to continue ramping our investments in distribution capacity, data centers and product development to achieve our aggressive goals.

  • Before I close, I would like to remind everyone that the key day at Dreamforce for analysts is Tuesday, December 7.

  • In addition to Marc's opening keynote, analysts are invited to a VIP luncheon and CEO Q&A session.

  • And then later that afternoon David and I will be hosting another session to review our business model and some of the key metrics that drive our business.

  • If you haven't already done so, you can register on our website or contact Investor relations directly.

  • With that, let me thank you all for joining us today.

  • And I would like to open up the call for questions.

  • Operator?

  • Operator

  • (Operator Instructions).

  • Sarah Friar, Goldman Sachs.

  • Unidentified Participant

  • Hey, guys, this is Stephanie actually on for Sarah.

  • Great quarter.

  • I was wondering if you could just give me some comments on what you're seeing in Japan.

  • It has been called out by a number of tech companies as an area of weakness, but judging by your performance, salesforce is not seeing that.

  • So I am wondering if you could just give a little bit of color there.

  • Thanks.

  • Marc Benioff - Chairman, CEO

  • Well, we certainly outpace others in the Japan market.

  • It has been a very exciting market for us.

  • We're really strongly working to build $1 billion business in Japan.

  • That is our goal.

  • It is obviously a long-term goal for the Company, and we believe we have enough evidence at this point that we can get there.

  • The business is so strong that we decided to acquire the stock from our Japanese partner, SunBridge, and to focus on having a wholly-owned subsidiary.

  • That has been very important to us.

  • We believe that will give us strategic strength.

  • I can tell you that I was just there, and our relationships with the most important companies in Japan have really never been stronger.

  • Everyone is very excited that we are building a data center jointly with NTT.

  • We have been advertising that in the Nikkei, and been getting some great response.

  • And we really see the Japanese market as just a tremendous opportunity on a going forward basis.

  • And you probably noticed a number of really powerful and important Japanese names in my script today.

  • I have never been more excited about the Japanese cloud computing market.

  • David Havlek - VP IR

  • Next question please.

  • Operator

  • Heather Bellini, ISI Group.

  • Heather Bellini - Analyst

  • Hi, good afternoon, guys.

  • Two questions for you.

  • One, did I hear right that you said you expect cash flow growth to be a few points less than revenue growth due to payments?

  • I just want to make sure I heard it right.

  • Graham Smith - CFO

  • Yes, just a couple of points.

  • Just slightly slower than revenue growth in the fourth quarter, yes.

  • Heather Bellini - Analyst

  • Okay, and then since, David, that was a quick one, the only thing I'm going to ask is what the impact was of buying in the Japanese JV to your topline guidance for Q4, if at all?

  • Marc Benioff - Chairman, CEO

  • Sneaky, Heather, sneaky.

  • Graham Smith - CFO

  • No impact to topline guidance.

  • We had always consolidated 100% of their revenue.

  • It was more the minority interest accounting that went on down at the bottom of the income statement.

  • So no change to revenue in the fourth quarter or next year.

  • David Havlek - VP IR

  • Next question, please.

  • Operator

  • Mark Murphy, Piper Jaffray.

  • Mark Murphy - Analyst

  • Marc, I was wondering if you would ever consider offering a stripped down version of Chatter just to be able to position against some of the low-end competitive offerings in the marketplace, or perhaps even a free version of Chatter to drive adoption into some different segments?

  • Marc Benioff - Chairman, CEO

  • Well, the answer to both of those is yes.

  • We are working on a free version of Chatter that will be a kind of virally-based product.

  • And we will introduce that to our customers at Dreamforce.

  • Some of our customers already have that product.

  • And that is very exciting for us.

  • We have been testing making Chatter more viral by giving our customers the ability to send viral invites.

  • One of the things for us is that our customers need to assign their e-mail domain to service and then the admin needs to turn on this kind of viral invite capability, but that is very exciting for us.

  • And so this will be a new kind of, exactly what you said, stripped down version of Chatter, but it will operate within our existing customer network.

  • So if you are a customer you will be able to e-mail and send viral invites to other customers.

  • And this, I think, will be just a tremendous accelerator for Chatter.

  • And we plan to turn that on for all customers shortly.

  • And, two, we will have a kind of free, independent service that is kind of a viral service that we will mostly use as lead gen and for getting customers to upsell, called Chatter.com.

  • And we plan to launch that in the first quarter.

  • And that will be very exciting for us and for all of our customers.

  • And as we start to work on that Chatter.com concept, that will have a lot of the kind of look and flavor that you can see of the traditional enterprise social networking sites.

  • We are already a lot bigger than them, as you know, but the big differentiator we have, of course, remains this data integration.

  • So that will be extremely exciting for us.

  • David Havlek - VP IR

  • Next question, please.

  • Operator

  • Adam Holt, Morgan Stanley.

  • Adam Holt

  • The Chatter numbers are pretty stunning, 70% penetration this quickly.

  • Could you talk a little bit about what you think the impact to revenue was in the quarter?

  • And from here how you see the revenue story unfolding, given how high penetration is?

  • Marc Benioff - Chairman, CEO

  • The revenue impact from Chatter has really been not material, because we don't charge customers to turn Chatter on.

  • And the fundamental expansion deals that we are getting for Chatter against the huge revenue numbers of the Sales Cloud and Service Cloud and Custom Cloud just are basically very small against that.

  • So the power for Chatter remains, number one, it is driving tremendous adoption.

  • It is making us much stickier.

  • It is making is much more efficient inside of our customers.

  • And because of that we think it is strategic for us.

  • It is not just a tactical product.

  • It is strategic in that it really is kind of the next wave of computing in that we have talked about the mobility and the social aspects and the real-time aspects of computing that Chatter offers.

  • But it is strategic for us because of how it impacts our customers' usage of our product.

  • It just goes way up.

  • And, also, it drives some of their other products down, like e-mail.

  • So that is why we are investing in Chatter.

  • You have seen us talk about the $15 Chatter product, which is kind of this enterprise expansion product that we have been using to do these Chatter-only deals.

  • I just mentioned we will work on a Chatter free product which will be stripped down even farther from there, which will be virally oriented.

  • And then we will have Chatter.com, which will be this kind of free service.

  • And the fundamental reason is that we really think that we've found something that customers want and that makes us stronger in our existing customers.

  • Just look at Dell.

  • So with Dell we, of course, had our 30,000 or 40,000 or 50,000 users or whatever it was in Dell, then all the sales and marketing users.

  • But Michael Dell really got excited and into Chatter and was using it himself, and then said, let's roll this thing out.

  • And really within a couple of weeks we were able to turn on now almost 100,000 users of Chatter inside Dell.

  • And they have eliminated all the other enterprise social networking products that they were using inside Dell at the same time.

  • They all will be direct now to Chatter.

  • And we are building a very large enterprise social network.

  • The power of that really came from that there was several situations where they just got tremendous business value from the service.

  • And we see that happening with a lot of our customers.

  • It is going to continue to take a lot of evangelism.

  • It is going to take -- continue to take a lot of education.

  • This is a relatively new product.

  • It has only been live for a couple of quarters.

  • And you're going to see a lot of exciting new features of Chatter when we get to Dreamforce.

  • You are going to see things happening in the feed that you have just never seen happen in a feed with any other product before.

  • It is pretty incredible.

  • David Havlek - VP IR

  • Next question please.

  • Operator

  • Kash Rangan, Merrill Lynch.

  • Kash Rangan - Analyst

  • Marc, I am just wondering if you can talk to your sales productivity trends?

  • I know that you are stepping up hiring and what not, but as you look at the performance of salespeople that have come onboard in the last four or five years, are you seeing a trend, tenure, productivity that would suggest that the people that you are bringing onboard could turn productive and faster than the folks that you brought onboard -- brought onboard in the last four or five years?

  • Just to get a sense for how quickly the revenue growth could ramp as you bring these people onboard.

  • That's it for me.

  • Thanks.

  • Marc Benioff - Chairman, CEO

  • Well, Kash, I can't tell you the exact how quickly and all of that, but I can refer you back to our earnings calls in fiscal year '09, when we really talked about how we were expanding our sales organization very aggressively.

  • But then you probably remember in fiscal year '10 we really didn't do that.

  • That was not our big focus because of the global recession.

  • Now as we get ready to complete fiscal year '11, we are coming into the fourth quarter, you know, we have been turning on the sales growth very aggressively around the world this entire fiscal year.

  • And when that will actually pay off, whether that will be in fiscal year '12 or fiscal year '13, I can't exactly tell you.

  • But we're very bullish on our business.

  • And while we really didn't hire any salespeople of consequence in fiscal year '10 because we were so worried about the general state of the world, in fiscal year '11 we have had a lot of confidence, and we have really ramped up in anticipation of fiscal year '12.

  • Which is why we feel good about giving you this guidance of $1.97 billion to $2 billion.

  • As you know, Kash, that will make salesforce.com the first enterprise cloud computing company to deliver $2 billion in revenue, which is our dream, our goal, our vision for fiscal year '12.

  • And the aggressive sales hiring that we have done this year, we hope will pay off for that for next year, which is why we feel good enough already to give that deliver that guidance to you today.

  • David Havlek - VP IR

  • Next question please.

  • Operator

  • Tom Ernst, Deutsche Bank.

  • Stan Schlosky - Analyst

  • Hi, guys, it is actually [Stan Schlosky], I am sitting in for Tom.

  • Thank you very much for taking my question.

  • So you mentioned you had lower attrition.

  • And I just wanted to get a better understanding of what is driving lower attrition, and how much of that is related to Chatter and Jigsaw.

  • I know you mentioned your better economic conditions, but aside from the economics, Chatter and Jigsaw, how much are they helping?

  • Thank you.

  • Marc Benioff - Chairman, CEO

  • Well, as you know, our attrition did spike as the recession got really bad, and we hit what we think was a ceiling level when essentially the world collapsed.

  • And since then we, of course, have put in a number of things that we call measures for customer for life, increased our processes and controls around that.

  • But the number one thing that has happened that has reduced the attrition is the economy is not going off the cliff.

  • So because of that we feel that our attrition has been dropping, and it has been dropping very consistently since fiscal year '10 completed.

  • And now we are in fiscal year '11 in the third quarter, so we feel the number one driver around the attrition has been the economy.

  • Now, yes, we are definitely finding some great tools -- contractual tools, technology tools, and even human processes to help reduce attrition.

  • And having customers for life is a critical part of our business.

  • We are all about adoption and customer success.

  • Nothing is more important than the trusted customer success of every single one of our customers at salesforce.com.

  • It is our most important value in our Company and how we treat our customers is with trust.

  • So even though that is the most important thing, it remains very dependent on the economy.

  • So I hope that answers your question.

  • David Havlek - VP IR

  • Next question please.

  • Operator

  • Laura Lederman, William Blair.

  • Laura Lederman - Analyst

  • Following up on Chatter, when you are seeing these extensions beyond existing seat holders getting Chatter turned on, what is it replacing?

  • Is it Net News?

  • Is it replacing larger other social tools like [a Dell], or is it replacing SharePoint or Lotus Notes?

  • Where do you see it going today and where have you seen it going so far?

  • Marc Benioff - Chairman, CEO

  • Well, you know, it is really at all three of those areas, and I appreciate the question, because I do think this is probably the one of the most exciting things I have really ever been associated with.

  • And, of course, you look at products like Lotus Notes, and we have talked about this before, it is a product that was conceived of before Mark Zuckerberg, the founder of Facebook was.

  • And the reality is that it is not a humorous joke.

  • These customers have been running this technology for two and three decades.

  • And they are hiring these people out of school, and they're coming into these "productivity" applications that they have in their customers -- and these customers -- and they are saying, I don't know how to use this.

  • This is not how I work.

  • Where is my iPad, where is my iPhone, where is my BlackBerry?

  • Where is my graphical user interfaces?

  • And they are like, well, this is a graphical user interface.

  • And they are like, this is Windows or -- and it is just junk.

  • And that is what Lotus Notes is, honestly.

  • It was a great product at the time.

  • But IBM has done a terrible job in terms of keeping it fresh.

  • Just look at the terrible job IBM has done with their -- fundamentally their software strategy.

  • They have had to move to an acquisition strategy, because they have let these kind of core franchises erode.

  • They turned them into cash cows, and now they're getting trampled by these next-generation products.

  • And I think SharePoint is very much the same thing.

  • It is kind of the grandmother's attic.

  • These customers throw everything into it, and then they can't find it.

  • And they don't know what is up there.

  • And they don't know how to get it out.

  • And it is a joke.

  • It becomes their "Internet" and employees are stifled.

  • But when they get in these dynamic environments of these enterprise social networks, they have found a great new model of doing business.

  • And the power of that, Laura, is that there is some great ones out there, but none of them is as good as Chatter, because we are integrated with the data.

  • So those contractions happen around your business, content gets refreshed, or sales transactions are closed or orders change.

  • You know that the social network is updating you on the transactions and the fundamental things in the business that you're following.

  • If you are following customer service inquiries, accounts, contacts, opportunities, bill of materials, marketing, competitive analysis, groups, collaborations.

  • As those things change, bam, you're getting that update.

  • That is very powerful.

  • And Lotus Notes and SharePoint just don't do it.

  • So you're going to see even more exciting things than that at Dreamforce, so I will see you there.

  • Operator

  • Brad Zelnick, Macquarie.

  • Brad Zelnick - Analyst

  • Thanks, good afternoon, guys.

  • Marc, when we think about VMforce and how explosive it can be in driving custom ap development and attracting ISVs to the platform, is there anything else in salesforce history that you can compare it to in terms of the timeframe and rate at which we can see it impact your win rates, perhaps that price per seat, or ultimately your financials?

  • Marc Benioff - Chairman, CEO

  • Well, you know, we had a pretty big breakthrough in looking at our platform this year, and what we really saw was that our database -- and if you go to trust.salesforce.com you will see our database is really widely used and aggressively used by our customers.

  • You will see -- it is going to happen where I'm going to be talking about -- I don't know, 500 million transactions a day pretty soon.

  • Coming up on how many database transactions we are completing for customers.

  • And I mentioned that was between four and five 9s of our liability, and at 300 milliseconds.

  • And we have done incredible things in the database.

  • And the release of Apex with stored procedures and triggers and making the database so useful.

  • Now the database has been very tightly integrated, as you know, with our user interface environment, or what we call Force.com or Visualforce.

  • And the breakthrough we had is that the database is so powerful, what if we were to uncouple it.

  • And that was really the breakthrough where we said, now we can have VMforce.

  • Because now that we have uncoupled the database, let's put Java on top of VMforce, so that customers who don't want to use our UI environment, which is excellent, but they want to use Java, which is also excellent, that they have freedom of choice.

  • And that is what VMforce is.

  • It lets customers build in a Java IDU like spring from VMware and run that Java code right on our database.

  • And now that we have been doing that, we have been saying, gee, how do we get all these languages running on top of our database.

  • How do we get all of these mobile devices running on top of our database.

  • And, as you see us at the Dreamforce, you're going to see these visions that we have been talking about this year start to come to manifestation.

  • Because we think the next generation of platform as service is exactly that, it is the VMforce model, this highly productive, commodity language with very robust cloud-based services from salesforce that we are the only ones who are really doing that in the world at these transaction levels.

  • And we think we are going to try to hyperdrive our Force.com environment and VMforce at Dreamforce.

  • So you're going to see some of it at Cloudstock on December 6.

  • And then you're going to really see it in our keynote on December 7.

  • And December 8 we are going to do an extensive review of how we are going to supercharge that platform as a service, because we really think the time is really ripe for that.

  • David Havlek - VP IR

  • All right, operator, we have time for it looks like one more question.

  • So let's take our last question of the day.

  • Operator

  • Our last question comes from the line of Brent Thill, UBS.

  • Brent Thill - Analyst

  • Marc, you mentioned Yahoo as a standalone collaboration customer.

  • I guess going forward, I know you mentioned that it wasn't material to revenue this quarter, but going forward could we see Chatter becoming a meaningful stand-alone opportunity in the future?

  • Marc Benioff - Chairman, CEO

  • I think so.

  • I think it is a tremendous opportunity.

  • And I will tell you that in accounts like that, and account in others where we have not been the CRM standard, that it really opens the door for us to become that.

  • Because it is really opening the doors to a lot of great new businesses for us.

  • Because don't forget, Brent, the key to Chatter is that it is deeply integrated, as you know, with our Sales and Service Clouds and our Force.com system.

  • So the power of Chatter is that once it gets in there then we can say, well, you can turn this on.

  • You can turn that on.

  • You can turn on opportunities.

  • You can turn on content.

  • You can turn on contacts.

  • You can turn on cases.

  • You can turn on knowledge management.

  • You can turn on all these things.

  • And you can turn on analytics and dashboards.

  • And as you turn these things on, your feeds become more valuable to you.

  • And this is our strategy, Brent, which is to make those feeds indispensable.

  • Now I am using the new version of Chatter that will get announced at Dreamforce, and I can tell you that I can't separate myself from it, it is so powerful.

  • I have it on my BlackBerry.

  • I have it on my iPad, my iPhone.

  • And I have it on my -- we have released a desktop out for it now that runs on PC and Macintosh built in Adobe Flash and [Air].

  • And we have a native Android product under development.

  • And the robustness of the feed, it is not just that the feed is full of human communication of one person talking to another, which was kind of the first generation, like we have in Facebook.

  • But just as Facebook has shown when they added the photos sharing app, that if you can get more and more data -- and for us it is all about business transactions and workflow that we can really transform the business and give them more transparency.

  • And more help CEOs like Michael Dell, I mentioned, become more aligned with their organization.

  • And this is our goal.

  • And he obviously had a great quarter today.

  • And I don't know if salesforce Chatter had something to do with that, but our goal is to make our customers successful, keep them focused, motivated, help them keep their employees communicating.

  • And there is no better tool to do that than salesforce Chatter.

  • David Havlek - VP IR

  • Before we sign off today, I would like to remind everyone to attend Dreamforce.

  • There is still plenty of time to register.

  • It is December 6 to 9 here in San Francisco.

  • The primary day for analysts, as Graham mentioned, is the seventh.

  • That will include a keynote from Marc, a VIP luncheon, Q&A session with Marc and some of the senior execs, as well as the analyst session that Graham and I will host later in the day.

  • Analysts are provided a complimentary pass to the event.

  • You can register at our website using the financial analyst registration button.

  • We look forward to seeing you all in San Francisco in two weeks.

  • Thanks for joining us today.

  • And have a great day.

  • Bye-bye now.

  • Operator

  • This concludes today's conference call.

  • You may now disconnect.