Salesforce’s Strange Quarter Exposes a Shaky SaaS Model
By April-end, things were looking very different for Salesforce. While the valuations of tech companies were taking a beating, demand for enterprise software held down the fort. San Francisco-based Salesforce, the largest pure-play cloud vendor of subscription-based enterprise software, reported quarterly revenue of USD 7.4 billion—an increase from their previous quarter. The company was projected to cross the USD 30 billion mark in annual revenue this year. During the earnings announcement, basking in the glory of the robust results, CEO Marc Benioff stated, “And I can tell you that our business—you can see this in the Q1 numbers, can’t you—is incredibly healthy. . . We’re carefully watching the economic data. I know all of you are doing that as well”. Benioff spoke at length about how the company’s business model was resilient enough to survive the trenches of macroeconomic cycles. By the next quarter, the Salesforce story had turned a page. For its second-quarter ended July 31, the company reduced its guidance for both earnings and revenue for the next year citing “slowing demand in North American and European markets”. By the end of the year, the CRM giant refrained from offering a forecast for the fiscal year 2024 for the first time in its history. Salesforce co-CEO Bret Taylor steps down as Marc Benioff stays at the helm, Source: Mint Slew of resignations A concoction of different factors had combined with each other resulting in an unusually turbulent time for Salesforce. During the company’s earnings announcement in November, Benioff also announced that co-CEO Bret Taylor was stepping down leaving Benioff to lead the company alone. A late report by Wall Street Journal stated that, contrary to Benioff’s portrayal of an amicable separation, there was trouble in paradise. Benioff reportedly was upset that Taylor was spending a lot of his time in a new role as Twitter’s board chair and with other CEOs and customers instead of looking after engineering. Slack CEO Stewart Butterfield departs after two years, Source: CNBC Just days after Taylor’s resignation, Slack CEO Stewart Butterfield also announced his departure. The USD 28 billion acquisition of the instant messaging platform that Benioff had heralded as a ‘match made in heaven’ just two years prior had turned sour after inside information from employees revealed that there was a tussle between Benioff and Butterfield. The Information reported that, as time progressed, Benioff was distancing himself from the deal, instead telling whoever listened to him that Taylor was the deal’s architect. Benioff had gone cold on the purchase after senior management at Salesforce expressed scepticism over returns from integrating Slack with their product bundles. Even as analysts started worrying over the string of high-profile exits, a third C-level executive stepped down within the week. On December 1, Mark Nelson, CEO of the data visualisation company, Tableau, (which Salesforce had bought in 2019 for USD 15 billion) also quit. Salesforce reportedly did not intend to appoint a replacement for Nelson, instead wanting to bring Tableau closer to its parent company. Has Mark been in the office? Seems like the most senior team has been failing more than the new hires.— Jim Scott (@BinaryCFO) December 20, 2022 Work-from-where? The exodus of leaders was followed by a public gaffe from Benioff himself. On December 16, CNBC reported that Benioff had sent a message on Slack saying newer employees weren’t as productive. According to the report, Benioff’s message had stated, “New employees (hired during the pandemic in 2021 and 2022) are especially facing much lower productivity. Is this a reflection of our office policy? Are we not building tribal knowledge with new employees without an office culture?” The report raised eyebrows considering Salesforce had paid 26 times Slack’s forward revenue and promoted the purchase as a ‘trailblazing digital platform for the work anywhere world’. Benioff’s message appeared to be against the work-from-home culture that had become the company’s core foundation. Since September 2021, Salesforce had also come up with Digital HQ, an initiative riding on its Slack acquisition. Digital HQ promised that the organisation would work digitally exactly as it had before in the physical world. The company eventually released a statement emphasising that they continue to push the hybrid work culture but Benioff’s message implies a sense of distrust that can’t be buried. Fresh bout of layoffs Besides, Salesforce was also going through the downturn like most of its competitors—the company had laid off its first batch of employees in November. Protocol reported that 2,500 employees had been laid off but the company stated that the numbers were ‘less than thousand’. Since the changes in management, the company is reportedly preparing for another set of layoffs. Employees have spoken out that the management had set new sales targets that ‘some might label unachievable’, sparking fears that these could be ‘indirect measures of downsizing the workforce’. Pressure from activist investors There is a definite possibility that Benioff may also be squirming under pressure from investors. In October, Salesforce’s activist investor Starboard Value announced that it was taking a ‘significant stake’ in the company. Starboard was reportedly pushing Salesforce to move ahead of competitors like ServiceNow and Workday. A presentation by Starboard mentioned that, “Despite expecting to grow slower than [these] peers, [it] is only targeting operating margins in-line to below its much smaller peers. On a growth + margin basis, Salesforce significantly lags these companies and the peer set”. This is not to say that all of Salesforce’s problems are solely their own. The SaaS market itself has been affected by the downturn with stocks of companies like Atlassian and Twilio falling rapidly. The downbeat forecast on SaaS companies may have exposed that their model isn’t as impervious as experts have suggested. But Salesforce’s problems are clearly larger than ordinary.
The company eventually released a statement saying they continue to push the hybrid work culture but Benioff’s message implies a sense of distrust that can’t be buried.
The company eventually released a statement saying they continue to push the hybrid work culture but Benioff’s message implies a sense of distrust that can’t be buried.
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Poulomi is a Technology Journalist with Analytics India Magazine. Her fascination with tech and eagerness to dive into new areas led her to the dynamic world of AI and data analytics.