A Brief History of Salesforce and Key Lessons for B2B Entrepreneurs
“If I have seen further it is only by standing on the shoulders of giants.” — Isaac Newton
It is a well-known fact that the Chinese SaaS market is 2–3 years behind the US’s, but there’s no doubt that the market inflection point is approaching, fast. As part of my final project for my internship, I am putting together a report on the evolution of SaaS in both the US and China, and I want to begin by analyzing at the most successful SaaS company in history. Salesforce, a US-based, global cloud-services platform, was founded in 1999 by Marc Benioff, Parker Harris, Frank Dominguez, and Dave Moellenhoff as a simple cloud-based sales force automation service. Today, it is a SaaS behemoth with a $100+ billion market cap and generated north of $13 billion in revenue last year. In the section below, we will highlight the company’s history and the key themes that enabled them to dominate a market filled with some of the most powerful incumbents in the world.
Building the first SaaS company and road to IPO (1999–2004):
At the turn of the millennium, the incumbent enterprise companies were SAP and Oracle, industry giants that generated billions in revenue. Their CRM and SFA products, however, were bulky and a hassle to set up; businesses had to manually install their buggy software, pay for many features that they didn’t use, and figure out how to use the overly-complicated programs with poor documentation. At the time, the cloud computing industry was nonexistent, but nonetheless, in 1999 Marc Benioff left a lucrative career at Oracle after 13 years to start Salesforce with his three co-founders.
In these early years, Salesforce had an uncompromising vision: the cloud would kill downloaded software by being simpler, faster, and more accessible.
From 2000–2002, they aggressively marketed the “end of software” slogan, going as far as to hire protestors to hire anti-software signs:
A critical part of Salesforce’s marketing strategy was centered on the fact that many of their early adopters were salespeople. Sales are the engine that drives revenue growth, so sales teams were willing to invest in new technology that helped them reach their revenue numbers more effectively. Due to the quick gains in revenue and productivity, Salesforce could directly show how its product helped a company make more money.
The company also pioneered the freemium business model, and its simplicity made for a powerful organic distribution channel. The first five users at any company could use the CRM for free, and if they liked it, they could upgrade by adding more team members at $50/month/additional user.
The company also understood from the beginning that an enthusiastic community of developers — not just salespeople — would be critical to their success. In 2003 they hosted their first annual Dreamforce conference and kicked off the tradition of announcing new products and ideas at the conference. A little over 1,000 people attended the 2003 conference, and today that number has swelled to 170,000+, speaking to the company’s popularity with developers and incredible rise as a technology company.
From 2001–2003, the company had a 100% compounded annual growth rate, from $5.9 million in revenue in 2001 to $50.9 million in 2003. In 2004, Salesforce IPO’d at an initial offer of $11/share and finished the day at $17.20, 56% above their debut price.
Evolution to a platform (2005–2008):
Although Salesforce captured early market share as the original SaaS product, once people realized that the cloud enabled faster production and distribution of software products, the industry grew extremely quickly.
Salesforce embraced competition and began to strategically evolve into a platform by 1) aggressively expanding their own services through R&D and acquisitions and 2) creating infrastructure for third-party developers to build applications on top of Salesforce. In 2004–05 they added customer support and collaboration tools to their existing cloud CRM and launched AppExchange, a market of apps built by 3rd-party developers on top of Salesforce. The introduction of the AppExchange was the first step in creating a base upon which individual developers could now monetize their skills while drastically expanding Salesforce’s services.
Salesforce continued transitioning to a full-fledged platform in the years to come. Below is a brief overview of the important evolutionary components launched after 2005:
- 2006: Released Apex, an on-demand programming language that allowed third-party programmers to write and run code on Salesforce’s own servers by calling the Salesforce API. They also launched Visualforce, which allowed users to create any user interface they wanted and build forms, buttons, links, and embed anything.
- 2008: Launched Force.com, the world’s first PaaS, which enabled 3rd party developers to build and deploy apps on Salesforce’s architecture.
Rapid innovation through internal R&D, acquisitions, and 3rd parties (2009–2019)
Salesforce continues to be a leader in SaaS innovation, even as the incumbent. From 2006–2019, they acquired ~52 companies, repurposing many to become integral products in Salesforce’s suite. They continue making major acquisitions to this day and have expanded to horizontal markets like e-commerce with the $3 billion purchase of Demandware, a company that provides B2C enterprise cloud solutions for retailers. Other key purchases include, but are not limited to:
- 2011–2013: Acquired Jigsaw, Assistly, and Radian6 and repurposed them as Data.com, Desk.com, and Social.com, respectively, to expand Salesforce’s capabilities into social media data, customer service, and managing business data.
- Tableau for $15.3 billion (2019)
- Mulesoft for $6.5 billion (2018)
- ExactTarget for $2.5 billion (2013)
- Quip for $750 million (2016)
So, what can we learn from the first and greatest SaaS company in the world? From analyzing the twenty-year history of Salesforce, I believe there are five key themes that B2B entrepreneurs everywhere should notice:
- Owning a niche: While SAP and Oracle had a diverse range of enterprise solutions, none of their products were great. Salesforce was able to break in with a killer sales product that was specialized, cheaper, and easier to use than existing products.
- Never stop innovating: Throughout its two-decade history, Salesforce has proved to be relentless in adding new services and products. After owning its niche, the company proceeded to expand into adjacent markets strategically in Amazon-like fashion, either through internal R&D or acquisitions.
- Have a simple pricing plan: This was crucial for distribution in the company’s early years as it drastically reduced the friction for companies to add new employees to the service. This is important for the Chinese SaaS market as historically, companies are willing to try new technologies but not willing to pay.
- Build offline and online communities: Salesforce’s Dreamforce conference grew from 1,000 attendees in 2003 to over 170,000 in 2018. This grew the company’s reputation and brand, and also laid the seeds for the community that would contribute so actively to the AppExchange, which was also enabled by innovations such as Apex and Force.com. Today, the exchange hosts over 3,000+ apps built by 3rd-party developers with 5.6 million installs.
- Evolve into a platform: How can you grow your product to create distribution channels and economic value for others? How do you enable new technologies to be built on top of yours, thus creating an ecosystem of developer and customers? Salesforce did it through a combination of the previous themes, and these are the crucial questions B2B entrepreneurs must ask themselves. Standalone products will eventually fade, but platforms that enable symbiotic growth for all parties are more likely to endure.
