Salesforce.com, Inc.Investor Roundtable with Graham Smith...

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EDITED TRANSCRIPTCRM - Salesforce.com, Inc.Investor Roundtable with Graham Smith,CFO, and Vivek Kundra, EVP, Industries

EVENT DATE/TIME: JANUARY 08, 2014 / 8:00PM GMT

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C O R P O R A T E P A R T I C I P A N T S

Graham Smith Salesforce.com, Inc. - CFO

Vivek Kundra Salesforce.com, Inc. - EVP - Industries

C O N F E R E N C E C A L L P A R T I C I P A N T S

Brad Zelnick Macquarie - Analyst

Q U E S T I O N S A N D A N S W E R S

Unidentified Company Representative

Welcome everyone. Thanks for joining us today at the launch of the Salesforce 1 Worldwide Tour, our first stop in New York. And delighted youcould make it to join us today.

With us for this open Q&A with you all is Graham Smith our Chief Financial Officer, and Vivek Kundra our EVP of Industries. This is a forum for youall to ask questions and point them at Graham and Vivek and me if necessary, but time is yours so I think we'll just start it up in questions. Graham?

Graham Smith - Salesforce.com, Inc. - CFO

Maybe before we dive into questions, just to set this up. Obviously, Vivek, appreciate you being here but I'd just ask, Vivek, I figured he'd been here18 months. He's actually coming up on his second anniversary. It's amazing how time flies at Salesforce.

Obviously, Vivek was formally the CIO of the federal government and initially was tasked with really building and taking our go-to market, I guessfor government all around the world to the next level once Keith Block joined, I think he was looking for somebody with the skills to basically setup a global industries program, so not just obviously, government, will continue to be one of our industry so to speak, but instead of the programthat we'd provide the right resources for all of our sales and go-to market people to really take our discussion of industries and our knowledge, ourcapability to the next level.

So I think you've been in that role now for probably three or four months, is that right? And the way I've communicated this really outwardly tothe investment community is, that I think business as usual really, our basic sales organization, structure. We continue to hire sales people atremarkable pace. But the key to -- certainly you've been looking, too big, I think really, productivity levels for going forward. One is the wholeproduct specialist role, so adding a lot more resources on the platform and service talent side. We have some, but I know he's keen to add a lotmore.

And then secondly, we've done that. We've been doing that for a couple years, but then really take what I would say is a -- it's been a somewhatinformal program around industries. There were groups of sales people who get together and figure out how to sell best into financial services orhealthcare. But I think Keith and you obviously. Hopefully, you see that as a big lever productivity -- learning to speak our customer's language.

So that's really -- I've set this up as really to hopefully -- productivity levels and also I think industries is -- hopefully will enable us to get into largertransactions, the very corporate-wide transactions with our customers, where they're buying multi-products and whole seller services, go with it.

So that's, I think, what we've communicated to-date, clearly with Vivek here, we could go to another level of details, so fire away.

Unidentified Audience Member

I asked a question of Graham earlier today and he passed it on to you. So I'll just ask it to start us up. And this is more you're overall, but government,we all -- a lot of us look to that to be a very big growth area, growth opportunity for Salesforce. And it doesn't seem like it's really hit any inflection

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JANUARY 08, 2014 / 8:00PM, CRM - Salesforce.com, Inc.Investor Roundtable with Graham Smith, CFO, andVivek Kundra, EVP, Industries



point right now, just in terms of where you see the federal government in terms of adopting the Cloud, adopt -- potentially adopting Salesforce,where are we in that cycle on potential perspective and when do we -- when and if we -- do we see that -- materializing in anyway?

Vivek Kundra - Salesforce.com, Inc. - EVP - Industries

I think we've already seen triple digit growth on the government side, on state and local business and also on the federal side. If you look at someof the deals that we've closed, whether it's with the department of labor running their contacts center or it's USC, GSA, where they're leveragingplatforms, they're levering chatter, they're levering the marketing cloud for citizen engagement, but also to provide services to the rest of thefederal government.

And then you look at cities like the city of Philadelphia, is working with us in terms of the Service Cloud, fundamentally, reinventing how theyengage citizens. So when you look at social, mobile cloud, there's a huge gap, when you look at government IT versus what's happening acrossthe board. And it's not just the -- with the United States.

What we're seeing is populations around the world are growing to 7 billion people. Most governments were printing money and they're in troublenow when it comes to their budget. And they're all turning to technology and they're saying, well how do we now do a lot more with a lot lessresources? Demands from citizens continue to increase.

From a Salesforce perspective, we're positioned really, really well. We're definitely seeing the growth at the -- on the US side, but also when youlook at what we've been able to do in the U.K. Whether it's at Scotland Yard and how they're using our marketing cloud when it came to the Olympicsor you'll look at the financial authorities, the equivalent of the CFPB, the U.K. leveraging the Salesforce platform. And then of course in Japan whetheryou look at Japan post or [medi], we're seeing a lot of traction there and same with Australia. We're seeing that at the local level and also at thecentral government level.

And we see this as an amazing opportunity for Salesforce.com and we also invested in the government cloud to make sure that we were addressingthe unique government requirements as we move towards bigger and bigger transactions.


Just one quick follow up. And that's the Obama Care and do you have any opinion about the roll out of -- at and whether or not Salesforce canresolve all those issues with regard to the roll out of Obama Care and working with the healthcare industry in doing that?


Well, if you look at the failure when it comes to healthcare.gov, it's classical when it comes to procuring old technology. So it's very much -- evenif you look at the contracting processes, it's very much about modifying an old government IT contract to solve a problem of scale.

If you look at the Obama campaign for example, that campaign actually leverage Salesforce, and it leverages Salesforce very, very effectively. Yet,when it came to the governance side of CMS, at the agency level, they went with the easy path, which is just to modify a contract.

Maybe what you're seeing now is that they're all relooking at how they deploy those technologies and this notion of the shift toward cloud, notjust for Salesforce but for the entire industry whether you look at Google, Concur, Amazon, that entire category of companies is doing very, verywell when it comes to the public sector market.

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What you can do, take on this role. I guess, how much of your job is going to be putting together more specialized sales teams in the industry, but-- and how much of it is going to be actually creating solutions that maybe span multiple products that are specific to a specific business processthat might be specific to a certain industry.

I guess, how do you guys think about not only building out sales capacity that's more focused on industry but also actually building solutions thathelp you get [equal] with your clients. And I think that you guys (always reference the state farm example) your sales guy went off and became anexpert in insurance right?


Yes.


So, I guess, how much of it is just finding more guys like that from a sales perspective and how much of it is actually building solutions that mightspan multiple clouds to create a business process that's not there right now?


Maybe, what would be useful is if I step back and share a lot of our strategy, where we are, how we're executing. So we looked at industries and Isaid, we need to really focus, right? So, I decided to focus at 6 industries to begin with. That's not to say we were the only six, we're beginning withthe six and we're going to go very, very deep in other industries also.

So it's financial services, healthcare, retail/CPG. We're looking at coms media, and of course, we talked about the public sector market. And in eachof those industries, what we're actually doing is we're making sure that we have industry leaders. We're going to help drive a vision, the point ofview from an industry perspective. So when it come to, for example, auto/manufacturing, we' have Patrick Pelata who was a former chief operatingofficer of Nissan-Renault. We just hired this former CIO of Comcast to drive our coms/media strategy which is Andy Baer, and he's part of the industrybusiness unit.

We have Todd Pierce on board, who used to be the former CIO of Genentech and 20 years in the healthcare field, to help drive that part of theindustry. And we're building at our financial services industry, and also in the retail side. So you'll see some forthcoming announcement on that interms of the talent that we're holding up. And we're also making sure that we've got expertise in that space. So if you go with deep knowledgehere, example about State Farm that can go really, really deep, not just on the -- hey, here's our point of view, here's our position. But what is theblueprint? What is the architecture?

So if you're talking to anybody in healthcare, you need to be able to understand how does Salesforce integrate with Epic or with (inaudible) interms of back office systems. You need to know do you really focus HIPAA compliant. What we're doing is we've identified solutions that we'recreated. And these solutions -- an example would be Patient 360 solution. And the reason that solution is so important is because their externalforces that are driving the industry fundamentally change the way they operate.

So in New York, everybody is familiar, I'm sure with Dodd-Frank. Huge changes in the financial services industry. Huge changes in the healthcareindustry as a result of ACA, the whole payer-provider relationship is changing. So where Salesforce can play it in a role is, if you look at the ACA,one of the provisions around you get you paid, is patient engagement.

And so we're seeing demand there, but we're not packaging our solutions. But we're also bringing on board our partners. Our co-creating solutionswith us and going to market with us, very focused around Patient 360 or Member Connect when it comes to insurance companies.

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You'll look at retail. One of the biggest things retailers are really focused on is how do you make sure you're providing an A plus in-store experienceand how do you actually make sure that you know that customer, when they walk into that retail store and drive one-to-one marketing. So mobileclienteling as a solution becomes really, really important in the retail space.

So we've identified about 30 solutions across the 6 industries that were either -- we've [recruited] partners for, we're basically doubling down withISVs on those solutions or internally we're working with our own teams to make sure that we build meaningful solutions that solve really, reallylarge problems for our customers.

If you go upstairs, you'll see we've got demos and we've got engineers and architects. We're talking about our financial services player on lead andreferral management as a solution. And we've got architects who've already built out the blue prints, the road maps as I mentioned, but also theIC ecosystem in terms of how we would go to market with them.

Brad Zelnick - Macquarie - Analyst

Graham. Hi, Brad Zelnick with Macquarie. Q4, three more weeks left to go in the year, it's hard not to think about big deals. I think there's a lot ofexcitement, anticipation in the investment community. Salesforce becomes more and more strategic to its customers. Keith Block is now in placefor two quarters or so.

When you think about large deals and Q4's dependence on those types of transaction, can you maybe give us a sense of what the contribution is,either what those -- the enterprise guys contribute relative to the other three quarters of the year or even ASP to give a sense of how importantlarge deals are?

And also, on that same topic, if you think about the sales cycle for a large deal, can you give us a sense as we formulate our expectations and thinkabout what can this impact be in six months with all the changes that you're making? How do you think about the sales cycle? What the impactis? And then lastly, with Keith in place -- it's all the same topic. and I figure you're going to speak this anyway, so I'm trying to do well by my colleagueKash Rangan try to do as he does.

But just, when you think about forecasting and guiding for large deals, you've got new sales leadership as well. Has anything changed in the waythat you think about taking the inputs which now might be a little different and coming from different sources as you think about including themand forecasting them?


Okay. First obviously, I'm not going to give anybody any color, we never -- it's our policy, not to comment on the current quarter activities, so youall have to wait as I will, 'til the end of the quarter to see how that turns out.

The way I think about it is, I think Keith has bought in a lot of very talented sales people. They are industry veterans, meaning they've been insoftware typically for 20 years plus. And so, I think if there's an impact in Q4, I think it will largely be felt probably around those relationships thatthey have in the industry. I think it's a little tough if you just take what Vivek's talked about and said. That's a big transformational effort. It involveshiring senior people and involves technology build outs, involves a lot of different things, partner recruiting.

I think given, we're really in the early stages of that, I -- and that specifically I think is something we're hoping will drive more larger transactions. Itend to think of that as very much an FY '15, something that could move the needle in FY '15, not something necessary that will have a big positiveimpact. It may do.

But I think that remains to be seen. I'm sure we'll give some stats around large deals in February when we report our results, because I know that'ssomething that's the usual barometer of how we're executing.

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In terms of forecasting, I think -- it's actually been remarkably seamless and I can't necessarily ascribe a reason to that, but Keith, Tony, obviously,if you look at the vast majority of the RVPs and EVPs in the company as a percentage, we're not talking about a lot of change. We haven't reallychanged. Actually, we haven't changed our sales organization at all.

We've changed a few specific people in it, but that's roll out process and what it spits out in terms of, here's what we think going to do, is really,actually been, remarkably easy in terms of the transition from the old -- the former team to the new team.

So I talked before about the fact that we'll look at our pipeline and say, we've got some couple of million dollar deals, maybe $4 million or $5 million.We worked those into our forecast and we worked them into our -- thinking about next year. We don't tend to assume in our planning, that we'regoing to land a $20 million or a $30 million deal, right?

So when they happen, they tend to be upside. We view those as nice upside and we'll take those when they come. Clearly, if the industry strategyfulfills our hopes, we would hit a much better cadence of those really, larger transactions than we've had in the past, which has been somewhathit and miss really, between one quarter and the next. They've come a long and they've been great, but there's -- but not been a consistency ofexecution around that.

Brad Zelnick - Macquarie - Analyst

Thanks. Just a quick follow up. What early indicators are there to give you confidence that the industry approach and the changes in investmentthat is being made are really starting to pay off?


I think it's too early. Vivek has been in the role literally a few months. So I think this is a play for the next three to five years. This is not gunning topump up our Q4 number, say there maybe some marginal benefit based on the people we've hired. Again, I tend to view that as more a relationshipthing than something that's problematic that's coming out of Vivek and his teams' efforts. I think that is FY '15.


Carl, I know you've been trying to...


Graham, thanks for hosting this by the way.


Sure.


I'll get one for you and one for Vivek. Maybe, Vivek, I'll just start with you. One of the industry verticals, you mentioned you're going to take a biggerpush on, is healthcare. Can you just clarify for us, obviously, one of your partners, Veeva's a very big player in the pharma and life sciences base. Sowhen you say healthcare, I presume you mean those sub segments, maybe the healthcare insurance base. If you can just clarify.

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Sure, the payers and the providers.


Right. Not pharma life sciences.


We're partnering with [Veeva] on that.


Perfect, Okay. And then Graham, just in terms of the catalyst for these transformational changes in sales, leadership and then product specialist,et cetera. I guess I'd like to understand a little bit more, what the catalyst to those changes that Mark and you and Keith are making in the salesorganization? Obviously, Salesforce has had some great success in the past, landing large deals.

I guess my question is more, why now? Did something change in terms of what you're customers are asking for? How they want to be servicedthat had you, Mark and the rest of the leadership team decide that now's the time to make these changes?


If you take a step back, we think our commercial business, SMB has been an engine of growth for the company and it's been very much a machine.We talked about it as this machine that just executes day in, day out. And I do think of the business as sort of a day in, day out business. And it'sreally served us well.

I think with enterprise, we have grown our product range quite significantly over the last few years. Certainly, I just passed my sixth anniversary. Ithink back to when I got to the company, we were basically SFA, right? Six years, we've gone from essentially a one product company with a verysmall service and platform effort to four major categories.

Sale, service, marketing and platform and I think we still have on the enterprise side, some number of sales people, managers, et cetera whoapproached a client from a transactional -- okay, I've got 1000 seats in this group over here. I can go take that down. And that's obviously workedvery well for us over the last 15 years.

But with the breadth of the product, the momentum of the cloud and obviously all the trends that we've talked -- Mark has just talked about andpeople have just talked about in the last couple of hours. I think lend itself to just a much broader strategic discussion. And I think our customerswant that increasingly.

But in order to engage in that, clearly, you have to have credibility. And I think that's what industry is hopefully is going to provide, is that credibilityto go one-on-one with the leaders in any industry or certainly, initially just those six, and say that this is what we're going to do, this is our vision,this is what we can deliver.

I don't think it's anything more than that in terms of the timing. I think the reality is Mark's -- I think one of the most important things a CEO can dois bring in great talent, right? I mean, arguably, it's the most important thing other than setting the vision. And I think some of this is serendipity.It's not like we haven't been talking to Keith Block for a long time. Over the years, Mark knew Keith at Oracle. Some of things just line up and I'msure Mark's periodically tried to hire Keith many times, and finally the stars aligned and it all came together. Some of that is, I think just veryopportunistic and just luck or good fortune.

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Hi, (Inaudible) it seems like, three or five year approach in the strategies. I think, it makes a lot of sense, it's quite clear sort of beyond selling somethingto the entire life cycle (inaudible). But over the [billion] or so quarter, how much is actually from with that first quarter vertical wise and how muchof new deals are from all four. Can you just -- what that looks like?


We haven't given any product revenue information for awhile. It's actually something internally. I'm trying to make sure that -- I know it's somethingthat investment can be [wants]. And so I just want to makes sure before we start giving that information, we have a rock solid audit trail on all thetransaction, because we have different transactions that kind of muddied the waters on that. I think it's safe to say today that sales cloud is stillmore than 50% of our revenue.


(inaudible) five years in our deals, right? And is there a way to say, you have new deals assigned?


I mean, we haven't talked publicly about that information. And so, I think when we're ready to give that info, we'll do so. I mean, I think it's clearthat we've talked -- certainly publically, about Service Cloud and platform typically being our faster growing products. You'd expect that they'remuch newer, but obviously, now we've got ExactTarget marketing cloud in the mix.

And that certainly looks -- based on the Q3 results, that looks like it's going to be vying for first place. I mean just to give you another anecdote. Ithink we talked about this at Dreamforce. The head of platform and -- who's basically Mike Rosenbaum, actually remember he came in and spoketo the Dreamforce event. And Scott Dorsey basically have this bet going as to who gets the business to a billion dollars first.

So they're not going to do that next year, but I think both of them have a shot potentially of getting that next year and maybe certainly, prettymuch the year after that. So it gives you a sense of the scale there and obviously, Service Cloud is well on its way to a billion dollars.


Graham, (inaudible) Salesforce 1 around Dreamforce. It was clever because you basically let people use the chatter app (inaudible). And so, I presumethe adoption is huge because any chatter (inaudible). But what's the monetization effect that you see from this? Is it more (inaudible) developmentby customers on platforms, is it a platform driver? How do we think about how simple forms actually drive incremental revenue?


Ultimately, it's all still going to come down to seats. We don't have -- I mean, there may be pricing mechanism that's streaming up for some industrythat I don't know about yet. Hopefully you'll tell me, give me a better warning. But fundamentally, pricing is still seat based, and even with our ISVswhen they're -- when we're getting a revenue share from them, some of them are seat based, some of them are net revenue share.

But I think it's ultimately yes, either CIOs really taking Salesforce 1 on board and saying, I'm going to move legacy apps on to this platform, I'mgoing to build new apps, whatever they are on that platform or it's ISVs looking at that and saying -- wow, that was a great platform to start withfrom a speed to market security availability, all those things that come with our platform.

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But now, with all the API capability mobility, it's -- we're hoping clearly it's going to turbo charge the ISV business. I mean we haven't -- we gaveyou some stats at Dreamforce around the ISV business, that's been growing triple digits for three years in a row.

And I think still today, and even next year, it's -- if you take the 5 billion it's not a big chunk of that 5 billion but you go to 10 billion and it's -- I thinkthat's a big chunk of revenue there. But it seats -- I mean it's really -- there's no magic to it. I think it's just making the platform more and moreattractive to use. It's going to try creating usage.


And just to add to that, the other thing that's very interesting about Salesforce 1 that we're working on in terms of our solutions. What you'll startseeing is that we're going to be prosecuting campaigns around specific industry solutions. So that's going to really drive up or amp up the pipelinebased on vertical solutions of -- with the industries that I talked about.


Is it too early to say that there's -- I mean, it strikes me that, I mean Mark's very excited about it, clearly. Is the company excited about it?


Yes.


It seems like it's more of the barrier for developers overlap. It just seems like it's a simplification of how (inaudible) platform, and therefore tendingto it with drives our needs or adoption fairly quickly (inaudible). So is it still too early, is it --


Well, I think when you saw the press release today, I mean, there's been a big acceleration of an uptake if you like of Salesforce 1 in just essentiallyone month, so more or less doubled the mobile usage. I mean we had a mobile app on Salesforce but it was kind of clunky so we've doubled thatin one month.

So I think we're excited about it for -- evidently, we're excited about it because I think we think we view it as a game changer. I just don't knowother than Salesforce 1 what other platform out there gives you the business process capability, all of the benefits, the business benefits of thecloud and that rapid mobile development capability. I don't know what else is out there that can match that.


Cash wise.


It's all part of the (inaudible)

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Give me up five-point, a five-point question and I'm ready for it.


^ (Inaudible) part of assessment. (Inaudible) are there any changes to the way you (inaudible) sales people who are going to next year in tweakingnew business (inaudible) or any fits for the vertical solution and what would be with that?


No. I don't see any major changes. I think we feel very good about our Comp plan just to give everybody a quick refresh. If you're an enterprisetoday, you're basically getting paid by far the majority of commission on first year contract value. There's what we call a multi-year componentthat gives people a kicker if they sign a two-, three-, four-, five-year deal.

But that's significantly like a smaller proportion a day, overall commissions in that first bucket. The third bucket is renewals. And again I thinkrenewals is really -- we've had great performance on attrition, reducing attrition over the last few years. It's really for me more of a behavioralmessage to our sales people, it's like renewals count, customer there are obviously super important. We're not treating that like it's a new signingwhen they renew it.

It's again, just a smaller bucket that they can -- it's more of a negative, actually, to be honest. If they don't do well on renewals they get less commissionas opposed to something that's highly leverageable.

If you are in a commercial group, you'll have all of those buckets. We cut off the renewals at some point when it gets just too many accounts. I meanclearly you can't really have a sales person focus on renewing 50 accounts. So depending on how many accounts they have, we'll sort of cut it offsomewhere in the mid-market.

The additional item we have in commercial is the new logos bit. So basically assigning -- we want to keep focus on winning new accounts. Clearlyan enterprise, there really aren't any new accounts, like they're all allocated out and sales people are working on them. But if you win a new accountin SMB then we'll give you an added bonus. But that we're not -- that's essentially -- I think the changes will be absolutely minimal from one yearto the next.


And also (inaudible) profit mark yield and the -- should distributor endorsing, how do you plan to address this from reporting (inaudible) standpointafter you get past the, I guess the two years --


Yes. Two years this quarter, I --


How should we evaluate? How should we measure the proposal this kind of people like to have different calculations of your billings like with thatspecial effect gone. We do not disclose to him that, however we'd have calculated --

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We'll we're going to give it to you for Q4. We're not -- we're going to give you one more quarter I think. My expectation is if you think about it, sowe started on this journey two years ago and I think if you were a customer who just signed a two or three-year deal a couple of years ago, wewouldn't have quite got to renewing you yet.

So I think once we get past the second anniversary the universal companies really that are still yet to be moved from quarterly to annual, semi-annualto annual, it's going to get much smaller. So I think the impact in fiscal '15 is going to be a lot less, there's ExactTarget in the mix and I -- still earlyfor me to want to put a market down on how I think that is going to transition.

Clearly they started from a very different place to us, mid-teens, annual billing. We at least started with 60. We're trying to go from 60 to 80 or 90,then go from 15 to wherever they end up. So I -- but on the other hand it's a much more smaller dollar number. I mean they over achieved in Q3,it was $15 million extra to third revenue.

So I think while we might take all that glory detail away of these dollars (inaudible) we're still planning to give you a sense of the percentage ofannual billings, subscription business. So we're not going to make you go cold turkey. We'll give you something. It's just I need to -- it's becomingsuch a huge effort each quarter as you give that information. I pretty much have a couple people working on it full time.

Which obviously is of no value for the company whatsoever, they're just massaging these massive multi-thousand line spreadsheets. So at somepoint I think we've reached a point where it's a lot less impactful from financial point of view.

We can just give you a 70% was annual, 20% was quarter. We'll just give you a broad framework and you can figure it out from there. I can't keepdoing this. And obviously we'll essentially take those two people and put one ExactTarget because I do want to monitor ExactTarget a little moreclosely just to make sure we're making the progress.


How're you doing today?


Good.


(Inaudible) clarity. It's going to be replacement old legacy systems or brand new outpatient development projects that you recently solved.


I think it's all of the above. And part of -- what I didn't talk about earlier is if you look at the verticals that we have in Salesforce, we actually haveseen higher growth rates where we have verticalized it. For example, public sector is its own vertical with its own sales engineers, account executives,they have to speak the same language, solutions have been created for that market. So you've seen growth rates that exceed what would benormal.

And in the CBU space, we actually already have verticals around healthcare and financial services. And the growth rates there are greater thanwhere we haven't really verticalized. So a big part of that to what Graham was saying on productivity, like really making sure that we're driving notjust AE productivity but also our SE productivity.

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And part of the industry business unit is also a program that we call our Ignite program that we're scaling across the whole company, which iswhere we will go into companies and pace a transformational vision of how Salesforce could be leveraged to fundamentally transform the businessmodel of these companies.

So that could include, to your question whether it's legacy systems and migrating out of them. It could include API interfaces with those legacysystems. It could include re-platforming and rebuilding from scratch. So you're going to see different flavors depending on the industry and thecompany that you're dealing with as far as transformation is concerned.

But we will have for the first time now the ability to walk in to a potential customer in any of these industries and have a meaningful solution. Soimagine a conversation that starts not with sales cloud but it starts with -- if you're going to a healthcare provider but it's -- how do we fundamentallychange the way you're engaging with your patients, not with a bank talking about just marketing but how do we fundamentally change the wayyou up-sell and cross-sell your product.

Because if you look at most banks, the Holy Grail is to figure out, if you're dealing with a customer, how do you make sure that you have multipleproducts that they're buying from you, whether it's a mortgage, whether it's a loan?

And those are the types of solution we would have our sales engineers, NAEs walk in with the solutions that are done, but also the partners andthe [IC] ecosystem that would come in play. It's a fundamentally different way to sell and would drive deal size pretty significantly.


Vivek, maybe I can just -- there's always angst in a room like this about sales reorgs. So we've had a lot of questions about is this going to be somewholesale, reorg? And the way I characterized this -- we already had some groups, same financial services in New York who are already essentiallyoperating as a vertical sales group for sure and we have to -- the high-tech group and we have some healthcare coalescences I guess of sales peoplewho've worked together.

I haven't ruled out at some point down the road that we would move much more to a top to bottom vertical sales model but I think certainly myunderstanding in FY '15 Keith isn't looking at --


No.


These are virtual teams.


Right.


And all the obviously your group's providing the content and the results and the solutions but we're not talking about some...

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No.


Big sales reorg. Okay. I just wanted to make sure we're just clear on that.


Yes. At the Dreamforce you guys have talked a lot about pods. I mean there's a lot of interest about...


[Superpod].


Superpod, yes. And I mean it seems like the long game here, is that you guys are really pursuing the platform strategy where essentially that createsa virtual cycle of both with your own applications and an ISV ecosystem.

How is the announcement of Superpods change any conversation that you might be having with customers. And as you're pursuing -- as you'relooking at the different opportunities across the [forecloud], where do you see the, I guess the -- what's the biggest uphill battle to getting --particularly to getting to a billion?

And I think that one of the questions around the platform strategy is that -- here you have three underlying platform engines there, there's fourExactTarget, there's [Heroku]. So it's -- they clearly had taken a while to put those pieces together, piled up conversations changed and what doyou see is kind of a biggest hurdles going forward to grow and moving that forward.


If you want to -- I'll go. Maybe I'll go. I'll just talk specifically about Superpod. I think it's an announcement at Dreamforce obviously driven by anexpanded relationship with HP. We still have technical work to figure out each layer and I'll stack if you like our sales will stack, what's the piece ofHP equipment, how is it configured, and so on?

And just to be clear again, I want to make sure people understand we're not -- the HP stack if you like hardware stack will be in the Superpod. We'renot talking about changing our architecture for our core service so we will continue with our Dell storage, EMC storage, a few other vendors in thatstacks.

Clearly it's really HP architecture in the context of the Superpod. I think it's -- someone asked me this morning, I think is there a pipeline for theSuperpod and when are we going to start seeing deals. I think we're still at a validation level in terms of just putting that architecture together. Ithink there's an informal pipeline in the sense that I think we've talked to customers, I know that HP's talked to customers. And there's a list of --yes. Okay.

Once we get this thing in the next couple of quarters, here's our list of all the people we're going to go talk to whom expressed interest. And youcan probably guess as well as I can, the once that are more interested in this, tend to be the ones that are more regularly in interest whether theyfeel like they can -- or they create control around -- even though it's still an outdated center. It's still our people running the application.

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There's a sense of great control. It's not co-mingling update with any other customer, all those things that they need to sort of check, complianceof [boxes]. I think in terms of the platform, the platforms are meant to do different things. I mean I think if you're looking at business process, it'sstill Salesforce 1 that's ultimately going to drive most companies' business process application, there's no change to that.

If you think of fuel as a way for us to essentially bring in large amounts of customer data. They're operating at a dramatically different scale. Wedon't typically, in our force platform have tens of millions of records, that's not where we play with that application , it's just not what it was designedfor, but fuel has been designed for that. And we can seamlessly bring ExactTarget, any happenings with the ExactTargets that was on the infrastructureinto Salesforce 1.

And then Heroku is really much more about very, very, rapid prototyping and delivery of customer facing websites. It's again not a business processapp, it's not -- it doesn't have the same levels of security availability, that still runs on Amazon today. But if you were just wanting to build -- if you'reESPN or you're Ann Taylor, you just want to use one, the capability to deliver lightweight customer-facing app, is just a very quick, low-cost way todo that.

Again, if you want to bring that into the Salesforce 1, you can do that through API. I actually want to add anything to that...


(Inaudible)


Just a follow-up on this product. You ask some folks about Salesforce 1, if it's all your customers spent money, sources of people on developingmobile apps, this is like one-way that Salesforce (inaudible) restriction to remove this cross-selling of customers that's really all about them to makeit easier to logout the application locally. Change your pricing in any way if we basically have the same pricing scheme with 400 platforms or just(inaudible) tried before?


Yes. It has...


Second question. You commented that you got some incentives in Q3 for ExactTarget sales as part of your core sales team particularly --


Yes.


Was that a one quarter incentive? Was it something you continue at Q4 or is it just a one-time (inaudible)

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So the first question, we haven't changed our pricing on the platform. I think most customers view mobile as table stakes. We used to chargeindirectly to mobile through unlimited edition UE. When you upgraded from Enterprise to UE, you kind of got mobile thrown in as a part of that.But there are a bunch of other things that you got, if you got bigger Sandbox, you got more platform capabilities. You got a bunch of other things.

So it was always really tough to know really on that price uplift where people frankly were paid for mobile. I think the world we're heading into islike -- it's like trying to charge for user interface. It's just part of the infrastructure and the idea that you would say --Here's your platform seat, butif you want to have it on a mobile device, we're going to charge you extra. I don't think that strategy is going to serve as well.

And so I think there's been a big investment in terms of people well over 100 developers working on Salesforce 1 for certainly well over a year. Atsome point -- having that out the door is great. We can repurpose some of those development resources. Now we've got the version 1 out.

To answer your second question, it wasn't a one-time incentive. This is -- we basically put a through the end of the year, if you pass the lead toExactTarget, it's qualified lead. They closed the lead. Essentially the contract value is going to account towards your quarter, account towards yourcommission calculations, all those. And essentially was a total freebie for just these last two quarters of the year.

We really wanted to see just how fast we could amp up ET, because clearly that was the big part of the rationale for the deal, right. I mean theyhave a few hundred sales people. We have a lot of sales people. And I think I've said anecdotally in the past, if ever I go to a sales event or used togo to sales event, sales people is like -- when are we going to get email marketing?

I can really feel email marketing. And I know that might not seem the sexiest things sometimes to people here but it is absolutely still the workcourse of marketing our nation and it's proven to be true. I mean the lead [parse] has been phenomenal. And I think it's really helped ET have a --


Respectively Salesforce sales average could make their quota for the year.


I mean the likelihood of, I see them a standing start in June, it's not like they're going to displace a ton of Salesforce sales. I mean we're talkingabout maybe having one or two deals each as -- I view it as a kicking on top of the basic performance and they're pretty happy about it. Next yearour plan is we're going to build it into the quarters. So it's a one-time deal for Q3 and Q4 that they get really this bonus outcome next year. It justall goes into the overall quarter.


Right. Can you...


Go ahead.

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Right. If you're talking about -- you've mentioned ISVs and successes you've had in that market -- it's really brought out pricing structure for them,works on the platform, especially if it starts to scale on grow, have you had to re-negotiate with your ISVs on their pricing and how has that gone?How do you balance, not pressing them too hard, but also at some point getting them a volume discount as well?


The answer is no. We've not had to negotiate yet with Veeva or any of our other really large ISVs. I mean they typically signed minimally three yearscontracts, some of them have signed five-year contracts. I think you hit the nail on the head. I mean I -- we don't want to be viewed as a platformthat once you're on it, we're just going to gouge the hell out of you and where business can suffer accordingly.

I think we're all about growing fast about proliferation of the platform. And so I think we will tread a -- hopefully the right line between getting thevalue. I think if you look at it -- I mean that's what to me has been at some level amazing, is just how larger companies still -- established companiesjust say or avoided force.

If you look at our ISV community, it's largely been new companies that have rapidly and grown up. If you look at the economics from their point,speed to market, all the benefit, I mean it's an insane deal for them. And I think we still want people to feel that they're getting great value fromthe platform.

I think when we're in a very different place, when we're growing 5% a year, and we're sort of jacking up prices on customers and partners, I thinkthat's a long way to the future. I think we're all about growing the user base, growing the number of seats, proliferating platforms. I think we'll bejudicious in how we negotiate those windows.


Just as a quick follow-up. Are the economic better for Salesforce than the seat based revenue share or a net revenue share?


I don't think it matters because in the end it will come down to the percentage we negotiate so it's just dependent on that really.


One for Graham, I had a couple of follow-ups for Vivek. Gartner came out with the first measure quadrant around platform, as service platform.And had you as the leader in the leader quadrant and Microsoft as the only other in the leader's quadrant. Whole [graft] of guys in the visionarybox and Oracle frankly off the page. Does that match to what you guys see out in the environment?

And maybe this is for Vivek in terms of who you actually compete against when you went to the market. Is it mostly Microsoft and then everyoneelse is a step behind?


Yes. I think that's fair. I mean I hear, as you mentioned why sales people in sales situations and I think people -- they're in every account. Peopleview Microsoft as having a viable cloud platform.

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I mean it's clearly very different in a sense to how made off with lots of different options. And I don't think quite offers the mobile capability clearlybecause they have a different vision about mobile to us. And also I think I shouldn't say -- I shouldn't assert this but I would imagine I'd be willingto take a bet that our API coverage is significantly better than theirs. But I think they have a viable story and then I think, yes, beyond that it's -- Ithink I've got it right. It's just a bunch of much, much smaller players who are trying to get traction in the market.


Got it. And then to Vivek, one follow-up on the first question that we started off , I think it was you that put into place that government throughthe cloud first, initiative was in the federal government, you're involved with that. Had that had an impact in terms of really pushing Federalgovernment entities more towards cloud solutions?


Yes. I think if you looked at whether it was I believe $1.2 billion deal with Concur or the CIA, $600 million deal with Amazon, I mean across the board,what you're seeing now is on agencies like CIA and some other security agencies are moving in that direction, absolutely.

And I think part of it is also -- you're going to see lessons learned as a result of failed IT project. Every government is beginning to say now, we wantto see value the day we sign a contract. We do not want to wait three to four years and have these IT projects fail. What I was excited about todayfor example was Kenandy. If you look at most governments around the world, and I would argue be most corporations, ERP systems are a disaster.

So I know the federal government, we ended up halting about $20 billion worth of ERP systems and de-scoped and terminated a bunch of them.And you look at companies like [Workday], they're doing some really, really interesting things and agencies are beginning to move in that directiontoo.


And then the second follow-up was in -- you talked about how growth in your vertical industry groups, has been vast and [innate] overall business.Have renewal rates in vertical triggers been better than in the overall business or do you expect them to be better than overall business becausethese vertical solutions will be stickier or these are large enterprises, they would add very high renewal rates anyway?


Feel free not to answer that.


I mean I don't have the data on those renewal rates but I think as we look at the solutions that we're deploying, at the end of the day when you'resolving a big problem, most buyers, and I've been a buyer, you're not really looking to buy a point solution, you're looking to solve a meaningfulbusiness problem.

And as you're moving that direction, as you move up in terms of deal size, you become a partner with whatever organization you're dealing with.So obviously they're going to be a much more invested in making sure that the project is successful as we are.

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If you could follow-up with that. Going back to the point about the government, what is the case of (inaudible) agency response (inaudible) wasjust behind on the technological growth. And you just mentioned CIA and agencies being which, were aware of (inaudible) with that again,(inaudible) for the government is really (inaudible)


Yes. I think it comes down to that agency of leadership. And what ends up happening is you end up having leaders and the teams that are stillstuck in the 1960s, and so they're implementing legacy IT because they know it, entire teams were built that way, and then the procurement processhistorically hasn't been very pro-innovation.

So you end up taking the path of these resistive which always leads you back in time, and that's one of the big problems. And what you're seeingis governments around the world actually are moving in that direction whether it's a Canadian government, the Australian government, and theU.K. So the U.K., they launched an entire G-Cloud program where they've got vendors such as Salesforce as part of that. And now they're procuringagainst those platforms. So how do we procure this next generation of companies rather than going back in time?


(inaudible) how different is it in terms of people (inaudible) versus their variable (inaudible).


I think that the local government, given their size, they move a lot faster, like states and local governments, they had to move a lot faster than thecentral government.


What if you plan to release an app that will help you develop (inaudible)?


Hash tagged it.


No. I mean I've been nominated for [EQ] (inaudible) but obviously that is not the question. (Inaudible - microphone inaccessible) next year or(inaudible - microphone inaccessible) or as a sales people, the broader Salesforce sales people, is everybody going to be given quota if so, ExactTarget.

Within ExactTarget, I know that you talked (inaudible) but I'm trying to see how much product response (inaudible) is going to be expanded withinyour average sales organization. If that's a lever or a growth through the next year?


I mean I'm not going to say every sales person will carry a quota. I think clearly a lot of exact target's business is [BC] focus if you're in a -- if you havea set of accounts that are all B2B, you'll probably have less, hopefully then if you've got Unilever, as your account.

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So I think we'll try to be sophisticated about how we allocate quarter out, it won't just be peanut butter. But yes, I think I've been in this game fora long time and I think essentially you want to have -- if you want to have your -- hundreds and hundreds of Salesforce accounts execs deliveringthe right message to customers or a multi-product solution capability, we would be stupid not to give them that, as I talked earlier, that behavioral,it's like renewals.

We want you to be involved in renewals. Even though you are going to obviously have to partner with your ExactTarget sales rep who's the expert,we expect you to sell X hundred thousand dollars of exact target next year and that's in your numbers. And you will get paid on it just so you getpaid on everything else, but yes, there's a little bit of an additional collaboration step to get the team selling approach.

But at the end of the day, that's really not that different to a service rep or a platform rep. I mean they're all in the end a product specialist. ExactTargetjust have a very large product specialist group, and clearly they have their own accounts that went all in. I mean there's some situations like thatwhere they're helping us get into an account.


Are you (inaudible) representation or if it's in the Service Cloud product portfolio, platform product portfolio within the sales cloud, Salesforce asthe years progress. You're seeing one of the layering effect (inaudible) product rep.


I think in commercial, yes. But I still think that I -- at some level it's more important what Keith thinks, and I think Keith talks --


(inaudible)


(inaudible) that, Keith. You certainly (inaudible). I think Keith Block's observation is that we need just one more year in think of investment surgein that platform of service -- not. I think there's definitely been improvement in our core sales team's capability to sell those.

But I think once you start looking at Comcast, that the scale of which some of these companies operate in, it's just -- there's a limit I think to howmuch you can expect somebody to take on as a core competency and be credible.

And I think it's the same with platform if you're looking at a very broad solution sale and you need to know all the architecture and the interfaces.And I mean it's -- some of these solutions and sales situations are very complex. I'm involved in some accounts, all of the executive team is involvedin a set of accounts.

I have a few financial services accounts that I call on and the complexity, you know what it's like. You work in one of those large organizations. Itgets very complicated very quickly, so if you're talking about platform, is the average sales person going to be able to tackle it for 80%? Yes. Butfor that 20%, I think it's really important that we have someone who is at a different level. Yes.


Graham, geographically, [detachment] has been a drag (inaudible) Are we to just wait for the macroeconomic back drop to improve a little bit orhave you guys made any operational changes for the calling out that might help accelerate even if the economy states were declined?

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So we think of Asia-Pac generally, so when we look at our growth rates, obviously, America has been very strong, Europe's been very strong. I guessI would argue probably equally more or less tough macro back drop to Japan. And certainly Australia has actually had a relatively strong economythe last couple of years.

If you think of Asia-Pac, it's broadly Japan, Australia, and ASEAN. ASEAN's actually been doing really well both in commercial and enterprise, but isclearly the smallest component of the region. I think we -- Australia commercial rolled along, it's been fine. Australia enterprise, we changed outthe leader probably six to nine months ago.

I think you have to always go through Q4 before you start to say -- okay. We've got the right person but our assumption is we've got the right leaderfor that country and that'll be great. Japan has been tough for us. So I think Keith actually is in Japan this week and so is Tony Fernicola. So I thinkthey're -- again commercial's been relatively issue-free.

They have again -- it's the machine, it keeps executing enterprise. Clearly a few years back we had some of the largest deals in the companyhappening in Japan, platform was on fire. I was willing to wait for some period of time after the earthquake but I think we have to look at otheralternatives and other potential answers for Japan.

I think Keith and Tony are trying to understand what the issues are whether it's -- are we hiring the right kind of sales people, is it leadership issue,is it a communication issue? Are we providing them -- as I said, we practically expanded our product capabilities, do they have the right materials,they have the right sales training? I mean there could be any number of reasons but I do know that it's a priority for Keith and his team to figurethat out because it's a substantial drag on our growth rate when we've got two regions growing at 30% plus and then we've got one region growingin the teens. It's a problem.


We're getting towards the top of the hour here so we probably have time for one more question.


Vivek, (Inaudible -- microphone inaccessible) on the solutions that you're going to have to decide if those are focused on. Again, how many ofthose solutions are somewhat adjacent to a business process that you guys were already active with the customer? And how many of them haveyou set up to be, these are big problems that CIOs or COOs are really thinking about that -- it doesn't necessarily have to do directly with the salesside. They might be part of the solution but it's not.

And this is an adjacent solution of what you might already be doing with Salesforce. I guess the question is, if you guys were successful in -- aroundthose [30] solutions, should your -- I guess should your relevance to the CIO -- CEO community go up pretty dramatically. Meaning to really besuccessfully around some you really had to have that level of, I guess, support within (inaudible).


So I think if you look at the portfolio solutions that we're going after, generally they are all multi cloud solutions. And the reason they're multi cloudsolutions is because the problems we're going after are where you have a significant [tap]. So what we don't want to do is invest the energy, investin terms of the blueprints that we're putting together and build up teams if the total addressable market is insignificant.

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And if our initial approach is to look at it as bottoms up, to let our customers lead us, where we've had very, very successful implementations, butwe haven't reflected all of that data package in a solution, brought in missing components from a technology perspective or partners and drivencampaigns around that from a marketing perspective too.

And then you move into where do we also develop core IP that may be necessary to go after certain verticals or certain problems that we're tryingto solve. So when you look at lead and referral management solution, now that we have ExactTarget bringing that technology plus service platform,you can create a very, very meaningful solution in the financial services space, whether that's in retail banking or that's in insurance, that would beextremely impactful.

And then you would have to bring in some ISV components and partner as we craft those solutions. But part of our strategy there is to make surethat as we create the solutions that we're approaching them with a multi cloud approach.


All right. Thanks very much. Thanks everyone for coming. Thank you, Graham. Thank you, Vivek for your time today. And if you have any follow-ups,you can reach out to me directly. Thanks very much.

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