Pity Marc Benioff. Sure, his net worth may well exceed US$250 million when Salesforce.com, the company he helped to start in 1999, goes public, probably in the next couple of months.
But until then, Benioff, a boyishly brash chief executive whose large personality matches his bulky 1.96m frame, has to walk around with a government-mandated mute in his mouth: the quiet period that precedes the sale of stock to the public. That means no boasting to the world about how his company, which might just prove to be the hottest public technology offering this side of Google, will become the Microsoft of the 21st century.
The joke a few years back, when Salesforce was just another dot-com burning through cash like L. Dennis Kozlowski on a spending binge, was that the company would always remain private because Benioff could not survive the quiet period, which is required by the Securities and Exchange Commission. Salesforce filed to go public in mid-December, imposing on its employees, and especially on its gregarious chatterbox of a chief executive, strict rules governing what they could and could not say about their company.
PHOTO: NY TIMES
"This must be the toughest six to nine months of Marc's life," said Zach Nelson, a onetime colleague at the Oracle Corporation whom Benioff describes as a friend. Nelson runs NetSuite, a small company based in Silicon Valley that nominally competes with Salesforce.
During the quiet period, companies tend to limit reporters' access to their executives. For instance, Eric Schmidt, the chief executive of Google, is about as visible now as Vice President Dick Cheney was in the months after Sept. 11, 2001.
"Most companies are extra cautious during the quiet period," said David Menlow, the president of the IPO Financial Network.
Benioff, by contrast, recently permitted a reporter to spend a day following him around, a visit that included hours of one-on-one time, much to the chagrin of the high-priced lawyers the company has hired to help him negotiate the tricky byways of going public.
"There's quiet, and then there's Marc's version of quiet," said John Dillon, Salesforce's chief executive from mid-1999 through late 2001. "He loves the media attention and courts it like no one else in Silicon Valley."
In part, Benioff said, he has no choice. He sells the kind of product that only a sales executive could love: a simple, efficient way of tracking a company's customers and prospective clients.
Muted
Certainly Benioff would have a lot to crow about. "The SEC prohibits me from making any statements that would hype my IPO," he said, a statement he repeated whenever the conversation drifted even close to the pending stock offerings.
Documents that Salesforce has already filed with the agency do much of the talking. His company's revenue has at least doubled every year since 2001 and was US$96 million in the fiscal year that ended on Jan. 31. The business has had a profit for three quarters in a row but showed a US$1 million loss in the most recent quarter. Given how unusual the Google IPO promises to be -- "Google is in a category all its own," Menlow said -- Salesforce may offer a better measure of Wall Street's appetite for technology public offerings.
Salesforce also provides the perfect lens for watching one of the more interesting, and potentially significant, trends in computers.
Benioff is inclined to use the word "revolutionary" to describe his service, and not without reason. Unlike most software makers, Salesforce does not sell a product that is installed in the buyer's computer. Instead, the company leases software to subscribers who pay a monthly fee. The company maintains its customer-related software on its own computers; subscribers can visit Salesforce.com whenever they choose, courtesy of an Internet browser much like one that would connect to, say, Amazon.com.
Benioff did not invent the notion of software as a service. It dates back to mainframe computers in the 1960s. But he has become its most forceful advocate, taking any opportunity to declare the era of installed software dead and to taunt larger foes who use that method. He has focused mostly on the US$7 billion customer-relations market, now dominated by Siebel Systems. But he has said the simplicity of his software-as-service strategy will allow him to cash in on other rich markets, including human resources software and invoice management.
At times, Benioff, who is 39, seems to be a mess of insecurities. In late April, for example, he gave a seemingly routine sales presentation, then asked a reporter how he had performed. But in the next moment he can be as over the top as Lawrence Ellison, the Oracle chairman and co-founder, whom Benioff describes as a mentor, role model and friend. Over lunch at Spago Beverly Hills, he took several jabs at his favorite punching bag, Tom Siebel, the founder of Siebel Systems. Benioff listed the many ways he had bedeviled Siebel, once a friend who almost became the majority investor in Salesforce. For instance, he has staged stunts to distract attention from Siebel Systems' user conferences.
Phone sales
His formal career began in 1986, when he was 22: he was offered a phone sales job at Oracle shortly after it went public. Benioff quickly climbed the Oracle ladder, working a variety of sales and marketing jobs with increasing responsibility. At 26, he was named marketing director of the company's fledgling efforts to secure its core database product a place on personal computers, in no small part, he said, because he had quickly become a favorite of Ellison.
Benioff is a curious mix of capitalist and squishy idealist, a not-uncommon blend among Silicon Valley's young entrepreneurs. He has a pronounced New Age side, shown when he spoke of Ellison's "negativity" or described his own extended trek through India in search of spiritual enlightenment while on leave from Oracle in the mid-1990s.
One percent of Salesforce's profits are diverted to a foundation that Benioff created when founding his company, and employees have six extra days off a year to volunteer in any community program. The foundation also owns 1 percent of Salesforce's stock.
But there is nothing New Age about Benioff's rivalry with Siebel, which is nasty even by Silicon Valley standards.
Six years ago, Benioff met Siebel for lunch. The two had worked together at Oracle in the second half of the 1980s; when Siebel left Oracle to start his company in the early 1990s, Benioff invested US$50,000. By the time of the lunch, Benioff was feverish with the idea of a product that allowed employees at large organizations to have access to crucial software over the Internet, using a browser. He hoped to team up with his erstwhile colleague, who already dominated the very market he had chosen as the obvious first target. He said Siebel seemed amenable.
"We even came up with a basic financial architecture to our deal," said Benioff, who was still working at Oracle at the time. Siebel Systems, he said, "was going to own two-thirds of the company, and I was going to have a third." In Benioff's telling, however, Siebel had a change of heart. Instead of envisioning a separate company in which Benioff would own a significant stake, Siebel imagined Benioff as a top company executive, compensated through a generous stock option package; Benioff said no, thanks. Siebel disagreed with that version of events.
"There is no truth to this," he said last week. "I am very surprised that in this era of public scrutiny a CEO of a potentially public company would make such a misstatement."
Eager billionaires
Nevertheless, in Silicon Valley, there is no shortage of billionaires eager to invest in interesting ideas. Next, Benioff turned to his friend and boss, Ellison, who in early 1999 gave him US$1 million in exchange for a sliver of the company.
Benioff also invested some of his own money. The US$50,000 he had invested in Siebel Systems was worth "in the eight figures," US$10 million or more, when he cashed out his shares in 1999, and he figured that his options from Oracle were worth US$20 million to US$30 million.
"I set up three developers in an apartment next to my house," in San Francisco, Benioff said of Salesforce's co-founders. "I'd check in with them in the morning, before work, and then again in the evening."
Ellison chipped in another US$1 million that summer, after Benioff showed him a rough cut of his product while he was visiting him on his yacht, anchored in the Mediterranean off Cannes. In December 1999, at 34, he quit Oracle for good, to venture off on his own.
Three months later, Salesforce started its service in grand dot-com fashion, at a party that included the B-52s band and cost US$250,000. Benioff said he timed the introduction with a large Siebel Systems users' conference in San Francisco, staging a faux protest to ensure that he would gain considerable publicity.
"We applied for a permit from the city to march against software," he said. "We claimed it was hurting the American economy. It was creating landfills full of CD-ROM's," he said. "And the city granted it to us."
Back then, Salesforce was just a blip on Siebel's radar screen.
"The truth is, we didn't really compete with Siebel at all," said Dillon, who became chief several months after the company's service started. "We were competing with these other smaller entities, but Marc understood that by setting ourselves up as challenging Siebel, that would make sure we got our name in the newspaper."
In 2001, Salesforce had US$5.4 million in revenue and spent US$25 million on marketing; last year was not as extreme, but it still spent 65 percent of revenue on marketing.
Was it money well spent? Benioff started his company at the beginning of the dot-com bust, just as corporations were growing wary of investing in unproven new technologies that promised to save them money in the long run. Yet Salesforce has signed up 10,000 customers and nearly 140,000 users, each of whom pays US$65 to US$125 a month for access to smartly organized storehouses of information about their customers and potential clients that Salesforce maintains on its computers.
Benioff says he is convinced that more and more companies will lease their software via the Internet.
Rather than pay a monthly fee, a company that buys a Siebel system pays an upfront cost of US$1,700 to US$2,500 a user; that doesn't include the endless hours of in-house technical support and expensive equipment needed to make the system work.
Timothy Chou, who is overseeing an effort inside Oracle that allows customers online access to a range of its products, including procurement software, purchasing and supply-chain tracking, said, "We believe that software on demand, software as service, is the future of software."
Halsey Minor, a Salesforce investor and a founder of CNET, said, "It's not a question of if but when this model for delivering software replaces the delivery of software as an application installed on a corporation's system."
Not everyone is so sure.
Hitting a wall
"I have no doubt in my mind that Salesforce.com will hit a wall, and sooner rather than later," said Liz Roche, an analyst at META Group who has been covering the customer-relations management field since its inception in the early 1990's. "For small and medium-sized companies with limited IT departments, Salesforce is an amazing fit. But for larger companies, I just don't see it."
Roche also wonders whether Benioff has stuck with his anti-Siebel campaign too long.
"Some of their stunts are funny, but the general consensus from users I spoke to is they have the feel of becoming little ankle biters," she said.
Not surprisingly, Benioff dismissed Siebel's online offering, Siebel CRM OnDemand, which made its debut at the beginning of this year, just as he has shrugged off offerings of Oracle and other much larger competitors.
"By getting behind this, they've validated the market for us," he said.
Yet where Benioff will only lease his product, his competitors allow customers a choice: a corporation can install software on its systems or gain access to the product via the Internet, said Keith Raffel, who oversees a product similar to Salesforce.com developed by Siebel. Several years ago, Benioff was quoted as saying Salesforce must start signing deals for 10,000 users to reach the heights he imagined. Yet his two largest customers have roughly 2,000 users each.
Benioff was like a dog straining on his leash when the topic turned to his company's lack of large corporate customers, an off-limits topic given SEC regulations, but he fought the impulse.
Still, he keeps talking. On the day he allowed a reporter to tag along, Benioff made a sales call on a modest-sized business considering a half-million-dollar annual deal. He asked for five minutes to talk to the client about Salesforce, then spoke for 40.
"That was a little longer than five minutes," he said.
Then, after apologizing sheepishly, he proceeded to talk for 15 more.
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