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On The Cover/Top Stories
Salesforce.com: The Web's Big Upstart
Victoria Barret, 12.06.10, 12:00 AM ET

Marc Benioff simply can't let go. Beefy, intense, talkative, uninterruptible, jovial, sarcastic and relentless--his ferocious tenacity
makes the cofounder of Salesforce.com a great pitchman. It also makes him irrepressibly obsessive. Benioff constantly relives
his public performances (did he prep enough? make his message come across? get the audience right? did they laugh?)--and
sometimes revisits and dissects the keynotes of others.

As when Larry Ellison recently paid him the ultimate backhanded compliment at Oracle OpenWorld, a big-tent revival for IT
conventioneers, calling Salesforce "a very successful application on the Internet." In software terms that's like referring to a
fellow male's assets as "adequate." Ellison--who has been by turns Benioff's boss, investor, mentor and sometime tormentor--
didn't stop there. "It's not really a platform," he said. "It's proprietary . . . not virtualized." Translation: Salesforce is a bit player,
not yet ready for the majors.

Clever one-upmanship but hardly accurate. Benioff left a top spot at Oracle a little over a decade ago to launch Salesforce and
has since created a $1.4-billion-a-year business selling Web software to sales departments. Salesforce tracks a slew of sales-
rich data--leads, detailed histories of who bought what when, and how to reach them. Benioff was the first and loudest
cheerleader of the software migration from servers (manned by a battalion of techies) sitting inside companies to the Web. He
has weathered skeptics and detractors and waited for the rest of the industry to catch up slowly. At $15 billion in market
capitalization, Salesforce is one-tenth the size of Oracle. But, since going public in June 2004, it has returned an average 36.8%
a year to investors, compared with 15.1% for Ellison's company. (In fairness Oracle returned an average annual 36.4% during its
first six years of public life.)

Yet for Benioff, who at age 46 is worth $1.8 billion, that's not enough. Neither is being the leader in a sliver of the $294 billion
software industry. Size trumps everything in this business. Customers don't want to deal with dozens of niche players to patch
their systems together. As they seek to become all things to all clients, tech titans are rapidly getting into one another's
businesses (Hewlett-Packard has acquired data services and storage businesses; Oracle bought Sun Microsystems, the
computer server maker). Silicon Valley watchers are saying that even SAP, the German software firm with a $61 billion market
cap, could soon become a larger company's prey.

In the absence of size, Benioff is hustling to convince the world that Salesforce's technology is the optimum base--or platform,
a.k.a. "cloud"--for the next generation of business software built for the Web. From complex accounting systems to the stuff that
tracks employee performance, compensation and inventories, he'll bring it all together and run it for customers in his data
centers, saving them the headache and upfront cost of buying hardware from Ellison's shop, HP, Dell or IBM. "In ten years,"
says Benioff without a lick of irony, "I want us to be the largest and most important enterprise cloud computing company."

On the third day of Oracle OpenWorld, Benioff showed up to speak, stuffing a hall with followers. "We come in peace. We are
the cloud people," he began to laughter and applause. "We're here to show you the potential of a new world." One audience
member described it "more like Sunday morning at a Southern Baptist church than anything you'd find at a tech conference."

Where does this evangelist want to lead his flock? To a future where Salesforce is the hub of a sprawling empire of other
people's software. Benioff doesn't want to build it all. That would crush his 8% operating margins (compared with 26% for
Oracle). With only $742 million in cash, he can't acquire his way there. Instead, he is betting that Salesforce's mix of software
building blocks and 82,000 customers will lure developers who aren't yet on his payroll. They write apps that tap his existing
templates and run on his machines; he rewards his salespeople for selling the stuff and takes a 15% to 20% cut of every deal.

That's the idea, first launched three years ago. So far Benioff has 170,000 apps written by other firms running on his technology.
Impressive, but half support sales tools (that "very successful application"), and only 1,000 of those are available to the outside
world. The rest are hidden inside companies that have created custom code alongside Salesforce software they're already
running. This increases the stickiness of Benioff's software with existing customers but doesn't help him bust out of his corner.

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His dilemma: Benioff now touches, on average, only 20% of a customer's employees, mostly those in sales; he is all but
unknown in finance, R&D, IT, human resources, manufacturing, legal and logistics departments. He needs a hefty portion of the
other 80% to make it worth a developer's time to commit to the quirks of his code. But how to attract the developers if he's not
big enough to get them interested in the first place?

Benioff's answer is Chatter, a new program launched in June that acts like a social network inside companies. Just as Facebook
members post their latest vacation photos and spark conversations with buddies, someone in a marketing department, say, can
post the latest version of a new ad and get instant feedback from his entire team on Chatter. A potential customer deal, new
store opening or marketing campaign can have its own page. Interested parties can post their thoughts and receive automatic
notifications of others people's posts to the page--without having to claw through a lengthy chain of e-mails. "Why do I know
more about my friends on Facebook than I do about my own employees?" Benioff quips, leaning back in his SF Giants jersey
and black slacks.

He has always been a remarkably in-touch (some would say in-your-face) CEO, one who has that charming knack for recalling
others' personal details. He has long broadcast his e-mail address to anyone within earshot and has no handler doing his
responses. And respond he does, spending an hour each morning firing off a good 150 brief, typo-laden missives from his
BlackBerry while churning his 6-foot-4-inch frame on an elliptical machine in the basement of his home office, a restored
Victorian in one of San Francisco's tony residential neighborhoods. (He does so, he sheepishly reveals, with the Today show on
in the background.) Staying connected with customers, the press and Wall Street carries an implied threat with poor Salesforce
performers: A bad run-in with a client might just end up in the big boss' in-box.

Benioff's larger-than-life reach has been supersized, thanks to Facebook and Twitter. He posts daily updates to both, mixing
Salesforce announcements and news of the children's hospital he has committed $100 million to build, with updates on which
new phone he's testing out and queries about the best protein powders. "My most popular posts are about The Bachelorette," he
says, in his accustomed dry tone. (Benioff, by the way, is married, with a child.)

What do status updates have to do with scaling up in the software industry? Chatter is Benioff's strategy for getting inside the
walls of a company, and spreading beyond the sales group. Easy to use, it's designed to reach anyone in a company who can
profit by talking online to someone else inside. "Your business is tweeting you," Benioff argues. "A deal just closed: Tweet. Your
customer is very upset with you that you have a bug in this product: Tweet. This person just came to your website: Tweet."

Benioff constantly posts to Chatter. Every one of his nearly 5,000 employees is on it, but true disciples--the "Chatterati"--are
called out, even invited to what was once an exclusive annual gathering of the 250 top managers, where they share their views
of the company. Benioff singles out the weak participants, too. On his own Chatter page, with the entire company watching, he
sarcastically complimented one staffer's head shot (the guy hadn't uploaded one).

So far Salesforce employees are using e-mail 40% less than in the pre-Chatter era. Roughly 20,000 companies are using the
application, too, including Sprint, Avis, Dell and McAfee. A few are trying it in nonsales divisions. Chatter is something of a loss
leader for Benioff: Existing customers pay nothing for it, and others--constituting negligible revenue--pony up $15 a year.

Similar social tools, of course, are all the rage. Oracle's upcoming launch of Fusion, which knits together many of its app
acquisitions, incorporates social networking features. People can post status updates and join groups. SAP is doing this, too.
"The heaviest use for Chatter will be around sales," says Zach Nelson, who runs Salesforce rival Netsuite (which is backed by
Ellison). "Meanwhile, every application will have a social component, and it will be free."

The real threat might come from below, as Benioff knows well. Upstarts Yammer and Jive Software are selling similar social
networking tools for businesses. In only two years Yammer has lined up 1.5 million members, entirely by word of mouth. That's
three-quarters as many people as Salesforce has using its software, though there's one, big difference: Anyone with a corporate
e-mail address can sign up for Yammer, free, and connect with others in the same company. But if your IT or legal departments
are concerned about having to archive those communications or beef up security, Yammer charges up to $5 a month per
member; only 15% pay. But they include big names such as Pitney Bowes, Nationwide and AMD. "Salesforce will be a tab
inside Yammer," boasts cofounder David Sacks.

Salesforce customers seem divided. "Chatter lets me see the whole, unvarnished picture," says Michael Dell. "It has
dramatically increased my knowledge of what's going on here." One big Salesforce customer is more hesitant. "Does every CEO
really want to give every one of his employees that much visibility inside?" he asks. "It could backfire. There's a fear of that
rogue employee who uses the system to embarrass the company."

Benioff, of course, doesn't view the world that way. "Salesforce is a culture of no secrets, and that includes me," he says. He
believes transparency keeps his company in synch with customers and is one way to constantly poke the status quo. Using
Chatter, he publishes his professional goals each quarter and expects others to do the same. Compensation is in part based on



reaching those goals. He recently asked his nearly 5,000 Facebook friends to vote on two competing Salesforce advertisement
mock-ups; theirs was the final call. Before Dreamforce, his big annual conference in December, Benioff spends weeks laboring
over his speech, but the real test is when he has ten or so customers come in to critique a rehearsal over pizza and soda.

"Nothing is sacred," says Parker Harris, his buddy, cofounder and head of Salesforce technology. Case in point: The two
clashed over Chatter, with Harris insisting it was merely a feature to tuck inside the core sales offering. On a flight back from a
sales event in Las Vegas last year Harris showed Benioff an early version of the app. Benioff said it wasn't enough, and Harris
explained that other projects, including forecasting and calendar tools already in the works, would suffer. Benioff's response:
"Everything can't be important."

But is Chatter the best lure for developers--and for Benioff's grand plan to lead Salesforce to software's promised land? "No
respectable developer wants to be on Salesforce's platform: The code base is old, a lot has changed since 1999; newer
development tools are better for rapid, iterative work," says John Dillon. He should know. Dillon ran Salesforce for two years
after its founding (before Benioff decided he wanted to be both chairman and chief executive). Today he runs Engine Yard, an
Amazon.com-backed company that sells developer tools for the Web--competing with Benioff for the same programmers.

Narinder Singh, cofounder of Appirio, which develops software alongside Salesforce, disagrees. "It gives you the frame of the
house to build on top of. All the crucial but tedious stuff developers hate doing--reporting, data mining, security--is taken care of,"
he says. Benioff has been savvy about opening his technology to developers who can't be bothered with Salesforce's language.
In April he linked with VMware, the virtualization company, so that 6 million Java developers can easily tap into his technology
while still writing Java code.

Benioff's biography is punctuated by deliberate effort and showmanship--constantly proving the doubters wrong. Growing up in
Hillsborough, Calif., a leafy, affluent suburb 20 minutes south of San Francisco, he spent weekends schlepping inventory among
his parents' chain of local women's clothing stores--for no pay (he earned money cleaning cases for a jewelry store). With his
eye on a RadioShack TRS-80 Model 1 computer, Benioff saved enough to buy it. When the jewelry store fired him after he
slicked up the floors with the wrong soap, he decided to fatten his bank account by programming. He wrote his first code, a how-
to guide to juggling, then started writing reviews of software games.

One of the publishers he covered invited him to develop games. Armed with his new driver's license, Benioff took off in his
grandmother's Oldsmobile Cutlass to meet his new boss. Soon after, he roped in his friend Steve Fisher, and the two spent
weeknights and weekends coding fantasy games. Fisher now heads the platform technology effort at Salesforce.

Benioff paid for college at USC working summers as a programmer for Apple. He deliberately majored in business, knowing he
wanted to run a technology firm. His inspiration came, in part, from a series of lunches with Henry E. Singleton (1916-99), the
brilliant electrical engineer and cofounder of Teledyne, who reached out to Benioff after using some of his Apple code to create
a chess game. "He lived in a palace in Bel Air," recalls Benioff. "I still remember the fresh-squeezed orange juice. He was on
The Forbes 400, and I thought that was amazing." Singleton urged him to become an entrepreneur. Taking that to heart, Benioff
methodically mapped his career, starting in sales, after a professor told him that every great entrepreneur knew how to sell.

At 21 Benioff joined Oracle as the only guy answering the company's then new 1-800 sales number. By 25 he was the
company's youngest vice president; later he ran marketing. Ellison became his mentor, but by 32 Benioff was burned out. With
Ellison's blessing he took a five-month sabbatical in Hawaii and India. He came back itching for a different kind of job. He
headed Oracle's philanthropic efforts but then left in 1999, with $2 million from Ellison to launch Salesforce. That stake, likely
untouched, is now worth $600 million.

Ellison was on Salesforce's board until 2000, when Benioff got wind of a similar software effort inside Oracle. At first Ellison
refused to step down. He did only after Benioff went public with his complaint, telling a Wall Street Journal reporter, "I asked
Larry if something was up, and he was noncommittal."

Before most app apostles did, Benioff saw that business software was moving to the Web. This was heresy, at a time when
customers were paying billions of dollars for complex installations of software that required constant configuring. Benioff also
saw that as these chunky apps went online, where customers could test-drive them (instead of taking a salesguy's word for it),
they had to be marketed more like soda pop than spreadsheets. "Everything about Salesforce had to be fun. Why? Because
enterprise software is the antithesis of fun," says Adam Gross, an seven-year marketing vet at Salesforce who is now at startup
Dropbox, a file-hosting service.

Benioff tirelessly promoted this new model with his "No Software" mantra (in the ubiquitous red circle with a slash through the
word "software"). It appeared on lapel pins, balloons, T-shirts, chocolates for journalists and a mascot who posed for photos at
conferences. Once he staffed paid actors to protest, in jest, "the end of software" outside rival Siebel Systems' annual customer
conference and hired fake journalists to cover it. Never mind that Salesforce sells nothing but software.

His stunts were over-the-top but worked. Early on Benioff became a thorn in the side of Siebel, the industry incumbent. Its



founder, Tom Siebel, compared Salesforce with Pets.com and eToys. "There's no way that company exists in a year," he said in
the spring of 2001. Salesforce went public three years later; Siebel Systems got swallowed by Oracle in 2005.

Benioff's antics have backfired. As part of a ticket giveaway to viewings of Arnold Schwarzenegger's Terminator 3, Benioff
insisted Salesforce put the movie poster image on its website. A marketing chief disagreed, drawing Benioff's riposte: "Do you
want to be remembered as a marketing genius--or a pussy?" The poster went up, and shortly thereafter appeared legal threats
from Warner Bros. The poster came down. Benioff's takeaway: "Many leaders are scared of putting themselves out there. They
should be. It's scary. You learn by doing it, and you can't be afraid to make mistakes, because, certainly, I've made them."

Apparently they don't include locking horns with Ellison, in a spirited older/younger-brother rivalry that often veers off into the
bizarre. While Benioff watched Ellison's recent putdown at Oracle OpenWorld from a laptop in his kitchen, he thought, "This is
going to be good," and planned his tit-for-tat on Twitter. With Ellison still onstage, Benioff retweeted other people's tweets
dissing Ellison's view. Each set him up for his next move. "Guess @Benioff will have a good response," wrote one. Then, just as
Ellison was rolling out Oracle's massive box of database depth, server power and the stuff that glues it all together, Benioff
tweeted: "Beware of The False Cloud."

That message went out to his 6,100 followers on Twitter, and within a few hours more than a dozen people had retweeted
Benioff's post. He had managed to counterattack Ellison without putting on his shoes. "It was the first time I'd done that on
Twitter," he says. The teacher and his pupil still exchange a call or e-mail every few months. "I still look up to Larry," says
Benioff. Then comes the jab. "But he has consolidated the past. My job is to create the future."

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