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SaaS Industry Report 2008

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SaaS Industry Report 2008 Powered By Docstoc
					   The Future of Enterprise Software:
   Marc Benioff vs. Hasso Plattner
                                                          Arma Partners and the Churchill Club co-hosted a debate on April 3rd 2008 at the
                                                          Computer History Museum in Mountain View, CA between Marc Benioff, Founder,
                                                          Chairman & CEO of salesforce.com, the world’s leading independent Software-as-a-
                                                          Service (SaaS) provider, and Hasso Plattner, co-Founder, ex-CEO and Chairman of SAP
                                                          AG, the world’s largest business software company.
                                                          Summarized below are the key messages and opinions expressed by the panelists:


                                                          Marc Benioff
                                                                                           ,    y, g     ,          g
                                                               Future software will be fast, easy, global, multi-lingual and will address the needs of
                                                               both large and small enterprises across many verticals, and will tackle varying
                                                               degrees of complexity
                                                               The key transformation in the software industry will be the move to the concept of
                                                               Platform-as-a-Service, led by the likes of Salesforce.com, Facebook, Amazon,
                                                               Google, Rackspace, eBay, etc. who can run customers’ and ISVs’ code natively on
                                                               their platforms
                                                               The industry will eventually move to a 100% network approach though the current
                                                                 f       b h      h (SAP, O l Mi
                                                               software behemoths (SAP Oracle, Microsoft, etc.) are d l i this transition as they
                                                                                                           f     )    delaying hi       ii      h
                                                               are restricted by their current premise-based business models and existing cash cows
                                                               While reliability is key to enterprise systems, increasingly transparency and visibility
                                                               are proving critical to build customer confidence as users realize the value of being
                                                               prepared for inevitable snags


                                                          Hasso Plattner
                                                               In a software environment based on core services, there will always be a fundamental
                                                               trade-off between engineering a near-perfect system and imposing restrictions on
                                                               functionality, customization and scope
                                                               The possibility for developers to monitor and respond in real-time to user behavior
    Brian Skiba
                                                               presents a significant opportunity to improve software functionality and usability
    +1-650-328-8207 x 320
    bskiba@armapartners.com                                    The classic organizational complexity challenges that an enterprise system addresses
                                                                        pp            yp        g                 y
                                                               are not apparent in a typical single-user focused system
    Varun Sunderraman                                          Any “platform” for SaaS application delivery will inevitably have to involve Microsoft,
    +44-20-7290-8106                                           IBM, Oracle and SAP and will likely be another decade before the ultimate winner
    vsunderraman@armapartners.com                              prevails
                                                               The future of enterprise software will include a combination of on-demand, on-
    Alex Zukin                                                 premise, hybrid systems and appliances
    +1-650-328-8207 x 326
    azukin@armapartners.com


    www.armapartners.com

Disclaimer
This document has been produced by Arma Partners LLP (“Arma”) and is furnished to you solely for your information and may not be reproduced or redistributed, in whole or in part, to any
other person
No representation or warranty (expressed or implied) is made as to, and no reliance should be placed on, the fairness, accuracy or completeness of the information contained herein and,
accordingly, none of Arma’s officers or employees accepts any liability whatsoever arising directly or indirectly from the use of this document
Arma Partners LP is a broker dealer authorized and regulated by the NASD
 SaaS market performance overview                                                                                                                                                                             April 2008
                                                                                                                                                                                          Event report and sector update


LTM share price performance of                                      160

publicly-listed SaaS providers                                      150

                                                                    140                                                                                                                                                                                   34%
(rebased to 100)
                                                                    130

                                                                    120

                                                                    110

                                                                    100                                                                                                                                                                                     -4%

                                                                     90

                                                                     80

                                                                     70

                                                                     60
                                                                          Apr-07




                                                                                                                                                                        Oct-07




                                                                                                                                                                                                                                     Feb-08




                                                                                                                                                                                                                                                           Apr-08
                                                                                      May-07




                                                                                                                   Jul-07
                                                                                                     Jun-07




                                                                                                                                                                                                                         Jan-08
                                                                                                                                     Aug-07


                                                                                                                                                      Sep-07




                                                                                                                                                                                          Nov-07


                                                                                                                                                                                                            Dec-07




                                                                                                                                                                                                                                                 Mar-08
                                                                                                              S S providers
                                                                                                              SaaS    id                                                         Recent S S IPO
                                                                                                                                                                                 R    t SaaS IPOs                                             NASDAQ
 2008 YTD share price performance of                                110
 publicly-listed SaaS providers in
 comparison to recent SaaS IPOs                                     100

 (rebased to 100)                                                                                                                                                                                                                                          -9%
                                                                    90

                                                                                                                                                                                                                                                          -14%
                                                                    80


                                                                    70
                                                                                                                                                                                                                                                          -37%

                                                                    60


                                                                    50




                                                                                                                                                                                                                                                          1-Apr
                                                                          1-Jan


                                                                                     8-Jan




                                                                                                                                                                                                                            11-Mar


                                                                                                                                                                                                                                      18-Mar


                                                                                                                                                                                                                                                 25-Mar
                                                                                                 15-Jan


                                                                                                              22-Jan


                                                                                                                            29-Jan




                                                                                                                                                                                                                 4-Mar
                                                                                                                                              5-Feb


                                                                                                                                                               12-Feb


                                                                                                                                                                                 19-Feb


                                                                                                                                                                                                   26-Feb




 USD in millions, except per share data                                                                        Enterprise Value Multiples                                                                    Operating Statistics
                               Price                      Market     Net           Enterprise                          Revenue                                                                               Revenue Growth
 Company                    7-Apr-08                       Cap      Debt               Value                  CY2007     CY2008 CY2009                                                                      CY 07/08   CY 08/09

SaaS providers
 Blackboard Inc                         33.43                 978    (45)                      933                     3.90 x                    3.01 x                          2.45 x                              29.4%                22.6%
 Concur Technologies Inc                30.78               1,356      1                     1,357                     9.09 x                    6.36 x                          5.14 x                              43.0%                23.8%
 Kenexa Corp                            19.48                 455    (38)                      418                     2.30 x                    1.88 x                          1.59 x                              21.8%                18.7%
 Kintera Inc                             0.59                  24     (3)                       20                0.46 x                         0.50 x                          0.44 x                           -7.6%                   12.2%
 Omniture Inc                           22.77               1,631    (70)                    1,561               10.91 x                         5.09 x                          3.72 x                          114.2%                   36.7%
 RightNow Technologies Inc              11.79                 395    (44)                      352                3.14 x                         2.55 x                          2.09 x                           22.8%                   22.3%
 Salary.com Inc                          5.35                  83    (36)                       48                     1.50 x                    1.10 x                          0.81 x                              36.6%                36.6%
 Salesforce.com Inc                     65.05               7,760   (279)                    7,481                     9.99 x                    7.24 x                          5.52 x                              38.0%                31.2%
 Taleo Inc                              18.74                 494    (86)                      408                     3.19 x                    2.61 x                          2.19 x                              22.3%                19.0%
 Ultimate Software Group Inc            31.30                 775    (13)                      763                     5.04 x                    4.04 x                          3.30 x                              24.8%                22.3%

 Median                                                                                                                3.54 x                   2.81 x                           2.32 x                              27.1%                22.5%
 Mean                                                                                                                  4.95 x                   3.44 x                           2.73 x                              34.5%                24.6%

 Recent SaaS IPOs
 Constant Contact Inc                   16.13                 446    (97)                      349                6.92 x                         4.23 x                          2.82 x                              63.4%                50.2%
 DemandTec Inc                           8.00                 211    (28)                      183                3.25 x                         2.45 x                          1.91 x                              32.9%                28.3%
 NetSuite Inc                           23.24               1,399   (165)                    1,234               11.37 x                         8.07 x                          6.15 x                              41.0%                31.2%
 Successfactors Inc                      9.87                 517    (82)                      435                6.86 x                         4.29 x                          2.78 x                              59.9%                54.5%

 Median                                                                                                                6.89 x                   4.26 x                           2.80 x                              50.4%                40.7%
 Mean                                                                                                                  7.10 x                   4.76 x                           3.41 x                              49.3%                41.0%
    Source: Capital IQ, Company Information, Research Reports
                                                                                                                                                                                              April 2008
     Recent SaaS transactions                                                                                                                                             Event report and sector update




                                                                                         Deal               Revenue                  Target business
       Date                    Target                       Acquirer                                                                                                        Deal Rationale
                                                                                         value              multiple                   description
                                                                                                                                     Provides price optimization and       With this acquisition Microsoft will release a product that will improve
                                                                                                                                                                           upon the existing industry offerings for publishers' sales teams
       14 Mar 08                                                                          N/A                     N/A                advertising yield management          based on Rapt’s existing pricing analytics, inventory management
                                                                                                                                          software as a service            and business intelligence products
                               (US)                            (US)


                                                                                                                                   Provider of web-based collaborative     The acquisition will fit into EMC’s cloud infrastructure strategy which
       21 Feb 08                                                                          N/A                    N/A               peer and enterprise file search and     currently includes the EMC Fortress SaaS infrastructure and the
                                                                                                                                                                           Mozy online backup service
                                                                                                                                                 sharing
                               (US)                            (US)


                                                                                                                                                                           This acquisition will greatly expand Novell’s team workspace and
                                                                                                                                    SaaS provider of web-based open
       13 Feb 08                                                                         $19m                    1.9x*                                                     real-time collaboration capabilities and is complementary to the
                                                                                                                                          source collaboration             company’s GroupWise base
                               (US)                            (US)


                                                                                                                                                                           The acquisition fits well with Dell’s long-term goal of becoming more
                                                                                                                                   Provides hosted email management
                                                                                        $155m                    6.2x*                                                     active in the services space by adding an email archive, e-discovery
       12 Feb 08                                                                                                                         software to businesses            and messaging systems to its offerings
                               (US)                            (US)

                                                                                                                                                                           Through this acquisition OpSource will be able to give its users the
                                                                                                                                   SaaS provider of customer metering,
       11 Feb 08                                                                          N/A                     NA                                                       ability to provide customized, automated SaaS on-boarding and
                                                                                                                                         on-boarding and billing           billing solutions facilitating a wider range of customer applications
                             (Ireland)                         (US)

                                                                                                                                                                           Through this acquisition PayPal intends to augment
                                                                                                                                        Provides online transaction        its proprietary fraud management capabilities with the acquired
       28 Jan 08                                                                        $169m                    N/A                                                       technology as well as leverage the engineering resources and
                                                                                                                                    verification software to businesses
                                                                                                                                                                           management
                               (US)                            (US)

                                                                                                                                      Provider of property revenue
                                                                                                                                                                           Thoma Cressey intends to strengthen Manatron's market leadership
                                                                                                                                   management software as well as e-
       15 Jan 08                                                                        $121m                    1.6x*                                                     through investment in Manatron's software suite as well as grow the
                                                                                                                                    commerce SaaS for government           business via strategic acquisitions
                               (US)                            (US)                                                                             websites


                                                                                                                                    SaaS provider of email, SMS, voice     This acquisition enables Blackboard to deliver mass
       14 Jan 08                                                                        $182m                    6.1x*             and text-based mass messaging and       communications to large populations of users across an array of
                                                                                                                                               notification                technical devices
                               (US)                            (US)

                                                                                                                                                                           The acquisition will enable Intuit to offer website creation and e-
                                                                                                                                    Provider of web design and hosting
     26 Nov 07                                                                          $170m                    N/A                                                       commerce solutions that help small businesses acquire and serve
                                                                                                                                            delivered as SaaS              customers through the Internet
                               (US)                            (US)


                                                                                                                                                                           This acquisition strengthens Knight’s electronic trade execution
                                                                                                                                    SaaS provider of electronic trading
       19 Nov 07                                                                         $59m                    N/A                                                       services which will increase penetration in this highly fragmented
                                                                                                                                           execution software                  k t l
                                                                                                                                                                           marketplace
                               (US)                          (US)

                                                                                                                                                                          With this acquisition, Iron Mountain adds electronic discovery
       31 Oct 07                                                                          $158m                    5.3x             SaaS provider of electronic discovery capabilities to its data protection and records management portfolio.
                                                                                                                                                 services                 Iron Mountain stores will be easier to access as needed for litigation
                                                                                                                                                                          purposes
                                (US)                            (US)

                                                                                                                                                                           McAfee will integrate ScanAlert into its Web Security Group, which
       30 Oct 07                                                                          $75m                   c 5.0x*              Web application security vendor      develops McAfee's SiteAdvisor service. ScanAlert will add 8,000
                                                                                                                                                                           customers, increasing the penetration of McAfee products
                                (US)                            (US)

                                                                                                                                                                           Through this acquisition, BravoSolutions hopes to establish a base
                                                                                                                                                                           in the US market. Verticalnet's primary market is in the US although
       26 Oct 07                                                                          $
                                                                                          $15m                    1.7x                       SaaS storage provider         it also maintains a European presence. The combined entity will
                                                                                                                                                                           become the largest specialist player in the field, with annual revenue
                                (US)                           (Italy)                                                                                                     of c. $60m


                                                                                                                                                                         The transaction gives Omniture a larger base of customers (4,000+
                                                                                                                                     Provider of streaming data analysis up from 2,500) to up-sell optimization. Also since Visual Sciences
       25 Oct 07                                                                          $394m                   5.0x*
                                                                                                                                     and visualization software services maintains mid-teen operating margins, the transaction should be
                                                                                                                                                                         non-GAAP EPS accretive
                                (US)                            (US)

                                                                                                                                                                           NovusCG’s technology complements IBM’s core disk and tape
       24 Oct 07                                                                           N/A                    N/A                        SaaS storage provider         products and will be integrated with IBM’s line of system storage
                                                                                                                                                                           brand hardware and software
                                (US)                           (US)


                                                                                                                                                                           The       i iti    i
                                                                                                                                                                           Th acquisition gives C       i   t       to MarketRx’s
                                                                                                                                                                                                   Cognizant access t M k tR ’ 75
                                                                                                                                           Pharmaceutical sales force
       18 Oct 07                                                                         $135m                   3.4x*                                                     customers, including all the top 20 pharma companies in the US and
                                                                                                                                           automation SaaS provider        four of the top five biotechnology firms
                                (US)                           (US)




Source: MergerMarket, VentureSource, The451Group, Company information
* Revenue multiple is based on TTM / historic revenue (in all other cases current year projected revenues are used to compute multiples)
                                                                                                                                                                                             April 2008
     Recent SaaS transactions                                                                                                                                            Event report and sector update



                                                                                        Deal                Revenue                 Target business
       Date                    Target                       Acquirer                                                                                                       Deal rationale
                                                                                        value               multiple                  description
                                                                                                                                                                          The acquisition of Mozy is a natural extension of EMC's leadership
                                                                                                                                   Provider of large scale on-demand,     in the protection and security of personal and business information.
       04 Oct 07                                                                        $76m                    9.5x*                 parallel storage systems and        EMC will continue to invest in Mozy's full portfolio of online backup
                                                                                                                                                 software                 and recovery services and advance the Mozy brand in the
                              (US)                            (US)                                                                                                        marketplace


                                                                                                                                    Provider of hosted and premise        Through this acquisition AT&T will integrate Interwise’s IP based
       01 Oct 07                                                                        $121m                   4.8x*                 based voice, Web and video          voice, web and video conferencing offerings to deliver a
                                                                                                                                  conferencing services to businesses     comprehensive unified communications solution to its customers
                              (US)                            (US)


                                                                                                                                                                          Through the acquisition of Cape Technologies, WeDo eliminates
                                                                                                                                                                          one of its main competitors and becomes the world leader in
                                                                                                                                   Software solutions provider for the
      28 Sep 07                                                                         $28m                     N/A                                                      revenue assurance software integration in terms of size. WeDo’s
                                                                                                                                       telecommunications sector          headcount will increase to 370 employees distributed between 11
                                                                                                                                                                          offices around the world
                            (Ireland)                      (Portugal)


                                                                                                                                     Provider of on-demand supply         The acquisition will position Ariba as a dominant market leader in
      20 Sep 07                                                                         $101m                   4.0x*
                                                                                                                                        management software               the e-sourcing market from a customer share perspective
                              (US)                            (US)


                                                                                                                                    P id of an open source email
                                                                                                                                    Provider f                 il                                                            universities,
                                                                                                                                                                          Zimbra will allow Yahoo! to expand its presence in universities
     17 Sep 07                                                                          $350m                  c 17.5x                                                    businesses and through ISPs by enabling organizations to host e-
                                                                                                                                        and calendar groupware
                                                                                                                                                                          mail on or off premises with their own domain
                              (US)                            (US)



                                                                                                                                                                          The acquisition of Gelco will broaden Concur’s offerings in the areas
      30 July 07                                                                        $160m                    2.6x*               Expense management services
                                                                                                                                                                          of electronic payment, auditing and processing of expense reports
                              (US)                             (US)

                                                                                                                                                                         The acquisition will allow Google to enhance the security features of
                                                                                                                                 On-demand communications security       Google Apps to make it a viable alternative for enterprises. Google
       09 Jul 07                                                                       $625m                    8.9x*                 and compliance company             will continue to support Postini customers and invest in Postini
                                                                                                                                                                         products
                              (US)                             (US)

                                                                                                                                                                         This acquisition will complements Salesforce’s existing Apex
      10 Apr 07                                                                          $7m                    14.0x*            On-demand content management           product with a robust content management system. Koral’s offering
                                                                                                                                                                         is already integrated as a plug-and-play AppExchange offering
                              (US)                             (US)

                                                                                                                                                                         The acquisition will allow Cisco to expand into the online
                                                                                                                                  Online web and video conferencing
      15 Mar 07                                                                       $3,200m                    6.4x                                                    collaboration market as well as realize various synergies between its
                                                                                                                                              service                    own networking knowledge and WebEx’s online collaboration team
                              (US)                             (US)

                                                                                                                                                                         This acquisition gives Business Objects access to Nsite's on-
                                                                                                                                 On-demand solution to automate and      demand application platform as well as engineering talent
      30 Nov 06                                                                          $4m                     N/A
                                                                                                                                    improve business processes           experienced in building and managing SaaS offerings; Business
                                                                                                                                                                         Objects will also gain access to 27,000 current Nsite subscribers
                              (US)                             (US)


                                                                                                                                                                         The acquisition expands ADP's Pre-Employment Services suite by
                                                                                                                                  On-demand provider of enterprise
      10 Oct 06                                                                         $65m                    3.6x*                                                    providing expert professional recruiting solutions for mid-market,
                                                                                                                                    talent management solutions          large and global organizations
                              (US)                             (US)


                                                                                                                                    On-demand customized talent          This acquisition will enhance Kenexa’s operational strength as well
      06 Oct 06                                                                        $115m                    3.2x*
                                                                                                                                       management solutions              as broaden its product suite and customer support capabilities
                              (US)                             (US)

                                                                                                                                                                         The acquisition is in line with ADP’s expansion strategy in the SaaS
                                                                                                                                   Web-based human resources and         solutions market. Employease will benefit from ADP’s global
      17 Aug 06                                                                        $160m                     3.6x             benefits management software and       presence and payroll expertise which will enable it to enrich and
                                                                                                                                              services                   expand core product features and expand its reach in the
                                                                                                                                                                         HR/Benefits space
                              (US)                             (US)

                                                                                                                                  Provider of streaming data analysis    The acquisition expands WebSideStory’s addressable market by an
      01 Feb 06                                                                         $57m                     7.2x               and visualization software and       estimated $1 billion and creates significant cross-sell opportunities
                                                                                                                                                services                 within there 1,100+ enterprise customers
                              (US)                             (US)

                                                                                                                                   On-demand corporate travel and
                                                                                                                                    expense automation solutions         The acquisition of Outtask will enable Concur to strengthen its
      23 Jan 06                                                                         $63m                    4.3x*                                                    position in the on-demand CEM services market
                              (US)                             (US)

                                                                      Median              $121m                4.9x

                                                                      Mean
                                                                      M                   $251m                5 7x
                                                                                                               5.7x




Source: MergerMarket, VentureSource, The451Group, Company information
* Revenue multiple is based on TTM / historic revenue (in all other cases current year projected revenues are used to compute multiples)
                                                                                                                 April 2008
Arma’s announced transactions                                                                Event report and sector update




                       Feb 08                          Jan 08                          Dec 07                              Apr 07
  Undisclosed                      Undisclosed                      $110,000,000                       $124,000,000


   h b          i d by
   has been acquired b                   h acquired
                                         has   i d                   has been acquired b
                                                                     h b          i d by                     h acquired
                                                                                                             has   i d




                                 Exclusive financial advisor to
Exclusive financial advisor to                                    Exclusive financial advisor to     Exclusive financial advisor to
                                      Odyssey Financial
 Cape Clear Software Inc.                                                 GloNav, Inc.                   royalblue group plc
                                      Technologies, S.A.


 Enterprise Software               Financial Software                Semiconductors                    Financial Software


                       Apr 07                          Jan 07                           Jan 07                            Nov 06
  $546,000,000                       $39,000,000                      $75,000,000                      $124,000,000

                                                                                                           a business unit of
                                 has acquired the German B2C
        has acquired              broadband and narrowband            has been acquired by
                                     customer contracts of
                                                                                                         has been acquired by


Exclusive financial advisor to   Exclusive financial advisor to   Exclusive financial advisor to     Exclusive financial advisor to
        Software AG                     freenet.de AG              NordNav Technologies AB               Elektrobit Group plc



 Enterprise Software                Internet Services                Semiconductors                    Telecom Software


                       Jun 06                          Jan 06                          Jun 05                              Apr 05
  Undisclosed                      $106,000,000                      $55,000,000                        Undisclosed
     G
    IGE I
 recapitalisation with equity
                                     has been acquired by            has been acquired by                has been acquired by
       investment by




Exclusive financial advisor to   Exclusive financial advisor to   Exclusive financial advisor to     Exclusive financial advisor to
        IGEFI S.à.r.l            Kreatel Communications AB          Inca Digital Printers Ltd               Cirpack S.A.S



  Financial Software                IPTV Technology               Printing Technology                  Telecom Software
                                                                                                                April 2008
Arma’s announced transactions (cont’d)                                                      Event report and sector update




                     Dec 04                           Dec 04                           Nov 04                             Oct 04
   $94,000,000                     Undisclosed                        $52,000,000                     $112,000,000


   has been acquired by             has been acquired by              has been acquired by
                                                                                                       h b          i d by
                                                                                                       has been acquired b




Exclusive financial advisor to   Exclusive financial advisor to   Exclusive financial advisor to    Exclusive financial advisor to
        S.E.S.A AG                       Ubitrade SA              Mosaic Software Holdings Ltd               Dione Plc



          S i
       IT Services                           Soft are
                                   Financial Software               Financial Software
                                                                              Soft are              P     tT h l
                                                                                                    Payment Technology

                       04-05                           Jan 04                          Dec 03                             Nov 03
$45,000,000 (agg.)                  $44,000,000                     Undisclosed                        $210,000,000
 Anite Group’s disposal of:

             to
                                                                    and other investors
                Financière          has been acquired by                 have acquired                  has been acquired by
             to    RDM


             to
Exclusive financial advisor to   Exclusive financial advisor to   Exclusive financial advisor to     Exclusive financial advisor to
      Anite Group Plc                 NXN Software AG                    Apax Partners                     SUSE Linux AG



Software & IT Services           Digital Media Software             Financial Software              Open Source Software
                                                                                                   April 2008
                                                                               Event report and sector update



A Churchill Club Great Debate: The Future of Enterprise Software
3 April 2008

Speakers:
Marc Benioff, Founder, Chairman, & CEO, salesforce.com
Hasso Plattner, Co-founder, ex-CEO, & Chairman, SAP AG

Moderator:
Quentin Hardy, Silicon Valley Bureau Chief, Forbes Magazine

Venue:
Computer History Museum, Mountain View
1401 N. Shoreline Blvd
Mountain View, CA 94043


Prologue

Mr. Brenner:
         Good evening. Boy, is this great to see! We are so excited to have this program tonight. I wanted
to take a moment to welcome you. In addition to being the Chairman of the Board of the Churchill Club, I
have a “real” job. I am the CEO of the Brenner Group, one of the oldest interim executive-staffing and
financial-advisory services firms here in the Valley.
         Tonight, we have a great debate. The Churchill Club Great Debate is the future of enterprise
software, and we’re going to present our distinguished speakers, Marc Benioff from salesforce.com, and
Hasso Plattner from SAP AG, and the program will be moderated by Quentin Hardy of Forbes, so we
want to thank them all for being here. You’ll have a moment to do that in just a few minutes.
         I’ve been told that part of job is to do some brief announcements, so I hope you’ll bear with me.
First, we want to again tell you how especially pleased we are to be here at the Computer History
Museum tonight. The Computer History Museum is the leading institution in the world to preserve the
history of our industry. The museum will introduce a new exhibit next month, which is a five-ton Babbage
difference engine number 2, never before seen in the U.S, and we hope you will come and check it out.
         Our next Churchill Club event is a San Francisco Breakfast program on Wednesday, April 9, and
please join us for the BotPlague, how organized crime has saturated the Internet with sprawling bot
networks, and why you should care. Here is your chance to talk to four world-class experts from
Kaspersky Labs, Gartner, Dimbawa, and SecureWorks, about this serious issue. So if you have any
interest in that, please, we encourage you to attend.
         On Wednesday, May 14, the club presents our much-anticipated 10th annual-top-ten-tech-trends,
and this year’s debate will be between Steve Jurvetson, Roger McNamee, Joe Schondorf, and will be
moderated by Tony Perkins. Be sure to save the date, and be prepared for another lively evening. As
always, get all the information you need about these and other programs at churchillclub.org.
         Tonight, Ustream is streaming this program live on its website at Ustream.tv, and we thank them
for doing that. Ustream is a great promoter of our club, and we’re really glad to have them decide to start
streaming our programs. We welcome the web viewers at this time, as well, and we’re glad that you’re
here to join us for this great debate tonight.
         We invite everyone who is watching tonight to make note of the best things heard from the
program as well as the best things overheard from anywhere during the event, and send your comments
to info@churchillclub.org, and we will share the results with you via email at the end of day by next
Monday.
         So now our lead sponsor tonight for this program is Citrix Systems. Citrix is a leader in the
industry and in our community and is a leading member of the club, as well. Please join me in thanking
them for their generous support tonight.




                                                                                                              Page 7
                                                                                                        April 2008
                                                                                    Event report and sector update



         We also have four supporting-level sponsors tonight, and they are the club member, Arma
Partners, club member salesforce.com, and top-level club member SAP AG. Our fourth supporting
sponsor for this program is CSC. Please join me once again in extending our thanks to these
organizations for their generous support.
         CSC has a team CSC cycling jersey to give away tonight. Please enter the drawing at the CSC
display table, and the winner will be announced at the end of the program, so, if you want that jersey,
hang out! We’re going to make the announcement right up here on this stage at the end of the program.
         Finally, I would like to extend a special thanks to our co-host, Arma Partners. Their expertise and
influence in the industry was only too apparent as we worked with them on this program. It is with great
pleasure I’d like to call Brian Skiba of Arma Partners to the stage, to introduce Quentin.

Mr. Skiba:
          Thank you very much, Rich. I want to applaud the spirit, the toil, the efforts, and the incredible
amount of work that’s gone on the part of the Churchill Club to pull this event together, but also for the
ongoing events they have throughout the year – the interesting events or the discussions, the people they
bring to bear here.
          I attended my first Churchill meeting about a year ago as a guest of Gibson, Dunn, and Crutcher,
and the next day, Arma Partners became a corporate sponsor. It seems me that the health of the Valley
is really dependent on this critical discussion, a fusion of creative ideas, global perspectives, and
everything that comes together here, and, without doubt, the Churchill Club is a pretty key part of that
ecosystem.
          It is my privilege to introduce Quentin Hardy today, Silicon Valley’s chief of Forbes Magazine.
Quentin will be moderating the discussion or debate. Quentin joined the magazine, Forbes, in March of
1999, and has written cover stories on Yahoo!, Google, Hewlett-Packard, the telecommunications
industry, philanthropy, and many other topics. Quentin has spent many years before that at The Wall
Street Journal covering the Japanese financial meltdown in Tokyo, the boom in the Silicon Valley in the
late ‘90s. He also teaches at the University of California at Berkeley, and lectures at Stanford’s school of
Journalism and Computer Science. Quentin, welcome!

Mr. Hardy:
         Thank you very much. All right well, thank you all for coming, and welcome to the Churchill Club’s
first ever enterprise software crystal-ball-gaze, prognostication soiree, reality check, hype fest, and
executive cage match smack-down! We’re here to talk about the future of a $250 billion industry, one that
both participants, and pretty much everyone here, would agree is entering a major transition of
technology, and one that will, quite likely, affect everyone in the room. Quite likely, it’s bigger than
mainframes to work stations or PCs or the client / server shift that has created much of the current value
in the industry.
         This shift is, of course, to a highly-networked, highly-decentralized, lightly-coupled environment,
and, in its extreme state, totally Internet-based. It can already be seen in embryonic forms in Amazon
Web services, Google for corporate use, or salesforce.com. I say “embryonic” because all promise much
more, and are striving to achieve much more. In a more controlled environment, it’s the NetSuite and
SAP’s Business ByDesign, and I know Hasso has a lot more to say about where that’s going to go. Either
way, there are massive implications for developers and for customers, for investors, and for our overall
economic development in the Valley and elsewhere.
         At the same time, this transition raises questions of complexity, reliability, scalability, architecture,
and, of course, profitability. Just to put it into focus, as I was saying before to one of our guests,
enterprise software is a $250 billion business. If you take SAP AG, Oracle, IBM, and Microsoft, that’s half
the industry in revenues right there, you know? Either those four are going to transit over, others will arise
very quickly, or the business is going to shrink. I think both of our panelists think this transition means the
business is actually going to grow. How is that going to take place?
         Well, here to sort the entrails for us, we have Hasso Plattner and Marc Benioff. Dr. Plattner was
one of the original five founders of SAP AG in 1972, became the Vice Chair in 1988, and the Chairman of




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the executive board between 1997 and 2003. He serves now as technical advisor to the company, as
well.
         I was particularly interested in SAP’s role in this because SAP AG, obviously, starting in ’72, and
creating R/1 and R/2, was a mainframe-software company. With R/3, around ’92, ’93, it caught client /
server, partly by luck, design – however you want to put it. But they designed in UNIX, and stayed in
UNIX, and making that client / server transition totally made the company the behemoth it is today. So I
would think, more than any other company, existing large-scale enterprise software, they understand the
importance of getting this tech transition right.
         We also have Marc Benioff, who left Oracle in 1999 with a vision to start salesforce.com, which is
a company that obviously has prospered magnificently with a total vision of commitment to this new
transition. He started with CRM on-demand, but most recently, started force.com, what he calls a
“platform on-demand,” and really sees it key to where this transition will take us all. We can talk about
that a great deal later. For now, I’d like to welcome both Marc Benioff and Hasso Plattner up, and we’ll
get started. Gentlemen?
         Well, I did a little work with numbers before we showed up, and so salesforce.com, 750 in
revenues, SAP AG, 16 billion in revenues. Salesforce, 7.4 billion in market cap; SAP AG, 59 billion in
market cap. SAP AG has enough cash on hand to purchase about 50 percent of salesforce.com in the
open market, not that that’s something they might want to do. Hasso!
         On the other hand, SAP AG, forward P/E, 15; Salesforce, forward P/E, 97. Either the market is
delusional, or they see magnificent growth for you guys. And, when we talk about this tech transition –

Mr. Benioff:
       You didn’t mention our growth rate.

Mr. Hardy:
        I’m sure you can do that. Good growth rate, right? You didn’t mention your margin. Margins – 2.7
percent; margins – 26 percent.

Dr. Plattner:
        And a half. Sorry.

Mr. Hardy:
       Who’s counting?

Mr. Hardy:
        This is going to be okay, by the way. Nonetheless, you know, Salesforce, expectations of
continued strong growth. Thirty-eight thousand one hundred companies inside this remote model. SAP
AG –

Mr. Benioff:
       Forty one. Forty-one thousand now.

Mr. Quentin:
       Down boy, okay? Anyway SAP AG, a lot of ideas where this architecture can go. So far, Business
ByDesign, a hosted service for a hundred and forty-five bucks a month. Not yet a player in this space. So
my question for both of you is, what does this architecture look like, and which one of you guys is David,
and which one’s Goliath? Marc?

Mr. Benioff:
         Well, I don’t know who is “David” and who is “Goliath,” but, as you said, correctly, at the
beginning of your comments, you know, we are sitting, of course, at this beautiful museum here in Silicon
Valley, and it is the history of our industry. We’re sitting inside the history, and the history of our industry
is a continuum. It’s a continuum of technology that’s constantly getting lower-cost and easier to use. The



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companies who have gravestones down below, downstairs in the exhibits, are the companies that were
not able to continue the path of innovation because, as our industry grows in this continuum, you get
these paradigm shifts, and that’s just the reality of our industry, and you have to make these shifts, and
we are witnessing, before our eyes, today, the creation of a new enterprise-software industry. There are
many new companies that I know that are in this room, and many others around the world, who are
pioneering a new era of enterprise software built around some fundamental principles that are different
from the previous era, and we, in kind of this new generation of enterprise software company, look to the
functionality of the past, but we are looking to the values of consumer companies like the Google, eBay,
Amazon, Yahoo!, who have become these massive companies who serve millions of users with
tremendous complexity, but they’re able to do it through this new model, which – new technology model,
really – that’s kind of unparalleled and unprecedented and have created tremendous value for the world,
and that is fundamentally the world that we are in, that that is what is now occurring.

Mr. Hardy:
         You probably agree it’s a paradigm shift. You’ve lived through a couple, but eBay and Google
give massive complexity around the one thing. Enterprise software is complexity of a whole other sort. Do
you agree with Marc’s analysis, that there are many companies rising up? Do you think this architecture
will fundamentally disrupt the incumbent?

Dr. Plattner:
         Well, first off, well, why do we have this? We have the networks. We have the network speed.
Therefore, we can separate computers from each other and still maintain an illusion of an integrated
system, or, actually, for the user, it is an integrated system regardless of where the computers are.
         We have seen that we can have complicated software across the Internet. For me, the
breakthrough was Google Earth, to get something complicated, and everybody can use it, and the speed
is pretty nice. That’s the point where I ask Bill Gates, “When can we do spreadsheets over the Internet?”
And there are many applications which can be offered on-demand over the Internet, and there are some
characteristics. For the first phase, they have to be pretty generic. So therefore we see sales force
automation. We see analytics on-demand. We see spreadsheets. We will see “Office in the Cloud.” We
will see many of these applications. Is the complete enterprise software we want to build, or we are
building, is that different? Yes and no. It’s software. But there are some different characteristics, but I
don’t want to go into them. I want to keep the discussion more on an abstract level.
         I think the most important thing that we have to learn in the software industry is, when we use
services, we cannot really modify them. The core parts of these services are delivered. We cannot
change Google Earth inside. We can put something on top. So we have to learn how we can use
services, and mesh them up with other services, so that is one lesson.
         Second is that we then have to either confine ourselves, restrict ourselves, or the service provider
has to come with a close-to-perfect system. We thought that we had a perfect system in ’93 with R/3, and
we learned when we entered the market that, the more popular the system became, the larger companies
took the system. So we were sucked up like in an upstream wind – sucked up into the large companies,
and they added on, and added on, and added on.
         In ’93, I had a model, modification-free software. We have identical clones out in the field and we
lower TCO significantly. We lost that battle.
         Our second customer in the U.S. was Chevron, then number 10 in the U.S. End of the story. I
could not tell Chevron, “You’re not allowed to extend this software.” There’s the competition against
Oracle, and every night, they added a new feature. We had to compete, and Oracle did them. We did
them. So this has to stop in this model. We can’t do it. You can look at salesforce.com, what they can do,
and you can add fields, and put them in screens. You can change screens. You can add forms. We have,
in our system we are developing, I think, two thousand one hundred service interfaces, where we can go
into other software, or let other software exit these services. This is humongus!
         We believe in this concept, and I want to come back to what the real advantage is here? We just
had a little chat before, and we totally agree on, for the first time, we can see what our software is doing.
We can permanently monitor the software, and we see what the users are doing, whether this is totally in



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line with confidentiality, and whatsoever. Let us assume we can have an agreement on that the
developers can see what the users do with the system, and react – and react in a nearly timeless fashion.

Mr. Hardy:
       So you’re saying the big difference is, you can observe behavior, and adjust accordingly.

Dr. Plattner:
         Quickstream had started, and every single one who has an Internet, and Internet sales, is
monitoring. Anybody who has a portal on the Internet, a permanent number –

Mr. Hardy:
       But I think where you two might split has to do with access to the system, and complexity.

Dr. Plattner:
         No.

Mr. Hardy:
       You want a platform opening up.

Dr. Plattner:
         We have a completely different angle of attack.

Mr. Hardy:
       Go!

Dr. Plattner:
         Forget the little, ill-fated one, when we put in CRM on-demand on the Internet to compete with
him. This is –

Mr. Benioff:
       Your customers already forgot about it. Don’t worry!

Dr. Plattner:
        Don’t laugh too early. We’re coming to that.

Mr. Benioff:
       Okay.

Dr. Plattner:
        Release 7.

Mr. Hardy:
       With 3.6 billion, they can screw up many times and come at you.

Dr. Plattner:
        Yeah, yeah, yeah!

Mr. Benioff:
        They’re a great company!

Dr. Plattner:




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         Now he derails me. What we want to do is a complete enterprise system, probably including
online sales. Not including design software for manufacturing and actually manufacturing. So but
anything, ERP plus CRM plus PLM plus SCM, all the buzzwords, so a complete enterprise system,
including now significant analytics, thanks to our acquisition.
         And this system, we have to look at customers for that. Where is the customer? Where does it
start? And this doesn’t start at the single user. This doesn’t start at the mom-and-pop shop, and even the
window manufacturer, if he doesn’t have 50 to 100 people, he is not a candidate for that system. So we
start much later. We start at least an order of magnitude, factor of 10, later. So 10 users is nothing we are
looking for. Twenty users is, if the company –

Mr. Hardy:
        Aren’t you concerned you’re making the classic mistake that happened around PCs, where they
seeded a lot of little companies, and they grew up? It came out of the weeds? They never saw you
coming.

Dr. Plattner:
         The single-user enterprise, which I appreciate that these exist, they don’t need a system like this.
They don’t have to schedule. They don’t need an availability to promise, because it’s all in their brain or
on their spreadsheets.

Mr. Hardy:
        Well, Marc, he seems to be saying that there are certain things having to do with complexity or
core business processes that will not take place in your Internet-based platform.

Mr. Benioff:
          Well, I think we need to kind of rewind a little bit, because, you know, salesforce.com is coming
up on its 10-year anniversary in basically now 11 months, so, in our first decade of business, what we’ve
been mostly focused on is defining software-as-a-service – the aspects of multi-tenancy, the aspects of
you can be a small company, the smallest in the Valley, or you could be Cisco, one of the biggest in the
Valley, and still use salesforce.com for all of your employees.
          It will be fast. It will easy. It will be global. It will run in multiple languages. It will meet your
business process whether you’re a high-tech company, or the deal that we just closed with Citicorp, the
largest bank in the world, which is a different—completely different—process, and that’s what we’ve been
really passionate. As you know, passion is what we’re about, about moving the obstacles out of the way
of the old paradigm, because enterprise software has been, up to this point, and Hasso is kind of
illuminating this, only for the very rich or only for the big companies. If you don’t have a lot of money,
we’re not going to talk to you. Or we are only for complex situations, and if you’ve got a serious, you
know, company, they [need] to come to talk to us. Now I know this because, of course, I was at Oracle for
13 years before I started my company, and this is what I did for a living.
          Hasso started with the Oracle database in 1988, 1989, two or three years after I started in the
company. But we are on the verge of a breakthrough, again, in our industry, and this breakthrough is as
big as the software-as-service industry has been in the last 10 years. If you go to Sand Hill Road, first of
all, you’re not going to find them funding any new software companies. There are a lot of venture
capitalists here. I can assure you they’re not writing tickets for the new three-tier client / server-
architectures-going-out-on-CD-ROM companies. They’re all on SaaS. Okay. So what’s next?
          Now we are breaking through to the Platform-as-a-Service, and it’s not just Salesforce. Of
course, we see it. How many people here are on Facebook? Raise your hands. We see it with Facebook.
We see it with Amazon. We see it with their new offerings, with EC2, and S3. We see it with Rackspace.
We see it with what Google is working on. We see platforms emerging where we are able to accept not
only our customers’ code, but ISVs’ code, and run it natively on our platform. Native! We’re running in the
way that R/3 ran natively on Oracle, and took advantage of the Oracle indexing, or whatever it was. We’re
running our customer and ISV code natively.




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         Now what this means is that if you can run another company’s business, like their whole business
as a software company, you can also run the business processes of any company in the world, and we’re
seeing now, whether it’s ERP or MRP, but a wide range of applications now being written natively, okay,
and this is the big—this will be the big—breakthrough and the big concept that we’re moving now into the
platform-as-a-service, and this is a tremendous threat to not just the SAP AG architecture, but the
Microsoft architecture, the Oracle architecture, the BEA architecture That in the new analysts’ reports and
so forth that are coming, you’re going to see that it’s the platforms as a service that will be rated, not just
the software companies.

Mr. Hardy:
          Well, wait a sec. You know, ‘cause I talked about those four great giants in the current enterprise
system. You talk about these giant platform companies that are emerging. Are you saying they’re going to
be these monster platform companies dividing the world among them where Amazon Web Services has
effect? You’re the business one. Google is whatever they want to become, you know, and you sort of cut
the world up among you? Or are there going to be thousands of platform companies? Either way, how do
you manage this level of complexity? Is this plausible to you, Hasso? Well, you answer it, and then I’ll
take it from there.

Dr. Plattner:
        Do you want to hear what we do?

Mr. Benioff:
       Let’s go back and forth. So let’s let Hasso do it.

Mr. Hardy:
       Is that plausible to you, this platform idea?

Dr. Plattner:
        No, look. We have 1.2 million software developers on our platform. We have 2,000 partners
developing additional software, for four years. When did Google Earth come out, probably around this
time. We have the largest software development project SAP AG has ever done in its history. When we
came out with R/3, we were 200 developers. There are currently 2,500 developers developing on-
demand, just to let you know. Just because we are not a start-up company, and we’re not using any of
the venture capital or capitalists, I appreciate. I am a little capitalist myself. We are self-financed in this
case.

Mr. Hardy:
       And SAP Ventures is investing out here pretty well.

Dr. Plattner:
         Two thousand five hundred developers are developing an on-demand system, so just to let you
know. Now, probably, this doesn’t mean so much, because larger companies need more people to
produce the same than smaller companies. There is no question about that, technically, it’s possible to
run large parts, or the whole part, of an enterprise as a service over the Internet. We are not debating
about this anymore. So let us just assume this is okay. Then we want to take advantage of that, so we
are building a system, wall-to-wall, probably from the breadth of functionality, bigger than our SAP AG
Business Suite, covering more. Functionality-wise, we are only four years in the development. It is not
covering all the areas functionality-wise in all the industries, but we have learned already one lesson. The
system, what is inside the system, has to have a coverage level which is close to 100 percent. Despite
our 2,100 open interfaces, companies expect, when they put their enterprise, not salesforce-automation,
not probably a call center, not analytics, probably any others, the online shop, if they put the company on
the system, they have to fit inside the system. And even small companies, starting with, probably, 50




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people, and going up to the largest ones, probably 1,000, 2,000 now, that we are dealing with, even these
companies poke here and there against the system.

Mr. Hardy:
       What do you think?

Dr. Plattner:
        So we have – Can I finish, please?

Mr. Hardy:
       Yeah, go ahead.

Mr. Benioff:
       Let him finish.

Dr. Plattner:
         So we have to develop a full scope, and if we get all the little modifications away, and I think we
all agree that a lot is doable. We see what we can personalize in other posts, and online, on-demand
systems. So if we get all this away, and we have a nearly-hundred-percent coverage, and we have open
interfaces to do specifics we cannot do – this is where his platform comes in – this is where our 1.2
million developers come in. If they openly can expand this, and we save costs in maintaining these
systems, whatever technique we use -- we can argue about this because I have a substantially different
opinion than Marc about this for reasons of our experience and our customers – then this is a very, very
interesting future. If we lower costs and offer the same or better services, then we save some money. The
customers and we, we save some money. We can share that money. So, therefore, I believe this is a
financially-interesting – interesting situation that we can actually – and I totally agree with that – can make
more money. And that’s why we do it.

Mr. Benioff:
         Yes. So my opinion is, first of all, when I am – you know, of course, I have tremendous respect
for SAP AG. It is not only the largest enterprise-software company in the world, but it is the oldest. It
started in 1972, five years before Oracle or even Microsoft. It is 35 years old. Hasso is probably the most
–

Dr. Plattner:
        I don’t know where you are going now. I am 64 years old.

Mr. Benioff:
         Go, go! Most tenured executive in the enterprise-software industry. And when he rolls out that
he’s doing all these things, what is in my head is the following. I want to figure out how I’m going to get
SAP AG to build, on our platform, their applications. And I’m not kidding, because I am going around to
every software company I can, large and small, and showing them that, look. They’ve had a lot of
struggles going to on-demand, because this is a different world. You saw it in our pre-briefing, where, you
know, they have not had a lot of success in on-demand so far, and the 2,500 developers, etc., that they’re
building, working, trying to do it, but they don’t have any major customers yet, and we have 41,000. So
that’s why, when I look at that, I go, “How do I help them make it happen?” Because they need us! And
the way that they need to do that is, they need to write their new apps on our platform, and I need to
convince him to do that, because there is no way he is going to figure this out! You can just hear it!
They’re talking about the 2,100 interfaces and the 100-percent uptime. You know. I mean, you know,
computers don’t run at 100 percent. We all know that. No SAP AG customer, not DuPont, not Siemens,
no one runs at a hundred percent, but the most important thing in on-demand is transparency. That’s why
we have our trust page, trust.salesforce.com. You can look at all of our systems, what we have had a
massive outage, and had to sort out how to tell customers in the future because we will always have



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problems. That’s the power. But you’ve got to have the visibility. You’re going to have to have the
transparency. You have to be able to open the kimono, because, of course, you’re partnered with the
customer. It’s a marriage in on-demand. It’s not a one-night stand, like the old enterprise-software
industry, where you kind of drop the CD-ROM off, and say, “Let us know how that goes, and we’ll let you
know when the new upgrade is, or the new version, or we’re gonna sell you the next thing.”
         You know, we’re there with them every day. We’re there in a continuous stream, and it’s a whole
different set of values, of principles, of metrics, and we’re trying to get, and we’re going to be in a warto
get as many software companies on our platform with our global trusted infrastructure, with our database
as a service, logic as a service. We have a virtual machine now that can run our customers’ code. User
interface as a service.

Dr. Plattner:
        Marc.

Mr. Benioff:
       The directory. Hold on.

Dr. Plattner:
        When are you done with this commercial?

Mr. Benioff:
        Those things are what you’re going to have to do to make it happen. The problem with this
approach are the 2,500 developers, and the 2,100 open interfaces is, but all that and no customer
success. So when they go to DuPont, which is one of their largest customers, and say, “Here. Here is
CRM on-demand. We’ve got it for you” like they did about a year ago. And then we go to DuPont, and
say, “Here. Try this.”
        The reason that we ended up as DuPont’s CRM provider is because we made them successful,
and it works! And we showed them the power of on-demand, and the power of the new model, in creating
that success.

Mr. Hardy:
          A little context here. CRM, you know, bless its heart -- calendars, scheduling -- it’s not financials.
It’s not supply-chain. It’s not deep core –

Mr. Benioff:
       I don’t think you’re right, Quentin. Those are the SAP AG employees, but I don’t think you’re right,
because processes –

Mr. Hardy:
       Yes, but when he says it’s buggy and who cares, I kind of have a little time for his point of view.
However, I think what’s interesting to consider, too, but you have to also don’t forget, he already
conceded the point. He’s moving his financials

Dr. Plattner:
        Are you keeping time? Or how are you doing that?

Mr. Hardy:
       You’re both going long. You’re both marketing. Don’t worry. But, you know, sure.

Dr. Plattner:
        I save it for later.




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Mr. Hardy:
          Good enough. I think what’s interesting, you know, one thing about the future that we’re heading
to is, like everything in the future, it’s going to show up with a lot of the past in it, you know, and you have
a company designed for this world. Hasso, are you comfortable that you can transit over to this? Is it
going to change your financial model? How does it change the developer and the ecosystem model you
have right now:

Dr. Plattner:
        I’m not criticizing the moderator, but we don’t stick to the questions, and so, but now. I have to
give scattered answers. Why did he win DuPont? Because we had a shitty CRM system, and he had a
much better one.

Mr. Benioff:
       I’m sorry. Can you just repeat that, ‘cause the people in the back did not hear it!

Dr. Plattner:
        Now comes the second half. Why did you lose the software company over there? Big one.
Everybody know that.

Mr. Benioff:
       You mean Business Objects?

Dr. Plattner:
         No. They can do what they want. I don’t disclose them here. That would be unfair. A very large
one, and they went now full-size live on CRM release 7.0. Why? Because it’s a better system. So you had
a good life, a good time, and now we have a comeback there, so we should not talk about this. This is
salesforce.com against SAP AG? Why should I say now, “Okay. If you are really so successful, then how
much do you want?” So this is not the case here. We are discussing about software-as-a-service, and I
want to repeat that there are some implications. I started with those, and we have to see whether
companies are willing to move. So do we really want to have our manufacturing schedules? Do we really
want to have our customers, including the volume, the sales volume? Do we really have the list of all our
technical problems in an open space? I have no problem with that. Many customers have a problem with
that. So we have to educate ourselves that security, etc., separation of concern, separation of data. Is
there anyone in the room here who has written software and never ever had a memory corruption? Is
there anybody in the room who has ever developed software?

Mr. Benioff:
       Your employees over here raised their hands.

Dr. Plattner:
        So there are issues with computing, and we have to get over those. So, for example, and
therefore we have completely different models. We have the same framework of parameters –
parameters around. So we totally agree on those. But we have a completely different solution for that.
There is one megatrend happening now. We had broadband, and now the other megatrend which is
happening in large memory sticks. I carry around an iPod with 80 gigabytes. One terabyte is coming in
memory. What we are feverishly building, with all that we have, is in-memory databases. So this new
system, which will come out, is heavily based on partial in-memory databases. What does that mean? We
have customer data in memory, large amounts of customer data in memory. And actually funny enough,
we store it in the same fashion as the analytics guys. We’re going to column-based databases. I don’t
want to go into details here. If somebody wants to have more information, you can contact us. For
example, the HPI in Potsdam, we are doing some of the research there, and there is public knowledge
available. And this means that we can offer systems with less complexity, inner complexity, with much
higher speed and response. This is the real interesting thing. Combined with the modification-free



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system, so that we have hundred-percent clones sitting on a large number of blades. Google now has a
million-plus. I don’t know. The last one we counted, or we—I—read it, was over a million already.
          So that is the future. This is the future. In the transition, will any company be there? Let us start
with 50 users, 500-user companies. Whether we got Exxon, whether we got—get—Colgate. Whether we
got DuPont mentioned here, I don’t know. Probably in 10 years. But this is at least the time I see. We will
have hybrid systems. I have nothing against the fact that somebody uses salesforce.com, or uses the
Business Objects analytics, if this is the better, more-effective offering, and if an office is in the clouds,
and runs better than the personal office on the personal computer, fine. But this doesn’t mean that any of
the ones, and I mentioned three different ones, says, “I have invented the platform, and the only
platform.” We will not have one only platform. This will not happen without Microsoft. This will not happen
without Oracle. This will not happen without SAP AG. Look at our platform revenues. I am not bragging
here, but just our new online database, the in-memory – not online but in-memory database. We made, in
the first year of the system, US$90 million in revenues.

Mr. Hardy:
       To circle back to my question, please.

Mr. Benioff:
         You’ve got to let me just respond to this. Because I think the comment, I think the key is, is that
he’s right when he says the software-as-service industry will not happen without Microsoft, Oracle, or
SAP AG. The reality is that the fundamental core that these companies are holding onto the past, that the
innovations that we’re looking for, and while I respect the concept of the in-memory database, the work
that companies that we’re seeing, the new companies here, the new Internet companies, and the
companies that we mentioned, the Amazons, the Googles, the eBays, the work that they have done, and
also the work of all these nice, new, young, you know, Internet companies, this is really the next gen. But
these big software models, and I think that this is the fundamental crux, and the difference in the
consciousness, is that we’re not going – I do not believe that we are going to see companies buy and
install and upgrade and maintain these systems, whether they are financial systems or CRM systems or
manufacturing systems, or anything.

Dr. Plattner:
         I don’t know what we are talking about. When we’re talking about on-demand, we don’t install.
This is pre-installed. I personalize it. I customize it, but I get confused. Are we talking now on-premise or
on-demand? Where are you?

Mr. Benioff:
         I am only on one place, which is that, fundamentally, that where the industry is moving to will be a
100 percent network approach. That when you talk about, you know – you talked about, “Ask Microsoft
why do they not have spreadsheet as a service,” right? The reason why is, he’s holding on to his cash
cow, which is the Office applications. That’s the answer. It’s not that hard to write spreadsheets as a
service, there are companies that have them. Number one, Google, right? So if you look at Google apps,
and you look at the spreadsheets, the word processors, the presentation software, they’ve been able to
innovate in a pure model with a blank slate, because they’re not held back by the business model.
They’re not held back.

Mr. Hardy:
         Your leap of faith is that people will give up their financials. They’ll give up these core
applications.

Mr. Benioff:
       They already are. They are doing all of those things.

Dr. Plattner:



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      I don’t know what you’re talking about, but, Marc, actually, I didn’t understand what your last
comments were, but will that, what you just said, all change when Oracle acquires you? (laughter)

Mr. Benioff:
       Well, here’s the thing. We can make deflective comments, Hasso; but the reality is –

Dr. Plattner:
        No. That is…

Mr. Benioff:
         -- you have to buy into the fundamental premise. The world has changed, and the Internet is the
future, not the past. It’s not a fad, and because we have this global platform, this global network, and this
new architecture for building these applications with the servers that are, you know, able to be massively
parallelized, way beyond what we ever thought was possible with MPB or any of this, that we can build
now technology that can provide a level of automation for business or for consumers that previously was
unimaginable, and that the ISV, the new software company that’s starting out, will be a SaaS or PaaS
company. It will not be a software provider, and this is the fundamental shift. And there are a lot of key
tenets and reasons why, and we talked about this earlier, but what multi-tenancy gives you, first of all, is
speed of innovation. We can do three, four releases a year just like Google and Yahoo! or Amazon can
do, ‘cause we’re not held back. When we put out a new version, we throw out all the old stuff.

Mr. Hardy:
       That’s no different for him.

Mr. Benioff:
       We –

Mr. Hardy:
       You’re making a point for the technology itself

Mr. Benioff:
       Oh, no. It is today.

Mr. Benioff:
       It is today, because when he releases a new version of R/3, or My SAP, or whatever –

Dr. Plattner:
        R/3 is considered five years out of sales.

Mr. Benioff:
       Well, whatever it’s called now –

Dr. Plattner:
        I don’t know what you’re talking about.



Mr. Benioff:
        -- but you have the guys who are maintaining it in India or whatever, so you have to maintain the
old versions. Look. And let me ask you this way. All SAP AG customers are not on the most current
version, right?




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Mr. Hardy:
       Look. That’s like you --

Mr. Benioff:
       So you have to maintain it.

Dr. Plattner:
        I cannot have a discussion about SaaS when we talk about R/3. I cannot have.

Mr. Hardy:
          Well, let me ask you about this. You know, all of the majors, and you, succeed because of the
ecosystem you create – developers, consulting firms, support, global sales, and other firms. It’s all you.
It’s all about you. It’s not about other companies?

Dr. Plattner:
        I don’t underwrite this, where you’re going, but continue.

Mr. Hardy:
        You don’t know where I’m going? Okay. Does this change the overall ecosystem for companies
that aren’t you? For companies that depend on you? What does it do for them?

Dr. Plattner:
         It’s massively different. If we – I don’t know whether I express (talkover) myself well enough, but I
said, I can say for enterprise software we have enough experience now. We need -- for the customer
space we are addressing, we need a close to hundred-percent coverage of the potential requirements.
Close to a hundred percent. Otherwise, it is too cumbersome, and we don’t achieve the TCO gains we
want to achieve. So that means that we have to have a nearly-perfect system. So that’s number one. That
means there is not much room for some of them who sit here –

Mr. Hardy:
       So you’re telling me –

Dr. Plattner:
        -- who have a business in understanding software, understanding a customer, and write
additional code inside a system.

Mr. Hardy:
         Basically, you’re telling me the ecosystem doesn’t change. That’s a fine answer. I’m just trying to
understand what you’re saying. Your relationship with other service providers or consulting firms doesn’t
really change.

Dr. Plattner:
        I don’t know. Do you need any of the famous Big Five consulting companies to use Google
Earth? No. So that’s the point.



Mr. Benioff:
        Well, I don’t.—I don’t – That, I don’t agree with, because our big implementations, like Cisco, for
example, two blocks from here, or wherever, how far over they are, is partnered with Accenture. We still
have to work with Accenture. We still have to work with Deloitte because we’re writing code, but we’re
managing it, we’re delivering it, in a managed environment. We’re delivering the code, we’re delivering




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the applications in a different architecture, and this is my point, and I’m sorry if I haven’t articulated it fully.
You still have to write the business process. You still have to do the customization. You still have to do
the integration. You still have to do – But we’re doing it fundamentally differently. We’ve re-architected
how you build and deploy the application which gives you one thing that you really did not get in the old
model at the same level, and that is customer success at every level, small-medium & large company.
And that is the next level. So I think, even with the SaaS and PaaS model, we’re not delivering
QuickBooks. We’re automating DuPont customer systems in a dozen different business units ranging
from, you know, Kevlar to Tyvek, on and on and on. That work has to be done by a professional systems
integrator, but the total cost of ownership, the manageability of that system, the usability of that system,
and the cost to deploy are all dramatically different.
         As I said at the beginning, you see paradigm shifts in our industry, and you know have a
paradigm shift when it’s an order-of-magnitude easier and lower-cost than the previous model.

Mr. Hardy:
       It’s not just about you, though. His model says (talkover)…

Dr. Plattner:
        Where are you going? Where are you going? If you think that his is a real controversial
statement here. If you really think that you can provide a software system as service, and that your
platform is the best which the world has ever seen, beating all other platforms, and there is code
individually written for customer A, in this case, Cisco, and then you do thousands of other companies,
and they do the same, and you change your system, you come – gradually, you get there. Then you
know more, probably, you do some of what they did locally there. What happens? Accenture has to come
back and has to now to figure out, “Oh, the new Salesforce 7.1 or 15.8 is different.” How do you keep
these thousands of interfaces together?

Mr. Benioff:
       That’s why we’re going to have a private meeting and talk about this.

Dr. Plattner:
        Yeah, thank you very much. Thank you very much. Marc, this is (talkover) …

Mr. Benioff:
       This is why software-as-a-service is a beautiful thing.

Dr. Plattner:
        Marc, listen.

Mr. Hardy:
       Let him go.

Mr. Benioff:
       All 41,000 customers –

Mr. Hardy:
       Marc, Marc, down boy!

Mr. Benioff:
       -- are all on one platform. So we are upgrading only one platform

Dr. Plattner:




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       That is not the problem. You upgrade, and there is individual other software written again. Marc,
when you were at Oracle, I assume you programmed?

Mr. Benioff:
         No, when I was at Apple, I programmed. When I was at Oracle, I did not program any more, but
we don’t break links. We don’t break the customizations on upgrade, because we are running a managed
environment. That is not something that we do, so all 41,000 customers are on the same version, and in
June, we’re going to release our new version, for example. That day, when we release our new version,
we’ll have about 150 new features.

Dr. Plattner:
        Don’t, don’t, don’t, don’t.…

Mr. Benioff:
         A hundred and fifty new features. When you get it, when you get the new version, you don’t break
the links. You don’t do the customization, but you get the new features. So when you say, “Does
Accenture have to come back, and it re-implements some things, in some cases, yes, because maybe
now they have a portal. Maybe now there’s a CRM capability. Maybe there is this capability, and that’s
the power; but you still have the managed environment.

Dr. Plattner:
         I have this clear. We all want to have the managed environment. I will be scared of what you just
said, to what extent you will allow people to extend the software. If you expand this or extend that to a
whole enterprise system, not an ERP system, far beyond an enterprise system, I will be scared to death.

Mr. Benioff:
       Well, the real deal killer –

Dr. Plattner:
        I will be scared to death.

Mr. Benioff:
       I would think the real deal killer would be security.

Dr. Plattner:
        So now with security. This is a difficult thing. I don’t want to talk about security too much. I asked
you the question. You…

Mr. Benioff:
       It’s actually the opposite. That’s the opposite point, actually, on that.

Dr. Plattner:
         You walk gently over it, and I would like, if you give me a paper, I know how the multi-tenant
system works, because, when we moved to the IMS concept of IBM, we had multi-tenancy. It looked very
much like the system you have, and we had reasons why we walked away from that, but I don’t want to
discuss this, because it’s not the philosophical discussion of on-demand and service on-demand. But I
cannot understand that you just said you love in-memory databases, and you want to do with the current
multi-tenant concept. So we don’t have to discuss this. It is really technical. Probably you don’t want to
discuss it, but if you discuss it, please send me an email, and then we can have a discussion about that.
         So you started that, and probably we should go into this again. This is the financial thing.
Microsoft is not releasing Office in the cloud because it will destroy their model. So I cannot answer for
Microsoft.




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Mr. Benioff:
       In your own case.

Dr. Plattner:
          Let us look at our model. Why do we start with an enterprise system on-demand, not with Exxon?
It could never work. In 10 years, we are not done. So we cannot go there. Therefore, we go to the other
end of the market. Despite the fact that we have a little overlap with our B1 system, which is an on-
premise, little system, up to 50 users or something like that. We start there and we want to go up. I clearly
see this coming. There’s no question. I don’t want to brag here how many developers we have and how
much it will cost, because we see this coming. There is no question about this. And the time, over time,
we will have hybrid systems and, in the end, we will have probably a much larger number of systems on-
demand than on-premise as well as some in-between on a computer at the customer’s site, totally
managed by the service provider.
          I’ll give you an example where I think we are going, aircraft. Aircraft. You cannot modify an
aircraft. You can do everything inside. You can take the carpet. You can take a different veneer, have
different seating, and then it will have to be FAA-compliant, and somebody checks this off. But you
cannot crawl in the engine and change a blade. You cannot crawl in any of the computers and change
something. You’re not allowed, because the complexity of that aircraft is so high that this is not done.
          Also there is one maintenance company responsible for it: the builder of the aircraft, with all the
partners behind, so I believe, and there’s a partner in everything. But there is one single point of
maintenance, or there are maintenance companies which are authorized by this maintenance-
responsible company. This is the model. And this is not inside the aircraft. It is outside the aircraft, these
systems. We go for this model, and therefore, I believe we have many things in common. We should, and
I only give you this advice, but you might not take it, because you are younger.

Mr. Benioff:
       You know how it goes!

Dr. Plattner:
        Don’t – don’t overestimate your platform. We have sunk so many platforms that we put on, and
they were too weak, and they went away, taking with them whole computer companies. So be careful and
don’t underestimate this. And, again, I don’t want to be too tacky, but when you talk you are so Oracle-
focused. When you talk about this with Oracle, there will be a massive joint venture between Oracle and
you to make your platform so big that, really, one thousand or two thousand companies, and 1.2 million
developers, can fit on top. But it’s good, what you do. I appreciate it. I’m not criticizing it. Don’t
overestimate it. The ship can sink.

Mr. Hardy:
         Is that right? You’re going to do a monster deal with Oracle? Do you want to talk about that a little
tonight?

Mr. Benioff:
       I’m learning about it for the first time right here. It’s very exciting.

Dr. Plattner:
        It was in the papers. Didn’t you read it?

Mr. Hardy:
       Oh, then it’s got to be true!

Dr. Plattner:




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        No, no, no.…

Mr. Benioff:
       I only read what Quentin writes, actually.

Dr. Plattner:
        If you are still available, let us talk! (applause, laughter)

Mr. Hardy:
       You know, I don’t want to put words in your mouth, but on the security side, and on the
debugging side, at least, you’ll probably come back with some kind of “many eyes” argument, right? The
more people developing each cycle, the more it hardens?

Mr. Benioff:
         You brought up the security point, and I wanted to flip it around, because I think that we all know
that security is a tough issue in our industry, and it’s getting tougher every day, and one of the
advantages of the multi-tenant system approach, and the shared system, is that when you can see a
problem, you can immediately affect all customers. You can make a change that will immediately change
the system. You’re in control of all the customers. The problem with Microsoft and Outlook and Exchange
and all of that, of course, and where they’ve really screwed all of us, is that something will happen, where
there’s vulnerability. Until we patch, or get a download, or whatever, we are all vulnerable. But, in multi-
tenancy, you don’t have that problem. That’s why you don’t have that problem with the Gmail. You don’t
have that problem, you know, with the Facebook, or this kind of a true, pure, multi-tenant approach.

Dr. Plattner:
         Okay, back to what I didn’t finish on. So if something is so clear on our mind, and we are so
jointly believing in it, that it will be massively successful, let us assume this is happening, then any
company which has the brain and the money has to go there, and the financial model, whether it’s upfront
payment, or –

Mr. Benioff:
       (talking at the same time) Well, why do you think Microsoft hasn’t gone there?

Dr. Plattner:
        You have to talk to Bill.…

Mr. Benioff:
       Well, what do you think? You’ve been doing this a long time.

Dr. Plattner:
        Most likely, the software is not ready.

Mr. Hardy:
       I thought they looked at your margins and cringed.


Dr. Plattner:
         No, I don’t think that. They’re not stupid. Actually, they are pretty smart. So I think, look at us!
Let’s talk about us! We launched the software last year. We need this year to fulfill all these things I was
talking about. We have to learn. You cannot learn this in the lab. You will have to learn this on the fly, and
when you do this for companies, it’s different than for single users. He had a fantastic learning curve. I
wish we could have done that, but nobody buys single-user software from SAP AG. Business Objects did




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this. One hundred thousand (100,000) customers – twenty thousand (20,000) are paying together with
them. They do analytics on-demand. A great, great story. I’m jealous, but we cannot do this. What we
want to do is get a real enterprise on the system and even we, living in complexity, underestimated how
complex that job is, and we cannot go in scaling before we are 99.9 percent sure that this is a system
which covers for the area most of the functionality. What is missing, we can add quickly. This is all what
Marc talked about, how you add, how you get developers on, etc., etc. We have to get this under control
before we can ramp up and go into the volume business, and that takes time.

Mr. Benioff:
        Do you think that your management was too resistant initially, with software-as-a-service? Were
they too much about single-tenancy and reframing the discussion?

Dr. Plattner:
        No.

Mr. Benioff;
       They were not fast enough to weave in the multi tenants?

Dr. Plattner:
         (talking at the same time) No, no, no. I really don’t believe that the software is there, because we
are totally blade-oriented, and one customer – some customers are on one blade. Let us take a
significant, a hundred-user customer, takes this $400 blade or whatever it is, and if we take Google blade,
and a larger customer needs multiple blades already, so all this software has to be, as you said, identical.
Identical twins. We have to have utilities that manage them simultaneously. Before a new client comes in,
there is a prepared system manufactured in the last week, like in a manufacturing company, and we just
dribble in the specifics, like you do, to customer identification, address, and then they start working on the
system. So start-up time is the same. There is no different management of the system. We have one
single source. We have to manage our one single source, and then it’s uploaded in the system, so we
can have endless discussion about this.
         Marc, I have been in multiple different OLTP systems. The best still was at the IMS system of the
IBM, intellectually.

Mr. Benioff:
       I don’t think everybody here knows what IMS is, so –

Dr. Plattner:
         And old IBM system. I won’t go into that, but so we have to formulate our objectives in a formal
way, and then we can use different technologies. It’s endless that we discuss plasma versus LCD. We
have to discuss what is the pixel, what is the cost per pixel, what is the clarity, and what is the glare, and
can you watch it when there is light in the room, or not. So we have to discuss things like this, and then
let the Sonys and the JVCs and others, the NECs, work out which is the better technology.

Mr. Benioff:
        See, I agree with him on this point, because when I was at Oracle in ’90 – when we really had the
breakthrough that this was going to happen in a huge way, it was really based on a lot of work when we
were doing, in the early ‘90s, a lot of research on what we called at the time, “the information super
highway.” We didn’t have the words “The Internet” yet. And then, when we saw the Internet and HTML
browsers emerge in ’95, ’94, ‘95, ’93, that’s when we really said, “Wow! Things are really going to
change!” But when I saw, by ’98, we were kind of going this mishuga. How does – what is happening?
How do we make it happen? Because you have all these conflicting financial and business and technical
models in a big company, and so that’s why, really, I quit my job in’99, because I really said, “We have
got to be so singularly focused. It’s the only way that we will true customer success, and Jeff Henley, who
was the CFO of Oracle at the time, and is now the chairman, took me into his office, and he said, “You’re



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smart to leave, because,” and what was interesting was he said that, “we could never make this shift.”
And I thought it was the “technology,” but he said, “financial model,” because the way recognized revenue
is also very different in the software-as-service world. We’re recognizing revenue as we go. We have
more than a billion dollars on our balance sheet in deferred revenue, which is basically deals that we’ve
signed and not yet recognized, and the revenue streams out over time. That’s different than in the
traditional enterprise-software model, where you recognize the revenue in the quarter that you sign it, and
--

Mr. Hardy:
        (talking at the same time) Your argument seems to be, everybody is a prisoner of their org chart,
and there’s something to that. Now are your Safeway-grocery-store 2.6 percent operating margins ever
going to get towards his 26 percent operating margin?

Mr. Benioff:
         Well, as you know, because you follow our companies very closely, you’ve seen a dramatic
increase in our margins, but, of course, we are growing very, very fast, and we delivered, in our last
quarter, more than 50 percent growth, and we also delivered more than a 100-percent growth on our net
income. The power of that is that we’re a young company. We’re not 37 years old, right?

Mr. Hardy:
       Yeah, but they still have an –

Mr. Benioff:
       We’re nine.

Mr. Hardy:
       They have an enormous reputation for reliability that you need to work towards.

Mr. Benioff:
       Well, that’s your opinion, but I think we have a tremendous reputation for transparency.

Mr. Hardy:
       Yes.

Mr. Benioff:
        That is, we have the ability to show you exactly – We have no secrets, as you know. If you want
to know what our system is doing right now, you can look at trust.salesforce.com. No computer is perfect.
They have their own issues. They have a big lawsuit with Waste Management right now. Everybody’s got
problems. But how do you disclose those problems? How do you deal with those problems? And how do
you open the kimono on those problems? That is the key to running a successful business, not if you’re
going to have problems.

Mr. Hardy:
       Okay. We’re going to open up for questions.

Dr. Plattner:
        That was a foul, by the way –

Mr. Hardy:
       I think you told me that, actually.

Mr. Benioff:




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        Yes.

Dr. Plattner:
        Marc, that was a foul. That was a foul, what you just did. So you lost, I think, somewhere between
5 and 7 of the largest software companies in the world.

Mr. Benioff:
       You keep telling me this, but I would like to know who told you this. I didn’t know we had that
company.

Dr. Plattner:
        I tell you when we go out, so that was the foul back.

Mr. Hardy:
       The secret win. The secret win is coming.

Mr. Benioff:
       We’re going to open it up to questions in just a sec.

Dr. Plattner:
        No, no. After the financial thing.

Mr. Benioff:
       Maybe we’re going to open it up to questions.

Dr. Plattner:
        CFOs have to be overruled, as they say.

Mr. Hardy:
       Go, go!

Dr. Plattner:
         If we cannot do this because of a financial model, the Innovator’s dilemma, then a company is
dead. If they see something on the horizon, they invest massively, and then they are scared financially.

Mr. Benioff:
       Then why do you think SAP AG has not delivered the software-as-service –

Dr. Plattner:
         We have been developing it for four years, and it is not in the market now. We will take another
year, or probably 18 months, to become complete enough so that we can ramp up and, then you will see
us.

Mr. Benioff:
       Okay, but it’s not the innovator’s dilemma.

Dr. Plattner:
         So but I will not allow that the financial managers say, “Oh, this doesn’t work.” Oh, by the way,
the financial model? I have some experience with that, because we had software as a rental in the ’70s.
We carried it in the ‘80s. Our customers then said, “We are going to use your software.” Shit! There is a
customer in America still using the code I wrote. The last time I coded was in ’85. I just learned there’s a
large American company still using the code. I am scared!




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Mr. Hardy:
       You don’t fly that airline, do you?

Dr. Plattner:
          These companies said, when we had rentals, “Let us have a pay-out model. We know that we
trust your software. We trust your company. We will run for 10-plus years with your software.” They did a
little spreadsheet and figured out it is much more expensive to pay an annual or monthly fee per user
than to pay off.

Mr. Hardy:
       Okay. We’ve got to go to questions, but very quickly, briefly, I’d like each of you to tell me
something you admire or wish you had about the other guy’s company. (laughter)

Mr. Benioff:
       Well, I think that, you know, I have tremendous respect –

Dr. Plattner:
        Just say “money.”

Mr. Benioff:
         So honestly, I respect the tenure. I think that anyone in this room who’s been in this industry has
got to give this gentleman tremendous accolades for staying with this for 36 years. You know, you just
don’t see it. You even see Bill Gates leaving the industry after 31 years, or you see, Larry Ellison, of
course, has been CEO of Oracle for three decades, but 36 years, 37 years, this is a spectacular
accomplishment, and this kind of commitment to the industry, and commitment to excellence over
multiple decades, and having to debate multiple paradigm shifts, and debate multiple entrepreneurs over
37 years that is amazing.

Dr. Plattner:
        That’s enough…

Mr. Hardy:
       Before we go to 37 years, very quickly –

Dr. Plattner:
          No, no, no. What do I appreciate? That he saw something which nobody has solved before, that
you can start as a single user, feel comfortable, then tell your colleague, “I have something that works.”
Tell your next colleague, “I have something that works.” Go to your boss, “Can we get 20 licenses?” Up
to, I think your largest is now 60,000, or something? I just read in the papers. That is fantastic! That is
fantastic!
          We are not in this business. Now we are in this business, single-user-oriented software, and
therefore, we are doing it. You cannot, when you are so successful in enterprises that start with a
hundred or fifty users, then suddenly to go to single-user systems like Microsoft, this is hard. We have
tried it and failed. Therefore we made a huge investment to have a company which has done the same.
Start with a single user, and go up to a hundred-thousand users. So this is where I admire him from, that
he has worked this out, and people like their software. Shit, yeah! It was better than our CRM on-demand.
Ours was not good enough, and therefore he has all the right to beat us. Watch out what 7.0 doesn’t do
that to you!

Mr. Hardy:
       Be around another 36. Questions from the audience




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Q&A

Q:      I’m interested. We’ve, you know, heard about this little company up in Redmond that keeps
having designs on your space? Are they gonna make it?

Mr. Hardy:
       An ERP. Microsoft.

A:       (Dr. Plattner) The current chart, or the charts I know, and so the five largest enterprise-software
vendors, they are pretty stagnant in market share. You cannot rule them out. You know Steve Ballmer?
You know Steve Ballmer, and look at their bank account. So even if they have to redo again, essentially,
you cannot count them out. You have to watch them. By the way, they’re a very good partner of ours, so
they’re there for the long run.

Mr. Hardy:
       Another question? Yes, sir.

Q:      Hi. One of the tenets of software-as-a-service, from what I understand, one of the major tenets, is
that you can switch vendors if you don’t like something. It occurs to me that if you’re getting them to
design on your platform, then it is a lot harder for them to switch from your underlying application, so I
was just wondering if you could comment on that.

A:      (Mr. Benioff) Yes. That is right.

A:      (Dr. Plattner) And therefore we take the risk that I want to see – probably this is wishful thinking,
but have the least amount of company-specific software in the system. It would have to be very small. I
cannot tell you how small, but there’s a risk, just the same, he can switch that. But that’s a better risk than
they have to add 10 or 20 percent software to a system, they just bought, rented, or whatever.

Q:      Yeah. I’m Ken Rosmark, Hasso. Just a couple of things. First of all, to remind everybody that –

Mr. Benioff:
       And we should just say Ken is the founder of Ross Systems, and what year did you found Ross
Systems?

Mr. Rosmark:
       1972.

Mr. Benioff:
       1972. So one of the real innovators.

Mr. Rosmark:
        And we had software-as-a-service back in 1975, so it’s not that new of a concept. But my
question really deals with the role of the IT department. One of the things I’ve seen is that people want
software-as-a-service because the users can control their own destiny, and they can basically bypass the
IT department, and an IT department tends to want to then cycle back and grab control and have on-
premise software, and I’m curious about your comments on that?




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A:      (Mr. Benioff) Well, my view is that that’s not true, that, today, that we work more closely with the
CIO and the IT department than any other function of the business. Of course, we have to be the hero of
our user, and the champion of our user. We have to make sure our user is successful, as you heard.
We’re constantly managing and monitoring all of our million-plus subscribers to make sure they’re
successful. But our most important customer inside the company, of course, is the CIO.

        When we talk about DuPont, we worked closely with the CIO at the time, Bob Rideout, to make
sure that we are part of his corporate architecture, that we’re integrating to his standards, and so forth
and so on, because this is integrated as part of a corporate system. You cannot just push the IT
department aside if you want to be successful as a software-as-service vendor. It goes against the very
concept that this is a critical system inside the organization. But thank you for the question, Ken.

A:        (Dr. Plattner) I don’t know whether I understood the question completely, so I agree. There will
always be an IT department, and even if all software is, to a large extent maintained outside this
company, then you still need the technical people, because the frontend computers plus the networks are
still there. You still have to understand the services and how you combine the services, because there will
always be service integration. But I recommend that companies in this wonderful world, where everything
is close to perfect, and so broad, and much cheaper, that they come back to a model they had in the ‘70s,
when I worked for IBM, or started working for IBM, and in the ’80s, they need something which was called
“organizational department.” They have to understand what they can do with computer systems. They
cannot bring young consultants in. They can help. They can do peak load, but you have to have a
constant work on the subject of software systems in a company.

A:       (Mr. Benioff) Yeah. And just to extend that comment, because I agree, is that the role of the CIO
is changing, and that he’s really moved, from really being kind of the IT director, where he had to hook up
all the computers, to become more of the chief. He or she, I should say, should become much more of
the, “chief innovation officer” in the company. You know, these systems, the on-demand systems that we
have, and the future ones coming from SAP AG one day, in 18 months, that this opportunity is for the CIO
to be able to take those things, and to rapidly deliver value to the enterprise, and that is the power.

A:      (Dr. Plattner) Actually, I have to add, for the people from analysts, press, and so on, I would like
to ask you not to take information with regards to time line, delivery, from someone else than SAP AG.

Mr. Hardy:
       As a rule, we don’t do that in my line of work…

A:      (Dr. Plattner) We have not acquired him yet, and made him a spokesman.

Q:      Hasso, this is a question for you, and right here. I just had to stand up, and I ought to have a full
disclaimer here that I work for Marc, so it’s not a hardball question. Just something I was curious about.
Quentin framed up the conversation at the beginning today with the relative sizes of our companies, and
something I’ve been scratching my head about all week was, “Why did you agree to this?” And you’re a
huge company. We’re a relatively small company. Why did you agree to come and speak with us today?

A:      (Dr. Plattner) I like the challenge. Now, to tell you the truth, a year ago, somewhere in San Jose, I
delivered a speech about our on-demand system, and I did it as a professor on a blackboard, and Marc
Benioff was speaking at the same venue just shortly after me, and the moderator said, “What a pity that
you couldn’t meet and have a heated discussion.”

A:      (Mr. Benioff) We’ve actually never met before this. This is our first time.




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A:       (Dr. Plattner) Yeah, so he was excited about the possibility that we could do this, and when we
had the chance, why not? To have an intellectual discussion about on-demand is not restricted to relative
size of the company, neither small nor big.

Q:        Hi. I’m greatly enjoying this banter. I gotta say, as a CIO of one of the enterprises that writes
pretty big checks to both of you, I think your discussion is really missing the mark, right? So my comment
is, really, as a CIO, I’m not interested in technology. I’m not interested in platforms. I’m not interested in
how you’re gonna do it. I’m interested in solutions. So I see a difference between the two solutions that
you’re prescribing. You both believe in software-as-a-service. I get it. You’re both gravitating towards
more functionality, Marc. Hasso, you’re gravitating towards software-as-a-service. I get it.
          So my question is, Marc, your approach tends to give me as a CIO a lot of choices, so I get many
different service providers who can add to your platform. My challenge with that approach is, how do I
make sure that I get end-to-end process integration?

Q:        And Hasso, the question for you is, I’ve never had a choice when it comes to SAP solutions, and
that kills me. Sometimes my business can’t –

Dr. Plattner:
        What? I didn’t understand.

Q:     I don’t get choices with SAP solutions. I’m locked into your model. I have made such a big
investment in this end-to-end integration, which I love, but sometimes, when I need that extra
customization, I don’t get that choice. You’re prescribing a closed system, even though it’s on-demand.
So my question to you is, how do you give me more choices?

Mr. Benioff:
       Can you just tell everybody who you are?

Q:      I’m Calvin Do, CIO for EFI.

Male voice:
       Where?

Male voice:
       EFI, Electronics for Imaging.

A:      (Dr. Plattner) Okay. Somewhere in the room, there is Zia Yusuf. He is partner manager at SAP
AG. And as I said, we have 2,000 partners. He has to talk to you. Probably, you have to upgrade your
system to a later one, where we have these. We did a build of SOA in the system six, seven years ago,
and then you have a large number of interfaces we will keep as standard for the next foreseeable future,
and you can choose. I don’t know. Go to the Internet first if you don’t want to talk, but Zia Yusuf sits just
one, two, three, four tables to the other side, and have a talk. And if you are not happy with his answer,
send me an email.

Mr. Hardy:
       Did you sell an upgrade?

Dr. Plattner:
        Yeah.

Mr. Hardy:
       Wow!




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Dr. Plattner:
        That’s how it’s done!

Mr. Hardy:
       Cool! This thing’s impressive.

Dr. Plattner:
        What do you think I do?

Mr. Hardy:
       His massive complexity, unreliability, I don’t know what to choose. What do I do here?

Mr. Hardy:
       Speak to that. He had a knock for you, so –

A:       (Mr. Benioff) I think that, you know, what he said is absolutely right, that, you know, what we have
is loosely-coupled partners, and so we have a core. We’ve had a core, and then we’ve loosely coupled
those partners to that core, and it delivers functionality rapidly, but not tightly integrated to the core, and
that’s why, now, we’ve expanded. We have a new virtual machine for hosting customers’ code, which is
called Apex, that I think you know about. Plus we also have some new native-user-interface technology,
and we’re moving those partners which were loosely coupled into the core through native code, and I
think, and I hope, that that will, you know, make you more satisfied. But the good news is, Calvin, there’s
no upgrade.

Mr. Hardy:
       Whoo! Do I have another question? Take his word!

Q:       Marc, this question is primarily for you. I’m curious about your perspective, the innovator’s
dilemma was mentioned earlier by Hasso, and I would credit Clay Christiansen’s sort of frame work to
explaining a lot of what you did to Siebel with the new market disruption, attracting customers to CRM
technology who wouldn’t have bought CRM technology before. What do you think of Sugar CRM sort of
displacing you as potentially that new market disruption with customers who wouldn’t otherwise buy CRM
technology, now implementing an open-source model while you have sort of fled that market to try to go
after the Ciscos and the bigger customers, and satisfying their needs.

Mr. Hardy:
       Okay. If possible, could you identify yourself?

Q:      I’m Scott Jacobs from McKinsey.

Mr. Hardy:
       Okay, and flood the market.

A:         (Mr. Benioff) So I think that open source is a very good model, and I use a lot of open source in
my core technology, but in the same way I am a service provider, and this is the model that I believe in,
going forward, on the Internet, and that is the model, as I’ve said now ad nauseam, the Google model,
the eBay model, the Amazon model. If that’s not the correct model for your company, if there is a better
model for you, whether it’s the upgrade model, or it’s the open-source model, or whatever it is, if you want
more software, which is what that is, that’s available. But I don’t believe in that model because I don’t
believe in the future of the software industry in that way. I see a new model emerging, which is services.
Lots and lots of services delivered over the Internet that are both loosely and tightly coupled and
delivered on these both homogenous and heterogenous platforms, and that is the direction that I see. So
it’s a religious difference.



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A:      (Dr. Plattner) But you just said that upgrade your offering soon.

A:       (Mr. Benioff) Yes. But he doesn’t have to do it. So we do it for him, and I don’t sell it to him. So let
me tell you how it works. So here’s the deal. I give up. Here’s a subscription fee , so he’s Calvin Do. He’s
the CIO.

A:      (Dr. Plattner) Yeah. Do you think we do this differently? What do you think?

A:      (Mr. Benioff) Well, you just told him he needs to upgrade, is it a free upgrade?

A:      (Dr. Plattner) Marc, what kind of system does he have?

A:      (Mr. Benioff) Is it a free upgrade?

A:     (Dr. Plattner) He has the SAP Business Suite or he has an SAP all-in-one. He doesn’t have – Do
you have an SAP on-demand system? No. Okay.

A:      (Mr. Benioff) What is that?

A:      (Dr. Plattner) That is an on-premise installation of the R/3 successor, SAP Business Suite.

A:      (Mr. Benioff) What should he move to?

A:      (Dr. Plattner) He should stay on this for the next five years, at least.

Male voice:
       Calvin!

A:      (Dr. Plattner) If you find somebody better, fine. If Oracle is better, if Microsoft is better, I can’t stop
you, but I would not. I can’t have the discussion now. (talkover)

Mr. Hardy:
       I’ve got time for one or two more questions from the audience.

A:      (Dr. Plattner) If you are of a significant size, you are not a candidate to move to on-demand soon.

Q:      Jean-Baptiste Su with the French News Agency. This is a question for Hasso. You mentioned
several times that you have not acquired Salesforce yet. So does it make sense for SAP AG to acquire
an on-demand company like Salesforce?

Mr. Hardy:
       “Make sense” is such an interesting term.

A:      (Dr. Plattner) I have to be careful here. It always makes sense to look into something, you know.

Mr. Hardy:
       He said “do’ it.

A:      (Dr. Plattner) No, no. If his Apex platform is really as good as he thinks it is, we should look even
more.




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A:        (Mr. Benioff) My idea is – Here’s my idea. My idea is, you should build one of your apps, pick one
that you think is appropriate, on our platform, and try it out for a few years, and see how it goes. And then,
if it goes well, you know –

A:      (Dr. Plattner) Probably we do that.

A:      (Mr. Benioff) – then you can look, you know (talkover).

A:      (Dr. Plattner) You know what the risk would be –

A:      (Mr. Benioff) You should just – let’s build some apps. That’s what I’m saying.

A:      (Dr. Plattner) You are still too good a friend with Larry.

Mr. Hardy:
       “You’re still too good a friend with Larry.” He sees Larry buying it.

A:      (Dr. Plattner) Yeah, yeah. And I don’t go in a bidding war, but probably the SAP AG management
sees that completely differently, and then they will inform the supervisory board, and then I have to vote.

Mr. Hardy:
       That was kind of a financial version of “whatever.” Yeah. Back there.

Mr. Hardy:

Yeah, I’ll take a different question. Do you have another question? I can take two more, I’m told. Okay.

Q:        Hi. Charles Jolly from Sprouted. So you talked about the platforms earlier, and, you know,
Windows became a platform of choice for developers, especially consumers, because, primarily, of its
deployment in the enterprise. So what do you think is going to happen with the platforms on the Internet?
I can’t build an app for Salesforce or for force.com, and take that app, run it on Facebook, right? They’re
completely separate platforms. They’ve targeted to different demographics, obviously. Do you think we’re
going to be in a world where, you know, we have three or four platforms that end up kind of segregating
into different markets? Are they going to end up dominating like Windows?

Mr. Hardy:
          That’s a great question. Can I tweak that just a little bit, and say, “And what will that – If they do
start interoperating what does that do to complexity and reliability?”

A:       (Mr. Benioff) So we have an application that runs on Facebook today. It’s called Face Force, and
you can get it on our app exchange, but we’re building more technologies so that you can build
applications that will run on Facebook or other platforms. I do see that that’s a tremendous operability.
You will have multiple platforms as service, and, unlike kind of the previous platform world, where you
had to make this kind of hard-line religious choice, you will be able to choose. And it kind of gets back to
Calvin’s question. Where it’s appropriate, you’ll be able to make a loosely-coupled solution, which Hasso
referred to as a mash-up, or the ability to bring two services together. That’s one direction. And of course,
we’ve done a lot of that on App Exchange. The second direction is to build natively and build into the
core, so you have the business processes all fully integrated as one service. You know, maybe there’s a
more-traditional approach that you might see like a traditional large SAP suite. So the approach will be up
to the customer on what they want to actually build and deploy, or up to the ISV.

A:     (Dr. Plattner) As I understood the question, are we converging to one single platform, probably
Google, Microsoft, or Oracle, or will we have a proliferation of platforms. When we had client / server, we



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had platforms all over the place. Five guys came together, had a brilliant idea, and built a better platform
than anybody else, and so we had platforms, platforms, platforms. Unfortunately, if you took one of those
great platforms, you got stuck, because the companies were not strong enough. Boom! They dropped.
Boom! They dropped, and I don’t want to throw in all the names here. You know. Probably some of you
were in these platform companies, and then there is a consolidation of the platforms. And unfortunately,
and this is the injustice in this world, not the best platform wins. The strongest platform wins. So,
therefore, we see a—still a—domination of IBM and Microsoft in the platform business. It’s very simple.
So whatever happens, and who has a brilliant idea, has to come up to the size of Google, IBM, or
Microsoft in order to have a sustainable chance to be the platform of the future for all of us.

Mr. Hardy:
       Anybody want the last question? I got a fight here. Oh, back there. Sorry.

Q:      This is Philippe Butteri with Bessemer Venture Partners. I’d like to have your opinion on how do
you think the emergence of SaaS is going to shift the balance between best-of-breed versus the suites?

Male voice:
       Good question.

Mr. Hardy:
       Can you repeat the question?

A:        (Dr. Plattner) Probably in the short term, we will see many, many, many different ideas popping
up. Some will consolidate around the current leaders in SaaS such as salesforce.com or Business
Objects. Definitely, Google, and others you mentioned. So there will be many, and then we will have
multiple ones of the same. Then, again the consolidation will start. I don’t know whether then Oracle is
still there to collect them all up.

A:       (Mr. Benioff) Hey, Philippe, I’d like to end the debate by saying I completely agree with Dr.
Plattner.

Epilogue

Mr. Brenner:
          Wow. What an evening. This is going down in our history books as one of the best debates we’ve
ever had. We want to thank Marc Benioff and Hasso Plattner and, of course, Quentin Hardy, for joining us
this evening, and sharing their views with the audience. Let’s give them another round of applause.
          Before we start streaming out tonight, I would like to add one thing. We have had over eleven
hundred viewers on Ustream tonight from around the world. I got the statistics while the program was
going on. We want to thank the viewers for staying with us tonight. I think that everybody got a lot out of
this, so thank them at home, as well.
          The speakers: we want to thank you again for being here. You’ll each receive a wonderful shirt
from Jenny. A shirt compliments of the Churchill Club, and the mugs are yours to keep, as well. So we
want to thank you again for being here, and have a safe drive home. (applause)

                                                    ###

April 3, 2008




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