How does Salesforce make money? Why is it so successful?


Company profile

Founder’s story

Salesforce (Salesforce, ticker: CRM) and founder Marc Benioff is arguably a legend in the enterprise software market. Salesforce is the founder of cloud- based customer relationship management (CRM) software. Benioff became a vice president of Oracle (NYSE: ORCL) at the age of 26, and left Oracle in 1999 at the age of 37 to start the company Salesforce.

About the process of the founding of Salesforce and Benioff’s entrepreneurial story, you can refer to the book “Behind the Cloud” by Marc Benioff. It’s an autobiography of Marc Benioff and Salesforce.

What problem does Salesforce mainly solve?

In order to solve the problem that traditional software is expensive and has a high threshold for use, because software in that era had to be bought out at one time, customer relationship management (CRM) software was standard enterprise-level software, which was expensive. Therefore, Salesforce proposed the service of online customer relationship management (CRM) software, and it does not need to be bought out at one time, but can adopt a subscription system and pay in installments.

The other is to make major large-scale software cloud-based, because most of the software, especially enterprise-level software, is very large and requires complicated installation, configuration, upgrade, and maintenance. And the biggest problem is that it must be logged in and used at the user’s local end, such as an office. Salesforce makes software cloud-based, users can use it anywhere, and greatly reduces the difficulty users encounter in deploying large-scale software.

Siebel Systems

Customer Relationship Management (CRM) software was not invented by Salesforce. Salesforce is just one of the most famous CRM system developers. At that time, the most popular CRM system was Siebel Systems, which was founded by Thomas Siebel. Siebel System CRM software company, its appearance almost swept the back-end management system platform of enterprise customer relationship at that time, but the price was high. Siebel Systems later failed to beat Salesforce and was acquired by Oracle.

By the way, it is worth mentioning that Thomas Siebel later founded an artificial intelligence platform company (ticker: AI), which was successfully listed last year, attracting a lot of attention, because this is a (and very few) companies that mainly rely on artificial intelligence technology to make money.

Salesforce’s Contributions and Achievements

This is the historical story of the birth of SaaS (Software as a Service). In the third, fourth and fifth chapters of my book “The Rules of Super Growth Stocks Investing”, I mentioned SaaS, an important revolution that has changed the software industry. Interested friends can go back and refer to it.

After the platformization of Salesforce in 2008, Benioff proposed the concept of PaaS (Platform as A Service). This is a forward-looking change that not only expands Salesforce’s corporate footprint, but also changes the direction of the software industry again. Regarding the difference between SaaS and PaaS, as well as IaaS, please refer to my previous blog article “Microsoft, the dominate overlord of cloud computing“.

The market value of Salesforce has surpassed that of Oracle (ticker: ORCL), the runner-up in the software industry for a long time, and it has also been added to the Dow Jones Index.

Company growth

The three stages of the company

The three-stage growth process of Salesforce is took as a classic case of enterprise software company entrepreneurship and growth, and many software startups later use it as a standard growth plan and lesson to copy.

  • From 1999 to 2004, Salesforce only provided a single customer relationship management product.
  • From 2005 to 2016, Salesforce built a PaaS platform and completed the layout of four clouds (sales cloud, customer service cloud, marketing cloud, and business cloud).
  • After 2016, Salesforce has established a complete PaaS and SaaS software ecosystem through several important acquisitions (see the “Important Acquisitions” section below for details).

Salesforce doesn’t just sell products

With the PaaS platform, customers and software developers can develop industry-specific solutions through Salesforce’s PaaS platform. The most famous of these are Veeva Systems (ticker: VEEV) of healthcare solutions, and Vlocity, which was later acquired by Salesforce.

Plus, Salesforce’s AppExchange (you can think of it as a Salesforce app store or software marketplace) can make it possible to attract customers from many different industries and build a sustainable business.

Several important acquisitions

Salesforce is now able to grow into a dominant player in the software world, and a key factor in its success has been mergers and acquisitions. In particular, the following acquisitions are more critical and of course cost a lot of money:

  • In 2018, it acquired Mulesoft, an app integration business, for $6.5 billion.
  • Acquired data analytics platform Tableau for $15.7 billion in 2019.
  • Acquired Vlocity in March 2020 for approximately $1.33 billion. Vlocity was founded in 2014 by several people including former Siebel and Veeva’s (ticker: VEEV) co-founder Craig Ramsey. Vlocity offers products and solutions focused on customer-centric digital omnichannel marketing processes. Built on Salesforce’s Force platform, it primarily covers clients in communications and media, energy and utilities, health, insurance and financial services, and the government and non-profit sectors.
  • In 2020, the acquisition of Slack, an enterprise office collaboration platform manufacturer, for US$22.7 billion will enable Salesforce to have products that can compete with Microsoft Teams.

Withdrawn from the Chinese market

According to iiMedia Research, the market size of China’s SaaS industry in 2021 reached 32.26 billion RMB. Among them, although the customer relationship management market accounts for a high proportion, the market size was 15.6 billion RMB in 2021, but the overall market share is not as high as Salesforce’s revenue in a single fiscal year quarter.

Due to unacceptable conditions in China, Salesforce has withdrawn from the Chinese market. The Chinese branch has officially announced its complete withdrawal from China in early August 2022, ending its business in China and Hong Kong, and dismissing all employees. In the future, Alibaba may take over the business in China and Hong Kong, which is not surprising, because Salesforce established a strategic partnership with Alibaba in 2019, and the two sides highly cooperated in business in China.

Salesforce has been working in the Chinese market for 18 years, surpassing the establishment time of most Chinese SaaS companies. For such a long time span, Salesforce’s revenue in the Chinese market accounted for its global revenue in single digits or even lower. The leader of an industry can’t win the important market of China, which will grow significantly in the future. However, industry analysts analyzed that Salesforce has always had three major problems in China, namely:

  • The product is not suitable: Salesforce mainly directly uses Chinese localized version, not features customized, and sell it directly in China, but it is difficult for China to fully approach the products of Western thinking, because the culture and usage habits are completely inconsistent.
  • Service capabilities can’t keep up: Salesforce’s sales channels in China are not strong, and they don’t focus on cultivating partners. In China, a society that attaches importance to relationship connections, especially for a customer relationship management system like Salesforce, a product that emphasizes customer relationships, it is difficult to success.
  • Data factor: Salesforce still uses overseas data centers to serve the Chinese market, which is very sensitive to Chinese companies.

Business performance and share price

How is the business performing?

Year 2021SnowflakeSalesforceMicrosoft
Revenue1,219.3 million (+105.91%)26,492 million (+24.66%)168,088 million (+17.53%)
Gross margin62.4%73.48%68.93%
Operating margin(715) million 2.27%41.59%
Net margin(715) million 5.45%36.45%

Stock valuation

Share price143.11166.03242.26
Market capitalization45.523 billion165.2 billion1,812 billion
Dividend yield00%0.98%


Main competitors

Salesforce is mainly engaged in the enterprise-level software market, so its competitors are the top few players in the software industry, including:

  • Oracle: Oracle’s cloud transformation has been unsuccessful in the past ten years, but it has gradually reached a mature stage, and has repeatedly publicly stated that Salesforce is its direct competitor.
  • SAP (ticker: SAP): SAP’s family of products spans multiple application areas of the enterprise, and Salesforce is a direct competitor in many products.
  • Microsoft (ticker: MSFT): Relying on the Azure cloud computing platform, Teams, and Dynamic, Microsoft has built the office collaboration environment that Salesforce expects. Coupled with the SaaS ecosystem, Microsoft is a powerful potential competitor for Salesforce. For details, please refer to my previous blog post “Microsoft, the dominate overlord of cloud computing“.
Credit: Wikimedia

Secondary competitors

The leading manufacturers of other vertical SaaS companies in various industries are more important:

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