Good afternoon. My name is Tamra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Salesforce.com Management Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question- and- answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Mr. David Havlek, Head of Investor Relations, you may begin your conference.
Good afternoon and welcome everyone to today's call. Earlier today, Salesforce.com announced its acquisition of Rypple, Inc. Details of that transaction can be found in a press release issued at approximately 1:00 P.M. Pacific Time. Joining me today to briefly discuss this exciting transaction are Marc Benioff, Chairman and CEO, John Wookey, EVP of Advanced Applications, and Graham Smith, our CFO. After some brief prepared comments from Marc, John, and Graham, we'll open the call up to your questions. Before we begin, let me remind you that the purpose of today's call is to discuss the Rypple acquisition and not our company business performance. As is our standard practice, we will not be providing any preview or update on our current quarter. Some of our commentary or responses today may contain forward-looking statements. These statements are subject to risks, uncertainties, and assumptions.
Should any of these risks or uncertainties materialize, or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. All these risks, uncertainties, and assumptions, as well as other information on potential factors that could affect our financial results, are included in our reports filed with the SEC, including our most recent report on Form 10-Q, particularly under the heading Risk Factors. Finally, please be advised any unreleased services or features referenced in today's discussion or in other public statements are not yet available. Because these features may not be delivered on time or at all, customers who purchased our services should make their purchase decisions based upon features that are currently available. With that, let me turn the call over to Marc.
Today, I'm incredibly excited to announce that we've entered an agreement to acquire Rypple, which is the leader in the next generation social performance management. This announcement is particularly exciting because it signifies Salesforce's entry into the human capital management market. Salesforce plans to relaunch Rypple as Successforce and create a new HCM business unit, which will be led by John Wookey, who we brought on earlier this year as our Executive Vice President of Advanced Applications. John's vision and leadership helped shape the last decade of enterprise software companies at Oracle and SAP, and we're thrilled to have him to shape the next decade with Salesforce and to lead this critical effort in HCM. Under John's leadership, our goal is nothing short of revolutionizing human capital management through the power of the social enterprise.
Starting with Successforce, we plan to create the world's first HCM cloud, designed from the ground up for a world that is social and mobile. HCM is a $6- billion industry, and we think it represents a future growth lever for our business as we grow and beyond. I'm going to now turn things over to John, and he'll tell you more about this exciting new initiative. John?
Great. Thanks, Marc. For those who don't know me, I've been in the Enterprise Software industry for close to 25 years now, including Senior Leadership positions with both Oracle and SAP. When Marc and I first discussed my joining the company, it was clear we really had a common view of the future of enterprise applications. They were based in the cloud, focused on an increasingly mobile workforce, and most importantly, they needed to be social. I joined Salesforce, frankly, because I saw a phenomenal opportunity for the company to expand beyond the CRM marketplace and capture more of this emerging social enterprise space. I don't think any company is better positioned to revolutionize another category in the software industry more than Salesforce. Let me start by telling you a little bit about the Rypple organization.
They were founded in 2008, and they really reinvented the way companies manage, motivate, and empower their people. They pioneered a new way for people to keep track of what their colleagues were working on in real time, allowed them to align themselves around common goals, and easily adapt their objectives to changing business needs. They were designed from the ground up to really build a results-driven culture. Rypple replaces traditional HCM technology with easy social applications that let people know where they stand and also hold them accountable for achieving their goals, always supporting a completely open and transparent workplace. Hundreds of companies, including Facebook, LivingSocial, and Spotify, use their products, which are based on 50+ years of behavioral science that's focused on what really motivates people to perform well at work.
The important thing to note is that while the way people work has radically changed over the last 30 years, technology that supports managing those people has not. Today, many HCM vendors are taking the same static, top-down, sort of legacy approach and simply moving it to the cloud, which is not the innovation that we need. The next generation of HCM is not just about a new delivery model. It's really about the changing role of management in a social world. Today, companies need and frankly deserve new performance and leadership tools that are transparent and allow employees to be connected to their company's mission and to each other. The acquisition of Rypple and its relaunch of Successforce will really be the first step in building out our HCM strategy. Performance management, of course, is just one aspect of how companies connect with their employees.
There's a continuum of interaction that helps companies grow, how they find and recruit the best people, how they onboard them seamlessly into the organization, and how they develop and reward them over time. This is an important beginning as we bring the vision of the social enterprise inside the organization to the HCM marketplace. We also believe that the acquisition of Rypple will increase the usage and value of all of our existing Salesforce products. We plan to embed some of its key features, like Thanks, Badges, and Recognitions, into Chatter, which will help shape the future of the employee social networks that we're now creating. Customers of our core Salesforce products, the Sales Cloud, Service Cloud, Force.com platform, will be able to easily connect to an entirely new set of tools for employee feedback to help drive business goals.
With Rypple's next-generation products and the visionary management team that are becoming part of Salesforce, we really think we have a great combination to bring the right ingredients to HCM technology into a new era of the social enterprise. We'll talk more about that and the future of Successforce in the coming year. Stay tuned. With that, I'll turn the call over to Graham.
Thank you, John. The transaction is expected to close early in Salesforce's fiscal first quarter, ending April 30, 2012. That's, of course, subject to customary closing conditions. While we continue to support Rypple's existing customers and to sell the current product, we don't expect Rypple to have a material impact on revenue in fiscal 2013. Rypple has approximately 45 employees who are based mainly in Toronto and San Francisco. We plan to transition most of these employees to Salesforce and move them into our existing offices. As you're all aware, we've not yet initiated earnings guidance for fiscal 2013 yet. We'll be working Rypple into our numbers before the Q4 call in February. With that, operator, let's open the call up and take some questions.
At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question will come from the line of Brent Thill.
Thanks, this is Brent Thill, UBS. John, as you mentioned, PM is one aspect of HCM. Can you just talk about what you think about the learning, recruiting, and other segments? Also, I guess for Marc, you know what does this do to the Workday relationship over time? Is this more competitive over time, in your belief, or complementary to your partnership with Workday?
From my standpoint, obviously, for performance management, I think to be most effective, it has to be linked into how you find the right people, how you smoothly onboard them, and then connect them to the learning environment. That is certainly something that we're going to look at in the future. One of the things I think that, from a recruiting standpoint, we think is important that a lot of the current packages don't really focus on is how do you support your existing workforce and how do you ensure that they're properly placed. That'll be one of the things that we look at as we look to grow the Successforce application.
Workday is a fantastic company, and it's a great partner of Salesforce. We continue to expect to have a great relationship with them. I don't view this as competitive with them. This is going to be a broad-ranging HCM suite for the full range of Salesforce.com customers. The work that we're doing with Workday is really about helping their customers to create more successful applications using our Force.com platform. We plan to continue to have a great relationship with them.
Your next question will come from the line of Philip Winslow.
Hi, guys. Just to build off of Brent's question, you mentioned Brent building out potentially other components of the HR software suite. When you think about just sort of a broader enterprise software suite, obviously, you have financials and so forth. You've seen players like Dave Broughton from HR and the Financials. I mean, should we think of this as sort of the beginning of moving not just in the CRM segment, but HR, Financials, et cetera? I mean, is this the beginning of just a very broad enterprise suite?
I think the way to think about that is what we've really defined is what is the next generation of enterprise software we call the social enterprise. As that has moved to the cloud, we've really started with sales. We evolved to also customer service. Both of those are huge, fast-growing product lines for Salesforce. We've added marketing with the acquisition of Radian6, and again, we've seen tremendous success in that area. Now you're seeing us move into what we think is another very fast-growing area in the cloud, which is HR. With sales, service, marketing, and HR, these are the four main application categories that are really gaining traction with our customers and really have broad-based appeal between very, very small companies to very, very large companies. In addition to that, those four core applications run on our platform.
That Force.com and Heroku platform really gives those applications the ability to be customized and be delivered for whatever customer that is, wherever they are in the world. I was just in Japan this morning, and we've seen incredible success with this strategy in that marketplace where customers want to be able to broadly adopt these applications and then radically customize them for their needs. That's really how we look at it. In terms of moving into other applications or other categories, we're always looking at what those potential areas are. These are the four that we've seen the most excitement from our customers, and that's why we've concentrated our efforts here.
Great. Thanks, guys. Love the branding too.
Again, if you would like to ask a question, please press star, then the number one on your telephone keypad. That's star, then one for a question at this time. Your next question will come from the line of Walter Pritchard.
Hi. This is Robert for Walter. Just a question about the move into a different applications category. It seems today, so far, you've spent a lot of focus on the platform. This sort of signals a move potentially back into applications. I'm wondering how you're seeing this move potentially impact the ISVs who have already developed on the Force.com platform.
We continue to execute as both an Applications company and a Platform company. We continue to deliver on our vision of being able to deliver a world-class offering to our customers that can make them successful using cloud computing. With now more than 100,000 paying customers on our core platforms, we really have the opportunity to deliver them more functionality directly in the application. There's no better way for us to do that, actually, than through Chatter. As you know, Chatter has really become pervasive in all of our customers. When you look at a technology like Rypple, you can see how, as it evolves to become Successforce, built on the Chatter platform, the ability for our customers to easily switch on human performance management inside the feeds that they're already managing. Now, they're already managing their Salesforce automation applications. They're managing their customer service and support applications.
You saw when we rolled out at the New York Cloudf orce with our social hub, the first integration between Chatter and Radian6. Chatter has become the central feed for how we offer our customers the user interface to all these capabilities. Now, with Rypple becoming Successforce, again, you can see the HR information moving directly in there. As I said, it's bolstered by the strength of the platform, which gives you the ability to build and deliver any application. In regards to our very broad-based and very successful ISV program, we've had very, very good success focusing and making sure that our ISVs are successful. There's very few instances where we've ever, I would say, stepped on any ISV's toes or where we've created any kind of difficult or competitive or confrontational situation or lost any ISVs along the way. This is an industry that is really about coopetition.
Sometimes you are competitive, but in many cases, you're cooperative. The companies that learn how to be able to handle that balance correctly and not draw swords with each other are the ones who are most successful. That's our plan, to continue to be a strong applications company and a strong platform company. That includes making these ISVs successful and keeping our eye on the ball. Specific to some of those great HR ISVs that we have, like Workday, like Jobscience, and many others, we will still embrace them and include them in our Cloudf orce and Dreamforce programs and our AppExchange and all of our ISV efforts because we continue to plan to deliver a world-class cloud platform.
Great. Thanks.
Your next question will come from the line of Ed McGuire.
Hi. Good afternoon. It looks like Rypple is still a relatively early-stage company. This is more a question for John. Do you have an estimate on how long it might take to really bring the social cloud to, I guess, to the level where you would consider it generally available and scalable? Do you have any intent to either target smaller organizations or larger organizations more prominently at the beginning?
Right. To be clear there, I mean, they're a relatively young company, but they've actually made phenomenal progress. Their product is being actively sold today into some very large organizations who are having tremendous success with it. I think, again, for a fairly young company, they've actually gotten to scale pretty quickly with the team that they have here. In terms of forward development and additional work, we will announce a lot more of those plans after we actually close the transaction. I actually think, again, for a company its size, it's made phenomenal progress. They've got some good-sized companies. If you look, especially over the last year, while they originally, in a lot of ways, kind of followed some of the models Salesforce had in the early days, they started with smaller companies. They iterated quickly with them. They got some experience.
Increasingly, they've been sort of moving up to larger and larger customers like Facebook, who are deploying it very broadly. We think we're actually getting them at exactly the right point. They've proven their solution, and they're really ready to go to scale. I think that's something we'll help them with.
Great. Thanks.
I'd like to just add to that. You know the way that we came to this conclusion is one of our really strong customers, Facebook, and their CIO, Tim Campos, contacted us and brought us in and showed us how he was using Rypple inside Facebook to manage their very successful culture and the high level of performance that they were achieving inside the organization. Tim really showed us how something like Rypple could be deeply integrated with Chatter to make our customers even more successful through this integrated methodology. Now we've seen Rypple in so many other successful customers as well. It really became a no-brainer for us.
Again, if you would like to ask a question, please press star, then the number one on your telephone keypad. That's star, then one for a question at this time. Your next question will come from the line of Heather Bellini.
Hi, this is Tarek Chandriyan for Heather Bellini. Just a quick question. I may have not interpreted this correctly, but is Rypple going to be re-architected to kind of run on top of the typical Salesforce cloud, or is this going to be a completely separate, I guess, offering in a separate data center?
It is going to be a separate offering. We are going to, again, take advantage of some of the technical architecture that we have in Salesforce, but it is not a fundamental re-architecting of the product.
Gotcha. Thanks. There is still going to be the integration and potentially maybe.
Right. I want to make sure it's clear. We're not having to rewrite the product. The product is actually architected extremely well now. It will run very easily as part of our Heroku environment and the Salesforce data center environment very easily, which will allow us to give it scale. It does not involve, obviously, a rewrite of the product. We're going to continue to sell it as it is. We will obviously integrate it with Chatter and with the Sales and Service Cloud applications that we have today.
Gotcha. Thank you so much.
Sure.
Your next question will come from the line of Laura Litterman.
Yes. Sorry, I came to the call late. If this question's been asked, I apologize for the repetition. Can you talk a little bit about how it differs from other performance management products in the market? Also, if you look at this piece of performance management, how would you look at building out a broader HR solution? Thank you.
Sure. I'll start, and if Marc wants to add anything, he can jump in. Most performance management systems are built from a standpoint of there's an annual process a company goes through. It's very compliance-driven. It's very top-down. You rank your people. You give them some once-a-year feedback. Generally, people are continually scanning their email systems, trying to remember any interaction they had with these people. The approach Rypple took, which is completely different, is sort of from the standpoint of how do people work every day? How do we actually allow them on a daily basis to give simple feedback, to give a simple thanks, or to give someone a badge that notes some experience or expertise that they have? It actually thinks about, on a daily basis, how do you track feedback to people?
How do you give them sort of simple feedback loops that allow them to sort of continually monitor what they're doing? It becomes part of a continual process, as opposed to an annual event that people kind of dread. The whole application, really, from the UI design up, is oriented around that model. It's based on a simple feed principle, where people are continually seeing the feedback they're getting, understanding how they can respond to it. It promotes a continual dialogue both between an employee and their manager, but even more so among the peers of a group. It's really based on much more of a social network model, as opposed to a traditional kind of ERP-centric process-driven model. They focused a lot on concepts like gamification to incent people to want to use the application and reward them for the use of it.
It has had a dramatically positive effect everywhere it's been implemented because people feel it actually is something that's valuable to them and helps them improve the relationship they have with their peers and with their management team.
How does this fit in with a broader strategy of a broader ERP suite or a broader HR product offering?
Yeah. It's interesting because, obviously, you don't think about social things when you think about doing a financial close or doing a payroll run. So many other processes are inherently social. Whether it's how you hire someone and make sure that you have the entire team participate in the process, or how you effectively onboard them, or how you provide a performance review, those are really social processes. While the historical HCM systems that did this were pretty good for making sure that you followed compliance rules and kind of got to the endpoint OK, they were not typically systems that people liked to use.
One of the interesting experiences in doing some of our customer due diligence through the process was we got feedback not just from the people we were talking to, but from just employees of companies who were using it, who said how much they enjoyed using the application, which in the traditional ERP space, you don't hear a lot. It was a very different application because it was designed from the beginning around this idea that these are inherently social processes, and we need to build a system based on that approach.
Thank you so much.
Again, if you would like to ask a question, please press star, then the number one on your telephone keypad. That's star, then one for a question at this time. Your next question will come from the line of Matish Drew.
Thanks for taking my question. If you look at the performance management space, John, you have players like Workday, Taleo, SuccessFactors. I was wondering, if you look at within your install base of 100,000 customers, what is the white space you have to fill there with customers who do not have a cloud-like solution for performance management and/or customers who may have an on-premise solution? Where do you see this opportunity intersecting here?
It is such a different approach to solving the problem that, in a way, I'd say the white space is every single customer, even if they've already invested in another performance management solution. It's just a very different—the objective is the same, what you're trying to accomplish, but the way you're going about doing it is fundamentally different. There's just not another solution in the marketplace like this. That's why I think it's so powerful. I think it really needs to be the basis for a whole new approach for how we think about management processes and companies.
Your next question will come from the line of Bill Hewtig.
Hi. I'm from Human Resource Executive Magazine. Early in this call, Marc talked about building the world's first HCM cloud, which I'm sure he'd get arguments about from Workday. I'm interested from John Wookey as to, if you've had a chance to think about this, and I understand it's a little early, how functionally your HCM might differ from Workday's. Obviously, you're on a different platform. Obviously, there are technology differences. In terms of what the software can actually do, what do you see the difference is going to be?
Right. Workday started kind of around, I think, a good idea, which is the world didn't really have a sort of enterprise-class organization focused on bringing a full HCM suite into the cloud. That's what they really focused on, starting with core HR, built out a brand new payroll engine, and so on. I think that's great. I think they did a phenomenal job. Obviously, when they started was really before the idea of social started moving into the enterprise space. Our focus is coming at it from kind of a different perspective. We're looking at it from a standpoint of the social enterprise being really a new management model for companies to start embracing.
Where I think Marc and the entire Salesforce team does a great job of articulating that and talking about what that means for customer-facing processes, I think the next logical step is to turn that inside your organization and start thinking about it from that perspective. What we're focused on is not necessarily back-end HR, payroll, those kind of things. We're really more focused on the social processes that companies use, and again, starting in this specific area around performance management. HCM cloud is a logical place for us to bracket it because it's the way the industry has always historically thought about it. We're really focused on those things that we think are going to be the most advantageous to our customers because they're the things that really are about how do we bring the social enterprise inside.
Again, if you would like to ask a question, please press star, then the number one on your telephone keypad. That's star, then one for a question at this time.
All right, Tamra. It looks like we have nobody left in the queue. I think we're going to go ahead and wrap up today's call. For those of you in the investment community, if you have any follow-up questions, please contact me or anyone on the Investor Relations team directly with your questions. Thank you all for joining us today. Have a great day.
This does conclude today's conference call. Thank you for your participation. You may now.