Good afternoon. My name is Philip, and I will be your conference operator today. At this time, I would like to welcome everyone to the salesforce.com Q2 2011 Fiscal Results 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 Thank you.
I would now like to turn the call over to David Hatlett, Vice President of Investor Relations. Sir, you may begin.
Thanks, Philip. Good afternoon and welcome everyone to salesforce.com's fiscal year 11 second quarter earnings conference call. Joining me from our San Francisco headquarters today to discuss our outstanding second quarter results are Marc Benioff, Chairman and CEO and Graham Smith, Chief Financial Officer. Following our prepared remarks today, we'll open things up to your questions. With a sell side coverage list that now numbers nearly 40, I ask that you respectfully limit yourself to a single question today so that we can get to as many of you as possible.
Complete disclosure of our 2nd quarter results can be found in a press release issued about an hour ago, as well as in our Form 8 ks filed with the SEC. Additional information including historical financial detail beyond what is provided in the press release will also be made available on our website. In addition, a webcast of today's call is available on our website for 90 days and a dial in replay will be made available through September 10. Our commentary today will include both GAAP and non GAAP measures. Reconciliations between GAAP and non GAAP metrics for both our reported results and our forward guidance can be found in our earnings press release available on our website.
At times in our prepared comments or in response to your questions, we may offer certain additional metrics to provide a greater understanding of our business or our quarterly results. Please be advised that we may or may not update these additional metrics on future calls. With that, let me make this call official with a brief Safe Harbor. The primary purpose of today's call is to provide you information regarding our fiscal Q2 2011 performance. Some of our discussion and responses to your questions 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. To access our Q2 press release, including the to non GAAP reconciliations, the report detailing our historical financials, the webcast replay or any of our SEC disclosures or simply to learn more about salesforce dotcom, I encourage you to visit our Investor Relations website at salesforce.com/investor. Finally, before I turn the call over to Mark, please be advised that unreleased services or features referenced in today's discussion or other public statements are not currently available and thus may not be delivered on time or at all.
Customers who purchase our services should make the decisions based on services and features that are currently available. With that, let me turn the call over to
Mark to discuss our Q2 results. Mark? Thanks, David. I'm delighted today to share the results of our Q2. An improving demand environment together with the continued shift to enterprise cloud computing allowed us to post another great even with an annual revenue run rate approaching 1.6000000000 Even with an annual revenue run rate approaching $1,600,000,000 our revenue growth is accelerating.
At 25%, 2nd quarter revenue rose at its fastest rate in 6 quarters and it represents the 3rd quarter in a row in which our growth rate has now Non GAAP EPS of $0.29 was well above our outlook entering the quarter. GAAP EPS was 0 point 1 $1 We also delivered roughly $76,000,000 in operating cash flow, an increase of more than 66% from a year ago. Over the past 12 months, our business has generated more than $340,000,000 of operating cash and we exit the quarter with roughly 1,900,000,000 dollars of cash, cash equivalents and marketable securities. And finally, I'm pleased today to announce that we're raising the high end of our full year fiscal year 'eleven revenue guidance to $1,600,000,000 This is a huge new milestone for salesforce.com. While our Q2 financial performance speaks for itself, the big news this quarter was the release of Chatter in June.
Just as Amazon did a decade ago, Facebook and Twitter are now showing us the future of the Internet, this time in the area of collaboration. According to Nielsen, use of social networking apps was up 43% as a percentage of time spent on the web between June 2009 June 2010. Leveraging the social features popularized by the consumer web like profiles, status updates, real time feeds and mobile apps, Salesforce Chatter helps companies increase employee productivity by empowering employees with a new level of collaboration. Customer response to Salesforce Chatter has been nothing short of amazing. Within a week of the release, more than 10,000 customers had turned on Salesforce Chatter.
Today, less than 2 months later, that number has now grown to nearly 20,000 customers or roughly one quarter of our total customer base. We believe this is the most successful new software release ever. Not only does Chatter make our sales and service cloud apps better, but when our customers talk about it, they're using words like amazing, exciting, fun, revolutionary, not words typically used to describe enterprise software. While we launched the product just 8 weeks ago, we're already seeing some incredible traction across our customer base. Some of our largest customers are deploying Chatter to very large user communities.
Among them, Dell, Sprint, Tyco, Avis Budget, Mysis, McAfee, PerkinElmer and Dow Jones. Not only are some of our largest customers deploying Chatter at scale, but we're seeing a growing number of customers expand their deployments beyond sales and customer service departments by purchasing additional subscriptions for other departmental employees. And some of those expanding customers including Hitachi and SoftBank, Reed Exhibitions, Mitsubishi, Nokia and Abbott Medical. Chatter is an important part of our growth strategy for 2 primary reasons. 1st, customers that have deployed Chatter have high login and usage rates indicating that they're seeing increased value in our products.
Not only does Chatter further differentiate our already award winning apps, but we believe the higher levels of customer success translate into greater customer retention. Longer term, Chatter represents our 1st enterprise wide app, extending our value beyond our core sales and customer service base. That's why we're so excited to see this early momentum around Salesforce Chatter. This significantly increases our addressable market in cloud computing, one of the fastest growing segments in technology today. The customer excitement around chatter helped drive another amazing quarter for salesforce.com in Q2.
And during the quarter, we had roughly 4,600 net new customers organically and roughly 500 unique customers through the addiction of Jigsaw. Together, these 5,100 net new customers bring our total customer community to approximately 82,400, an increase of more than 19,000 Q2 a year ago. And we saw strength in all of our primary cloud businesses as well as in our 3 major geographies. In fact, one of our 3 largest transactions this quarter, one was in the Sales Cloud, 1 was in the Service Cloud and one was force.com. And those 3 deals were also spread across the globe with 1 coming in each of the 3 regions of the world.
That's the kind of distribution of our portfolio that we like at salesforce.com. And our success at companies of all sizes also continues to be a central part of our growth story. That's why CRM Magazine just named salesforce.comapps the best enterprise CRM Suite, the best midmarketCRMsuite and the best small business CRM suite. It was a clean sweep for the 2nd year in a row and this year for good measure, they named our flagship sales cloud service best Salesforce Automation. And while our sales cloud still represents roughly 2 thirds of our new business, the mix of non sales cloud business continues to grow finishing Q2 at its highest level ever.
The emergence of multiple growth levers is an important part of our overall revenue growth in recent quarters and why we remain so optimistic about our revenue growth going forward. Now, let me quickly review our success in each of our 3 core 3 core businesses. In the sales cloud, new business signings were strong in the 2nd quarter. Large sales cloud transactions included Kimberly Clark, Sears, Amdocs, American Family Life, 3 ms, American Express, Commercial Metals, Tyco and others. I'm also pleased to report that our integration of Jigsaw into the sales cloud is on track with a community of more than 22,000,000 contacts at 4,000,000 companies and more than 1,000,000 contributors, Jigsaw immediately makes our sales cloud offering more attractive to new customers and more sticky with existing ones by providing customer data right inside their apps.
That's an exciting new shift to CRM. Our service cloud business was also very strong in the 2nd quarter, growing faster than our other cloud businesses With fewer than 10,000 of our existing 82,000 customers using the Service Cloud today, we believe we're just beginning to scratch the surface of a major future opportunity. Service Cloud highlights this quarter included transactions at Schneider, Zimmer, Genband, PTC, Paychex, Google and Honeywell. And finally, our force.com business had another very strong quarter. Headlining our force.com platform success was a great wins in Japan at Japan Post, Alico and Daiwa.
And outside of Japan, force.com also delivered another solid quarter of new business, including transactions at Nokia, RehabCare, Watson Pharmaceuticals, Cigna and IG Group. And the future looks bright for the force.com. And as I mentioned ago, Chatter has the potential to take us enterprise wide and the positive implications to our platform opportunity as well. A larger and more diverse community of users makes the Force.com platform more attractive to both CIOs, our core customers and ISVs as the best place to build their next generation enterprise cloud ops, natively right on our force.com platform. And our recently announced partnerships with VMware is also being enthusiastically received by our customers and the industry.
With VMforce, developers will essentially being able to run their Java apps on the force.com platform natively Rather than running it on a traditional database and software stack in their own data centers, not only will VMforce allow customers to leverage their existing Java development skills and reduce the perceived risk of platform lock in, but every Java app built on the force.com platform will immediately inherit its incredible benefits of a multi tenant platform. A developer preview of VM Force is expected later this Force infrastructure is already delivering some pretty impressive results today. I know a lot of you are monitoring it minute by minute at trust. Salesforce.com. Well, let's take a look.
During the Q2, force.com delivered 21,000,000,000 transactions, incredible, an increase of 44% year over year. Remarkably, we're delivering this scale using fewer than 3,000 production servers, including backups and disaster recovery, a level of efficiency that could only be delivered by a true multi tenant cloud computing company and what we believe is one of the lowest CO2 per transaction ratings in the industry today. And don't forget, we're doing it all with sub-three hundred millisecond response, 99.98% planned availability best in class security and transparency. In addition to our tremendous transaction volume, our customers have now created more than 23,000,000 database customizations, an increase of roughly 40% year over year. And finally, in addition to customizing our sales and service apps, customers are increasingly using the force.com platform to build their own apps.
To date, our developer community of more than 280,000 developers has created more than 600,000,000 lines of force.com code, up more than 7x from a year ago and more than 1,600,000 custom Visualforce pages up more than 5x from a year ago and more than 170 50,000 from a year ago. We believe there's no better cloud platform to build and run cloud apps than force.com. According to IDC, the market is estimated to grow by more than $40,000,000,000 by 2014. That's why leadership and growth remain our absolute top priorities. Given higher demand for our services and the continued shift to cloud computing, we believe the time to invest growth and leadership is now.
That's why we're accelerating some of our growth investments in the second half. 1st and most importantly, we're stepping up our hiring, particularly in key sales and engineering functions. Continued innovation and expanded sales capacity are essential to maintaining our cloud leadership and to fueling growth. Next, we're proceeding with the build out of 3 new data centers. In the U.
S, we expect to bring new data centers online in the Midwest and East Coast this year. And then we plan to open up our Japan Tokyo data center next year. And finally, we're expanding the number and scale of our customer events as there is no better way to demonstrate the power of cloud computing than to show it live. In September, we'll be hosting Cloud Force events in London, Denver and Toronto. And then in October, Cloud Force events will include Tokyo, Rotterdam and Munich.
And I'll personally be with excuse me, I'll be personally delivering the keynotes in London on September 7th and in Tokyo on October 5th and I hope to see you there. Then we'll close the year with our biggest customer event ever, Dreamforce 2010 right here in San Francisco from December 6 through December 9. In addition to our biggest product announcements of the year, which will be happening at Dreamforce, Dreamforce 2010 highlights will include a keynote by President Bill Clinton and entertainment by legend Stevie Wonder. Dreamforce is not to be missed, so mark your calendars now. You can find additional details about Dreamforce at www dotdreamforce.com.
With that, let me turn the call over to Graham to provide more detail on our excellent second quarter financial performance as well as our outlook for the remainder
of the year. Graham? Thanks, Mark. By almost every financial measure, our 2nd quarter was outstanding. Revenue rose 25% year over year to just over $394,000,000 This strong performance was well above our our 2nd, our dollar attrition rate continued to decline in Q2.
While the percentage rate remains in the high teens, this was the 4th consecutive quarter of improvement. We're working hard on the areas within our control that we hope can positively influence customer retention and keep this metric on a downward path. And finally, the FX environment is more favorable today than when we offered guidance at the end of the Q1. Our 2nd quarter revenue result included approximately $5,000,000 of currency headwind versus a year ago. Adjusting for FX rates constant currency growth would have been a point higher
at 26%.
Looking at the regions, our Americas business rose 22% to just under 2 $75,000,000 Revenue in Europe faced a significant currency headwind versus a year ago as 0.15 in strong results. Revenue in Asia rose 59% in dollars and 53% in local currency to finish the quarter at approximately $54,000,000 Given the current economic environment, we expect FX volatility to continue to have an effect on our financial results both positive and negative for the foreseeable future. As a general perspective, we saw good performance across all geographies with Europe in particular posting a very strong new business quarter. 2nd quarter non GAAP gross margin improved about 30 basis points from the year ago quarter and remained at about 82%, due primarily to a change in business mix. Our subscription and support gross margin was essentially flat year on year, a good result given the huge transactional growth market discussed earlier.
Professional services gross margins were negative this quarter and declined sequentially. While we aim to manage that business to at least breakeven gross margins, a more important objective is customer success. Given the project based nature of consulting and the revenue effects of EITF gross margins for our professional services business to be lumpy for the remainder of the year. Next year, we plan to implement EITF-eight zero one, but it's still too early to know exactly how that will impact our results. On the pricing front, we continued to see no material changes when we compare average price per seat across additions, geographies or customer segments.
We've done a great job of innovating and creating customer success with new services like chatter, which we think enables us to focus on selling value. Non GAAP operating expenses as a percentage of revenue was 67%, up about 150 basis points from last year. Our fastest growing expense category is R and D which now stands at roughly 11% of revenue. Given the importance of continued technology leadership in sales and service clouds as well as working on new products like Jigsaw, Chatter and VM Force, we think this increased level of investment is very appropriate. Sales and marketing expenses were 43% of revenue, that's flat with last year.
And finally, G and A was a little higher than last year at 14% of revenue. Our overall full time employee count rose by approximately 340 people in Q2 to finish at just under 4,450 people worldwide. Remember, this increase includes approximately 150 people from the acquisition of Jigsaw. We plan to accelerate organic hiring second half of the year to support our long term growth objectives, which will obviously have an impact on second half expense levels. Non GAAP operating margin in the Q2 was approximately 16% versus roughly 17% a year ago.
The decrease was primarily the results of the Jigsaw acquisition. It's also worth noting that our final valuation of the purchased intangibles related to the Jigsaw amortization in fiscal 2011 was approximately $7,000,000 less than the amount we included in the FY11 GAAP EPS guidance we provided with our first quarter results. This change will have the effect of reducing the GAAP dilution from Jigsaw by roughly $0.03 per share for FY11, a penny of which came through in our Q2 results with a further penny benefit expected in each of Q3 and Q4. As Mark mentioned both Jigsaw's business performance and its integration are going very well and we expect Jigsaw's business to be close to break even on a non GAAP basis by the end of next year. We remain committed to delivering expansion each year in our core business, but clearly the effect of acquisitions can have a short term effect on that goal as Jigsaw has done this year.
Our Q2 GAAP tax rate for the quarter rose to 44% as a result of certain acquisition and investment related non deductible expenses and a decrease in pre tax GAAP income. Our Q2 non GAAP tax rate was 39%. For the full year, we 2nd quarter operating cash flow was outstanding at approximately $76,000,000 that's an increase of 66% year over year. Over the past 12 months, we've generated more than $346,000,000 of operating cash that's an increase of 46% over the previous 12 months. CapEx in the quarter was approximately $28,000,000 The increase this quarter is primarily the result of leasehold improvements in the office space and equipment purchases related to the build out of the data centers Mark mentioned.
Our first half CapEx is up 23% year over year, that's slightly less than our revenue growth rate. 2nd quarter free cash flow which we define as operating cash flow less CapEx was approximately 48,000,000 dollars that's an increase of 77% from last year. Year to date, our free cash flow has increased 61%. Please remember that because our invoicing is seasonal, our quarterly cash flow profile is also seasonal and is typically stronger in the Q1 and Q4. Although Q3 cash flow is projected to be sequentially lower than Q2, but higher than Q3 a year ago, we now believe our operating cash flow for the full fiscal year will grow at a rate slightly higher than our revenue growth rate.
Total cash, cash equivalents and marketable securities on the balance sheet finished the quarter at approximately $1,900,000,000 This was down about $50,000,000 from Q1 primarily due to acquisition related disbursements of $150,000,000 offset by stock option exercises and operating cash flow. Receivables continue to be well managed. Our DSO of 53 days rose slightly
from
49 days a year ago, but our collections and aging remained strong and our DSO is well in our historical range. Deferred revenue rose $18,000,000 sequentially and $134,000,000 year over year to finish the quarter at $683,000,000 That's 24% year over year growth and reflected both strong new business signings as well as improving renewal rates. Balance included a roughly $3,000,000 sequential currency benefit, primarily the result of a strong VAT yen. As we have discussed on prior calls, Q2 and Q3 are seasonally lower invoicing quarters. That has the obvious effect of dampening deferred revenue.
I remind you that last year, our deferred revenue balance declined 4,000,000 sequentially from Q2 to Q3 despite a roughly 6,000,000 currency benefit. In that context, we expect our 3rd quarter deferred revenue balance to be roughly flat with Q2 excluding any significant currency effects. Let me close with our outlook. As in Q1, our earnings guidance comments today will only be in non GAAP terms. The details for both our GAAP and non GAAP guidance and related reconciliations can be found in our earnings press release issued today as well as on our website.
Let me begin with our full year guidance. Given our strong new business performance in the Q2, the continued shift to cloud computing, declining attrition rates and more favorable currency rates for the euro and yen, we are very pleased to be able to raise our revenue guidance for fiscal year 2011 to a range of $1,595,000,000 to $1,600,000,000 As we indicated in our commentary, we believe that growth and leadership are the best way to create long term shareholder value. In that context, while we plan to invest much of the revenue upside for growth, I'm also pleased to be able to raise our full fiscal year 2011 non GAAP EPS projection to between $1.15 $1.17 As in past quarters, this excludes stock based compensation, amortization of purchased intangibles and amortization of the debt discount on our convertible debt. For the 3rd quarter, we are projecting revenue in the range of $408,000,000 to $410,000,000 and non GAAP EPS excluding the same items I just mentioned in our full year outlook is now projected in the range of $0.30 to 0 point in Q3 and less in Q4 than many of you have modeled. The reasons are pretty straightforward.
First, we'll be hosting our biggest Dreamforce event ever in December as Mark just mentioned. Because this event is so critical to our customer success and to fueling our growth, we're determined to make this year our most amazing event ever. We expect that the net cost of this event alone will be roughly $0.05 of EPS in the 4th quarter. And second, Q4 is typically our largest quarter for new management, sales expenses can rise deeply in the Q4. As you model Q3 and Q4, please factor in these 2 expected seasonal business impacts.
To close, we were very pleased with our 2nd quarter results. Revenue grew 25%, our global community of customers grew more than 30%, and the number of transactions executed on our service grew more than 40%. These results position us well for future growth and we're investing in the the necessary hiring and infrastructure to address the large and growing cloud computing market opportunity. We look forward to updating you on our progress when we announce our 3rd quarter results in November. Let's go ahead and open the call up for questions.
Operator?
And your first question comes from Kash Rangan with Merrill
Lynch. Hi, thank you very much. Nice to see good results of revenue and bookings acceleration. Mark, I'm just curious to get your overall take on the environment. There has been some crosscurrents of economic data and also in one of your mentors, John Chambers talked about some questionable business conditions.
I'm just curious to get your color, what are you seeing with your customers, especially since you have a unique view into 80,000 plus customers? I would assume your business is a good barometer of broader IT spending or business confidence in general. So we can just address that broad brush question, that's it for me. Thank you very much.
Well, Kash, I am very bullish on cloud computing and real cloud computing, which is the kind of very efficient model that salesforce.com has been able to deliver. As I mentioned in my script, we have about 3 100 that are just standing by in case there's a disaster. And you have to kind of ask yourself if salesforce.com did not exist for the 82,000 customers that we have and the couple 100,000 apps that they're running on our servers, how many servers would they need? And you could quickly determine that we are operating at a level of efficiency that's probably a few percentage points of what they would have had to buy. And that's why I think cloud computing is so exciting to customers because it's a certainly for our customers, it's a CapEx free environment.
They're not buying hardware. They're not buying the kind of traditional capital expenditures necessary and taking on the risk to deliver automation into their companies. And I think that that's a big juxtaposition against kind of my bullishness. And I love John Chambers. I think he's probably one of the really greatest CEOs in our industry.
And but his company is all about CapEx.
I mean at the end
of the day Cisco is very different than Salesforce because Cisco is all about routers and hubs and switches and phones and set top boxes and telepresence devices and all of those things are they're all made out of plastic and they got wires and they got to ship them and build them and factories and all we don't have any factories. We've got our software engineers and we've got a few 1,000 PCs that we're deploying those deploying that software onto and then it's able to be consumed over the Internet the way customers consume Facebook or Twitter, they're able to consume enterprise software. And that's a very different model and it's a model that gives customers success, a much higher level of success than they've ever seen in enterprise software before. And I think the reason why is for all the reasons that I said, it's no upgrades, it's no updates. And I think best of all, when you look at a release like we had this quarter of chatter, almost a like we had this quarter of Chatter, almost a quarter of our customers are now on Chatter.
You look at any other enterprise software company who puts out a major new functionality release a new product, a quarter of their customers don't uptake the product. You usually wait to hear about that over a period of years. So, I don't think it's fair to contrast us against the Cisco environment. We have to really look at cloud computing is where the action is in our industry and companies that are delivering true cloud computing, which are very, very high levels of efficiency, very, very low levels of cost through the multi tenant architectures that we have pioneered, I think you're going to continue to see strong growth, which is why we're delivering such a huge increase of our guidance in today's call. Next question please.
Your next question comes from the line of Laura Letterman with William Blair.
Yes. Thank you so much for taking my question. I wanted to talk a little bit about sort of the proof point of chatter leading to whole companies adopting it? And are you seeing a lot of or a number of ELAs in the pipeline sort of proving out that moving sales force? Excuse me, I'm losing my voice throughout the organization.
Thank you.
Well, yes, I'll tell you, I see it. I see I absolutely see that. And I'll tell you why I see it. I mean right here at Salesforce, I can tell you that our own use of salesforce.com is up dramatically throughout our whole company. And in addition to that, all the apps that we use, usage is way up.
And something else is really amazing about Chatter. You have all these employees using the product and for someone like myself, I'm a CEO of a company and we've got we'll soon have 5,000 employees in Salesforce. It's hard to know what everyone is doing, what's going on and who's really great, who's adding value, but chatter makes it all very visible. It becomes a meritocracy. We really see the employees who are making a difference.
And when you go to enterprise wide, you get that value in an incredible way. And that's why I'm definitely so bullish about social networking. I'm so bullish on cloud. I'm so bullish on mobile. And one of our very largest customers I've been talking to their CEO about it and he's been using the product very extensively himself.
And I expect them to do a major enterprise wide deployment of the product. And the reason why is because neither one of us has ever seen a tool that's given us this transparency into the organization and that's what we've needed. Email does not give you transparency. When you're in Outlook, you don't really know what's going on in the company. You're just seeing these kind of email messages flying better decisions.
With the CEO that I mentioned, he was he had a major deal that was working on in a telecommunications
company that he didn't know about and he was
able to see it, which collaboration, going through all the slides. And then all of a sudden he saw that they were having a hard time working with the manufacturing department of his company. And so he called the manufacturing department and said, you need to help these guys who are selling to this telecom company. And he said that was the greatest thing for him that he could relieve the organizational friction using chatter. So that's what we need to run better companies today and to be more effective, to be more efficient, to be more successful.
And when you couple it with the world class sales automation technology we have, customer service automation technology or building any app, you get a whole new level of capability. So I'm very excited about it and I think we're going to see a lot of enterprise wide transactions with Chatter.
Next question please.
Your next question comes from the line of Heather Bellini with ISI Group.
Hi, good afternoon everybody. Mark or Graham, I was wondering, you mentioned that Sales Cloud is roughly 2 thirds of new business and continues to grow. I was wondering if you could give us an idea on the type of growth you're seeing in the non sales cloud part of your business? And also, if you could give us a sense of the impact, if any, that Jigsaw had on your deferred growth this quarter? Thanks.
Well, I'll tell you that all of our clouds are growing and it's tough to be a cloud at Salesforce because all of them are just moving so fast. I think we had really strong, surprisingly strong growth in Sales Cloud this quarter. We were kind of shocked actually, but a lot of it enabled by chatter, lot of it enabled by as you mentioned Jigsaw with such a strong differentiation and a strong technology. I'm sure you saw PC you saw CRM Magazine gave it best SFA and then we got the small, medium and enterprise clean sweep at CRM award and then PC Magazine gave it I think 4.5 stars in Editor's Choice. So very strong product, but also coming up I have to say and growing of course faster is Service Cloud.
And we're really excited about Cloud. This is the year of the Service Cloud at salesforce.com. We're doing a lot of very large Service Cloud transactions. The service cloud technology has never looked better. We have really built some spectacular capabilities as you know in knowledge management, integrating with public social networks and then again the integration of Chatter as well as a lot of other new capabilities new capabilities with the new version of Service Cloud, it's just a great offering.
And then we have the platform, which is also growing and had a great quarter. And we're seeing a lot of ISV interest, customers building. You heard the numbers in the amount of lines of code being written on the platform, the Visualforce page is being written on the platform and then you've got chatter. So those are our 4 clouds, sales, service, collaboration and platform. And then we have the kind of the emergence of Jigsaw.
And Jigsaw is super exciting for our company because it's all about data and getting data into these very high value apps to make them even more valuable, cleaning up our customers' data, just giving them access to the data they need to make decisions, being able to really transform the apps into instant value. And I don't know if you've been to jigsaw.com lately, but if you haven't, you really should check it out. It's just awesome. And it's why we bought the company and we're really doing our deep integration work. And by the time we get to Dreamforce, I think you'll see some really great and exciting announcements in terms of where we're going with Jigsaw.
So those are our 5 directions right now. But at the end of the day, it is a unified offering that's all built on one platform, it's integrated and customers can consume these services as they need them. So it's been very, very good. I'll have Graham put some of the numbers around that for you.
Yes. Heather, certainly the order of the growth rates remain the same as it was in the Q1 which is Service Cloud, our highest growth product followed by force.com. As Mark mentioned, Sales Cloud surprisingly strong and that certainly helped lift off our guidance range for the year. In terms of Jigsaw deferred revenue, as you might expect because of acquisition accounting, we we wrote off 75% to 80% of the Doctor when we acquired the company. There is a few $1,000,000 in that deferred revenue balance at the end of Q2 that relates obviously to a combination of what was left from the acquisition plus the new business that they signed during the quarter.
Your next question comes from the line of Brent Thill with UBS.
Just a quick follow-up. On the bookings growth, which is reaccelerated now for the past couple of quarters, is this fairly broad based in terms of the customer segmentation in the geos? Or are there any specific areas that you saw particular strength in Q2? And certainly, there's been some concern over the high end enterprise, but it doesn't sound like you saw any slowdown there.
We really had strong growth in all markets. And we've been seeing that. And we're fortunate because we do have a very distributed portfolio. We can sell to small, medium or large businesses. I had dinner last night with a bunch of startup CEOs and a bunch of those guys are using us.
But then some of the very largest companies in the world are using us and they're the same servers, they're on the same capability. So our market is all businesses in the world. That's a great position to be in. And then, in addition to that, we're in these very hot app segments in sales and service and the other areas that I've gone through. And in all of these things, we see growth.
And fundamentally, this And that's why we're talking a lot in our script about we want to grow and we want you to understand that we want to grow because we see so much demand overall. Graham, do you want to put any numbers around that?
Well, Brent, we don't clearly give bookings numbers during the quarter. The number you referred to is really a billings growth number. It's an overall conglomeration of both new business and renewals. And yes, I agree with Mark. I mean, if you look at our business, we have very, very stable kind of ratios in terms of the segments, enterprise, mid market and small business and geographic strength this quarter.
So, I think we're very happy with the way things are trending this year.
Next question please.
Your next question comes from the line of Sarah Friar with Goldman Sachs.
Perfect. Thanks so much. Mark, last quarter, I think you were asked about where you felt most incremental growth would come from. And I think you said the service cloud. But now that you think you might start to give us some metrics on chatter revenue?
And then to date have customers mostly bought into the fully featured product or are they mostly demoing Chatter Light? Thank you.
Well, Sarah, Chatter is exciting and let me try to put that into context for you from a revenue perspective. Chatter is deeply integrated into the sales cloud. If you've been to one of our Cloud Force programs, you've seen that. It's also deeply integrated into our service cloud. It's deeply integrated into our platform and it's deeply integrated into Jigsaw.
You cannot extract chatter from our core chatter is beginning to be its own revenue line, unfortunately for chatter, the other revenue lines are so big and growing so fast, it's going to probably take it a little while to be able to catch up because you've got some hot products. And I guess I would put my money again like I did last quarter and say, I'm a big believer this year in Service Cloud. We call this the year of the Service Cloud. Sales Cloud had a great quarter, a lot of growth, but Service Cloud's growth numbers are just awesome. And I am very excited about the Service Cloud.
And I think that chatter has made it better, more competitive, more exciting. The demos are more exciting. If you haven't seen the demos that we've done at Cloud Force of the Service Cloud, they're all on YouTube. And I'm sure you'd agree that chatter makes everything better. And so I hope that that helps to answer your question.
Next question please.
Your next question comes from Mark Murphy with Piper Jaffray.
Yes, thank you. Mark, I believe that you're using a very conservative definition when you talk about the non SFA bookings mix because you're really not counting the platform usage underneath the bookings definition there and you thought more about the customer usage or the value that is being provided, is it possible that that 33% would start to look more like a 40% or 50% number or kind of in other words, is it really more of a platform company than it appears on the basis of that number?
Well, I mean that's my bias. I would say yes. I mean that's how we built the product. I mean, the way we built the product is we built a platform and then on that platform, we built a number of apps and then we gave customers an ISV ability for them to build their own apps. So that when you get one of our apps, you can rip it apart because it's built with the platform and put it back together exactly for your business and your business process, your workflow, your user interface, your website, on and on and on, but it's all coming out of one consistent platform.
We don't have multiple versions. We don't have multiple products. It's really one integrated product. We kind of call it Sales Cloud, Service Cloud, Chatter, that's mostly to help our customers understand what we can do for them. The technical answer is, it's actually all fairly integrated as one service.
And then as a customer, you can consume these different services, including the customer customization services and integration services and scalability and reliability, security of the platform. So yes, I would agree with you that the numbers are probably would be higher if you were to somehow break it apart, but you really can't because and if you read that PC Magazine review of the Sales Cloud, what that reviewer loved was the platform is so deeply integrated into the sales cloud. It is the sales cloud. It's a CRM platform is another way to think about it in that case. And are we a CRM platform company instead of a CRM applications company?
Yes, I think so. But there's also a lot of other apps that are non CRM apps that are on the platform as well. You see a lot of those on the AppExchange when you visit our customers. You see a lot of those as well. And so are we a platform company?
Absolutely. Are we a cloud platform, an apps company? Absolutely. Our long term vision for our company is that we're really the leaders in this cloud platform, in cloud apps and in cloud data. And that's very much the direction that we continue to move.
Next question please.
And your next question comes from the line of Joel Fishbein with Wasser.
Hi guys, great numbers. I just wanted to follow-up on chatter quickly because I think there's a lot of chatter, so to speak, about pricing and are you actually getting paid for the product? And Mark, any color around that would be really helpful in terms of how customers are actually paying for the product as opposed to getting it as part of the sales cloud?
Yes. So we have 1st and foremost, as you know, we've rewritten our sales cloud and service cloud and platform and Jigsaw to fully include chatter. And as I said, you can
see those demonstrations. So, we
believe a lot of the premiums that we get in the market are based on that competitive differentiation and others. So, right there is extremely important. 2nd, we have a chatter product that you can buy chatter and many customers did even though it's been only been available for a few weeks as a standalone SKU and we are in negotiation with a lot of our customers and expanding with Chatter. We also have free Chatter licenses as well because we really think that we want this to be our Trojan horse for enterprise wide use. So, we have many horses going down the track in terms of monetization of chatter.
But I believe that while that's going to be very exciting and like I was saying before, I think that the real monetization wins are going to be an increased revenues on the sales and service clouds.
Next question please.
Your next question comes from the line of Adam Hope with Morgan Stanley.
Great. Thank you. I just had a couple of follow-up questions on the strength in the services business. Do you get the sense that you're actually starting to see an acceleration in new mix there between new and existing customers? And I guess the last question would be, do you have any sense for whether you're replacing older stuff or whether these are kind of net new implementations?
Thank you.
And do you mean in the service cloud? Is that what you're referring to? Okay. Well, I'll just assume that it is. So, in the service cloud, where we really see the growth is you've got a lot of customers out there on old products, including looking at really old technology like Siebel that they are being forced into upgrade situations, which are massive IT projects and companies do not have the money.
They don't have the IT budgets or people. They don't have the people because they're not hiring to do these new deployments of Siebel upgrades, upgrade your call center, upgrade your contact center, upgrade your customer portal. That's just not going to happen. So they're being forced into making a decision, which is what do they do next. And the easy thing, easy decision is go with the salesforce.comservicecloud because we can move you from your Siebel call center, contact center into a cloud computing modern approach.
And as I said before, you're not going to have to buy any plastic to do it. So that's a big shift I think for customers and they want it. We've already seen that in Sales Cloud for a decade of course. But now in the last couple of years, really the catalyst was our Instranet acquisition and the leader of this whole effort for us, our Executive Vice President, Alexander Dayon, who runs this initiative for us has just done a brilliant job and we're very, very, very excited about where we are. And I'm sure you also know the Service Cloud was just ranked by Gartner Group as one of the leaders in the Magic Quadrant and we just introduced the product.
So it's an exciting product and an exciting opportunity And I do believe it will be our very fastest growing and most material product for the year.
Question? Your next question comes from Jason Maynard with Wells Fargo Securities.
I have
a quantitative question. No qualitative commentary. But just can you help me understand what percentage of Service Cloud's bookings went to new customers versus existing existing customers? And then I didn't catch the attrition commentary. I apologize, I missed that at the start.
So, Jason, we don't give new versus add on upgrades stats by cloud. I will tell you that overall our general new business tone each quarter is roughly split fifty-fifty between new this quarter was not materially different from that. So, I think when you've got a product growing as fast as Service Cloud, there's got to be a little more emphasis clearly on the new logos. But equally, we've got a pretty big set of accounts, 80,000 plus accounts to go after. In terms of the commentary on attrition, we just said basically that there was a further downtick the 4th consecutive quarter of reduction in our attrition rate still in the high teens but definitely heading in the right direction.
We think obviously we're working on that. No doubt we're getting some help from the economy as well. But we're pleased with that trend. Hopefully it's going to be back to its historical levels at some point not too far away.
Your next question comes from Brandon Barnacle with Pacific.
Thanks so much. I wanted to follow-up on chatter again too. So we're seeing a lot of different sort of social media products that have been introduced by particularly by different on demand companies. Mark, do you think as you talk to CEOs that they're going to end up standardizing on 1 or will they use a couple of different products depending on the applications?
Well, I think that we're pretty early days to be able to kind of make I mean most CIOs don't even know what social networking is yet. They're really at the beginning of this. And they're learning I think, from us, from their users. But we're this is a brand new market. Now that said, I really believe that there's 3 things that will dominate enterprise software for the next decade and that will be that enterprise software will increasingly move into the cloud and become multi tenant shared services.
Enterprise software will become increasingly social like chatter. And what I mean by that specifically is kind of the key things that you see in things like Facebook and Twitter like the profiles, like feeds, like status updates, that will become an integrated part of all apps, okay, that all enterprise apps are going to look exactly like Facebook. I'm really convinced of that. I believe that it's a great new model and metaphor for all apps, that all apps will move in that direction, okay. We're the 1st, but I assure you that everyone will move there.
And 3, enterprise applications will increasingly become mobile that they'll move on to your Blackberry and your iPhone and your iPad and your Android device and your tablet, du jour, etcetera. And those three trends can guide us over the next decade into what we call Cloud 2. We were really in Cloud 1. When I started salesforce.com, I asked myself the question, why is all enterprise software not like Amazon dotcom? Because the model that Amazon dotcom pioneered was so awesome with a tab based interface and you could basically pull the information easily out of the system and you are using clicking with your mouse and you're using it over the Internet.
But now all I do is ask myself the question, why isn't all enterprise software like Facebook? And that's a very different model where information is being pushed at you and where the users have personalities on the system through these profiles and that things are happening in real time and it's mobile and you're touching your computer. You're not using your mouse as much. So that's a whole different model and that's where I think things are really going. And so when I talk to CIOs, they kind of redact all that to say, well, this is the consumerization of IT.
And they'll say, but we're also really on virtualization. And I think they're really focused on virtualization because it's a cost reduction metaphor, but it's virtualization is not cloud computing and virtualization is just more efficient servers, but it's not order as a magnitude efficiency like we're seeing with salesforce.com and our cloud computing peers. And that's the excitement and that's the power of cloud computing. And as we move now from Cloud 1 and into Cloud 2 and while you see in these audiences that we demonstrate this technology to the kind of the fever that they get, when they see how easy it becomes when you make it like Facebook, I think that we are maybe we're probably the first to do it, but I assure you we will not be the last in the
way that we won't be
the last to deliver cloud or mobile. That it's these three things moving forward and we want to be the largest and most important player in this
comes from Brad Zelnick with Macquarie.
Thanks and nice job guys. Mark, I just want to touch on your go to market model a little bit. You said earlier that you're constrained by distribution at this time and naturally the best sales talent in the industry is flocked to sales force. But I'm wondering have you reached a point where you're getting to a certain size where you're starting to see the same normal distribution of talent that others see in the industry? And how do you think about solving for this?
Do the Blue Wolfs and the Perios of the world start to help to generate demand? How do you overcome this constraint?
Well, those guys are just basically doing implementation. We're not trying to build out a professional services organization here at Salesforce. As you know, we have a very tight, relatively small group of kind of ninja type architects who help those guys do implementations, the Blue Wolfs, the Aperios, the Accentures, the Deloitte, they're doing the implementations. But in terms of creating the demand and fulfilling the demand and signing the contracts with the customers, we're primarily a direct distribution organization. And if you look at salesforce.com's distribution organization, which you can approximate by the amount of money that we spend as approximately, call it 50% of our employees, you just have to say, wow, Oracle and SAP, this is there's still an order of magnitude larger than us in distribution capacity.
So, we've got a long way to go to fill in that distribution capacity and that's why growth is so important because we're not getting to all those customers. There are still a lot of people there ignorantly behind enterprise software when they shouldn't be only because they don't know and we can't bring them the good news and the enlightenment that the world has changed and that they can have a better thing. That's why there's still a lot of plastic being sold and shipped because the reality is we're still a relatively small part of this total enterprise software more than a decade, more than a decade, more than 11 years coming up on 12 years, we've got to grow because we need to let that you can consume it directly over the Internet. And we only have 80,000 customers. I was recently with one of my customers, Michael Delladell and he was telling me he's got 10,000,000 customers.
I'm like, how are we going to get to 10,000,000 customers? We've got to grow to get out there. He's got the benefit of being in business for multiple decades. We were only in the business for 1 decade. So that's why we're trying to grow as fast as we can to fulfill demand.
And as you can see by the numbers, the demand is there and salesforce.com just needs to continue to execute. All right. We'll have time for one more question.
Your last question comes from Steve Ashley with Robert W. Baird.
Terrific. Actually, I'm just going to follow-up on something that Brendan had talked about earlier and that is you guys were talking about mobile computing. Are you seeing in terms of your platform businessforcedot com, are you seeing people use that to build mobile apps that go out to the iPhone and the iPad? And is that starting to become an incremental driver for business out there? Thanks.
Well, I don't think it's an incremental driver for business per se because we really include it with a lot of our offerings, but we see an increased level of usage and interest in it like never before. And to circle back to chatter, I think chatter really changes the game for us on mobile because if you use Facebook on a mobile device like the iPhone, you know how compelling it is to be able to basically be able to easily scroll through your status updates and changes. Well, our customers are doing that with their iPhones. I mean, I'm doing it with my iPhone and I see what's changing in my business, what my employees are thinking, deals that are closing, deals that are getting renewed, customers that are coming to my website, business processes that are happening and that is very, very environment. Before Chatter, the mobile environment was mostly about kind of search, go find a contact.
I was mostly pulling the information, looking for things. Now with mobile and push, it's very exciting because I can quickly in like a matter of seconds get a complete refresh on what's happening on the business. And I think customers see that opportunity as well. I mean I know we have one very large customer, an important customer who is in consumer optical goods and they have deployed sales force on iPhones and it is incredible and now they're starting to do it on Ipads and you know what, that's the future for that customer. Now I don't know if it's for all customers, but I think that as their users shift to these new platforms, these new mobile platforms like phones and tablets, I see that's where all the apps will eventually end up.
All right, that concludes our call today. We hope to see some of you at some of the Cloud Force events that Mark mentioned. I also want to remind you of a couple of appearances here. Graham Smith will be appearing on September 8th at the Citigroup Technology Conference in New York City and Mark will be keynoting the Deutsche Conference here in San Francisco on the 15th September. So thank you for joining us.
Have a good day and we hope to see you soon. Bye bye now.
And this concludes today's salesforcedot com Q2 2011 fiscal results conference call. You may now disconnect.