a16z Podcast - a16z Podcast: Where the Growth in Cloud and Enterprise Software Really Is (with Marc Benioff)

Episode Date: December 5, 2014

VCs wouldn't fund Salesforce ("that obviously won't work") when Marc Benioff began. With the cloud a growing part of practically every company, government, organization, and people's lives, a lot's changed since 1999. But what's next? Do enterprise CEOs get (mobile) religion? [Answer: not yet. Benioff thinks there's a ton of opportunity ahead there.] What's happening with international growth, when countries want their own clouds and 90% of enterprise software is bought in just 7 countries?

Mark, of course, Mark needs very little introduction, right. Mark, founder, CEO of Salesforce.com, founded 1999. Currently a company just passed, or will do this year on the order of $5 billion in revenue, $36 billion market cap. And, you know, it's really been redefining a large part of enterprise software and enterprise computing for the last 15 years. It is Salesforce's 15th anniversary. So, you know, they're marking a very important milestone. They just had an absolutely enormous event in San Francisco Dreamforce. we were just talking about was just an absolutely staggering level of people following it. Most of what I want to do today is focus in the future. So those are going to be the majority

of the questions and I know very relevant to this audience. But I want to start by kind of taking a trip back in time to 1999, which of course was not only full in the height of the dot-com bubble and a lot of companies had real issues in 2000, 2001, 2002 that followed. But also at least what I recall, tell me if you agree with this, what I recall at the time was, Salesforce was a particularly heretical idea. And I remember the original, you know, no software icon that you guys had. And it was a very, in a sense, there was a very simple idea at the core, which was if you can go on Amazon and shop by clicking, then you should be able to go on a sales force

on a CRM system by clicking on in a web browser. This ought to be a lot easier than all this incredibly elaborate, you know, installed software and integration and all the complete nightmare of things that companies used to deal with, you know, and potentially a fraction of the cost and far greater convenience. and so forth and so on. Today, this is a very widely accepted concept. And we'll talk about how widely accepted in a bit. But in 1999, what was it like to come out and say what you said?

Like, what kind of reaction did you feel like you got? Or what did it feel like to go through that? And kind of what happened in the first three, four, five, six years for the idea to really get traction? Well, I think that, you know, we had been through a really exciting time in the 90s, which you were a huge part of, where, you know, we were supposedly going to be going on the information super highway. Yes.

Which started out as cable television. Started as cable television. Grudgingly, people said the Internet might actually work. They were wondering. But actually, it was not really even part of the conversation, which was interesting, is that, you know, you had in the early 90s was really people were kind of getting going with this concept of interactivity.

And, you know, the big thing at the time was kind of the starting of the time Warner trials in Florida, okay? And companies like General Magic and these kind of people were kind of building these kind of proprietary devices and proprietary front ends to proprietary back ends. And that was really going to be the big consumer revolution. A lot of the things that were talked about then kind of have come to pass now, but in a radically different form. And I think that's kind of the nature of technology is that you have to kind of be watching for kind of where things are going to go. But when we were certainly in the early 90s working on these things, I was at oral working on them. Everybody else was, you were at the university, you were writing code for mosaic, right, and these kind of things. And so I think when that happened, I think when we got into 1994, 93, and then we saw that

emerge, then it was crystal clear by 95 that interactive TV was dead. And that the future was going to be the browser and the web. And that's where we are today. that then when we started here in the mid-90s about network computers, we have that now. Yes, we do. So it's all come to pass just in a completely different form factor than we expected. So, 99, when did you get the first customer signed up for Salesforce.com? We had the first customer signed up within three or three months of starting the service.

I mean, we started the company in March of 99. and by August of 99, we were live and going. So at least what I remember, like I said, it was so radical. What were the things that caused the first customers to adopt? How did you get them over the hump? The first, it was just a complete waterfall. And, you know, when I look back now at the amount of traction that we had, of course I had never done a startup quite like that before,

all of the kind of, you know, early indicators that it was going to be a success from the start were there. We had a, I was still at Oracle. I was at Oracle until July of 99. So even though I started the company, I was working on the company in the morning. I rented the apartment next to my home on Telegraph Hill. I would still have to do my day job. you know and then I'd come back and work on the company and then in June of 99 I walked into you know Larry's office as my boss and I'm saying well here's where we are and here's what's going on and whatever and he's like I really think you should just take six months off and just focus on this full time because this is going you

know I think better than you know anybody could have expected and I had a really good conversation with Don Clark at the Wall Street Journal and he wrote a article front page story called Software Goes Online and at the end of it he featured Salesforce.com the next day we didn't even have really a website up or anything I that night I was what the guy is just saying let's just get a website up so we can get leads you know we had more leads than we could okay call back and we at that point we're only six employees So we were just going.

And the funny part was, in terms of, you know, venture capital, the nature of venture capital, no venture capitalists would give us money. We raised all the money privately. I was thrown out of, you know, Sequoia three times, U.S. venture capital, three times. What did they say? This is never going to work.

This doesn't make sense. What you're saying will never happen. This cannot come to pass. This was in the height of 99. So they were funding, I believe, at that point. Oh, it was in 99. It was 99. You have been the only founder who actually had that experience in 1999.

They all remember it crystal clear too. Oh, I'm sure they do. Yeah, yeah. They all, you know, 99, 2000, 2001. And that's why when entrepreneurs come to me and they'll be like, and I'll be like, why even go into Venturecapolis? You should like just raise money privately. Unless, you know, someone like yourself actually adds value because, you know, you're an entrepreneur.

but, and this is just your entrepreneurial pursuit, but most of them aren't going to give you any value anyway. So it was kind of an amazing experience at the beginning. And then by 2000, it was just a runaway train. Okay. So then 2001, you know, the credit.com crash, stock market cracks, 2001, stock market cracks further, obviously 9-11, 2002, 2003, 2004, economy gets terrible. Many companies founded around the same time as you were in dire straits, even very, very much. very high quality companies were having real trouble. Did you guys go through a difficult period through there or were you able to be? We did. We went through a really difficult

period because we lost a lot of customers who hit the skids. So in 2001, we suffered, you know, we had not put the business practices in place that we have now that kind of give us a buffer on attrition. We just were suffering massive attrition. Companies, were just cutting, you know, and when companies were cutting, they were just cutting our product, they were cutting their users, and it was just really, you know, it was really the beginning of understanding what the subscription model was, that there was going to be a good part of the subscription model, there was going to be a bad part of the subscription model, and that we would have to have business practices that would be able to handle both aspects.

And the bad part was true. the bad part is no that's not the bad part the bad part is that if you are not thinking about how you're signing up the customer so when you're signing the customer if you're just signing the month the month it doesn't work

you've got to sign them for one or two or three years at a time and also that was an incredible part of the cash flow too because companies would sign up for a couple years at a time and then that was really a turning point. We realized that that would be a key differential in making that happen. Now, if you think about it,

customers were already used to doing that with the larger software companies. So it wasn't a big shift. And when we made that shift, then that next month we were cash flow positive and we've never looked back on that. That's great. Okay, let's talk about the future.

And I would love maybe if you could give us kind of, your quick kind of state of the world? Like, what's the state of the world with software as a service and with cloud today? Like, what's working? What's not working? What remains to be done? Well, I mean, there's never been a more exciting time in the history of technology. And the number of things that are all happening at once

is kind of, it's mind-bending. And even if you're a really smart person and you are really great at technology and really aware of everything that's going on, no matter what, it's overwhelming. We've never had this many things all happening at once. Even in the 90s, even in late 90s, period. No comparison.

There's no comparison. You've never had this many kind of converging trends. And because of that, that's why you have a rate of innovation in the world that is just phenomenal. And why we have so many technologies that are coming out of the box really for the first time in such an exciting way. and I mean we could go through them one by one by one it could be the cloud it could be social networks it could be mobility it could be connected products it could be data science and its relationship with artificial intelligence deep learning I mean it's just goes it's a wave robotics and all these things are converging very rapidly and that's what's exciting that's the huge opportunity

for companies in our industry and why thousands of new companies have formed within a mile or two of this building. So what are the big things you think, especially in Software as a Service, what are the big things that will happen in the next three years that haven't happened yet? What has yet to tip the kinds of customers, kinds of applications, kinds of data? Well, I think the number one thing that is happening, which is really I think you have to kind to look back to your comments last year, where you said there's going to be $5 billion of these things. And that is huge. These devices are more exciting, more powerful, easier to use,

lower cost than ever before. Yet the amount of software really that runs on these things for enterprise is relatively constrained. And we've been working really hard now for about three years on a project called Salesforce One, which is to build a platform that would take all of our customers' existing apps, metadata code, and give them the ability to just instantly run right on this device. That's been a massive effort, because I really believe that if you're not on here, if this isn't your dominant platform, you're really in trouble. Now, you, of course, know that from your consumer side with Facebook, but in the enterprise side, if you look at distributional enterprise companies, they don't have that religion that Mark Zuckerberg

has. Okay, Mark Zuckerberg has the mobile religion. You don't have that with the enterprise CEOs. And I've really felt that fever for 36 months. And so I've really just had our people just, you know, on it. And today, you know, if I'm on my device, I can get all of our, everything we do is here. And when we just launched a new analytics platform, you know about that, we've talked about that for a year or more. It's all mobile first. So that when I'm right here, like, I can get at zillions of, you know,

zillions of amounts of data with a compelling user interface that's all mobile first with a multi-tenant back end and it's all connected to a social platform and it's the only one that's really out there in terms of being that way for the enterprise and that's because if you look at in analytics is a really good category to look at a lot of these trends have happened let's say a lot of these platforms emerged trends have happened last five years there haven't been any new analytics platforms really written from the ground up in the last five years so when we went to write that platform what we end up with is just something so dramatically different than any other piece of software that I've ever seen and then it just amplifies to me everything has to be rewritten and we're still at the beginning of that it's not just about the cloud it's about this so it's not just a web browser on a mobile device it's a whole it's not just a way it can't be right if it's a web browser and a mobile

device, users are not going to use your product. They expect it to be as good as the best of the consumer apps. And are you finding the customers are ready to go? Like there has been, as you said, there's been kind of this big gap. A lot of CIOs have been fairly resistant to the idea of opening up access mobile devices. People bring them from home. They get viral, you know. Well, obviously, I haven't found that to be true. You looked at our business results. But I mean, I think Dreamforce is a good example. You came to Dreamforce two weeks ago. Dreamforce is now, you know, it's not just our user conference. It's the largest conference in tech. It was more than 150,000

people, you know, across the bridge, plus more than 5 million watched it online. Fourteen hundred and fifty sessions that took place over four days. World-class keynote speakers like yourself, coming in to speak. Fully conscious, no food poisoning. Why are they all coming? What are they talking about? Why would, this is crazy, these numbers. And it's because no other conference gives them a vehicle to do that.

So if these are the people who are making the change happen in the whole industry, and you know, this is reality. This is not the future. This is the present moment. Here we are. This is 2014.

This is not 1999. And we are in the mobile reality. We are in the social reality. know, you're on the board of a company. We are in the cloud reality. It's not just 35 billion in market cap. It is lots of really exciting companies. Industry-wide change. So let's talk about the most exciting topic in the world right now, which is security. And at least I'll tell you my take, you can tell me if you're

good with it. So my take is that for a long time cloud and SaaS kind of fought an uphill battle on security under the theory that internal data centers were secure and that the cloud kind of a definition might not be because you had your data outside your own four walls. Starting three or four years ago, it seemed like that argument really started a pivot where a lot of companies figured out that they really were getting comprehensively penetrated in their own data centers and that, in fact, maybe it was going to be more secure to outsource to somebody like Salesforce, because Salesforce might have just a larger capability and, you know, sort of army of people and advanced technology and so forth to be able to deal with all

the security threats. And so it felt, at least we heard from a lot of customers like, okay, like I get it now, and probably to be more secure, I'm going to go to the cloud. Then the Snowden affair, the Snowden thing hit. And all of a sudden, sort of, you know, for a lot of people kind of stripped bare this kind of question of like, okay, the data's in the cloud, but like, what does that mean, who has access to it, how many governments? And then, of course, the cyber warfare kind of, you know, topic keeps escalating even beyond that.

So we're, do you agree with my take? And that presents new challenges, especially as international. There's a few different things all coming together in that. Okay. Which you have to kind of tease out. So, um. At a high level, at a high level on cybersecurity, cybersecurity, there is no endgame.

So there's no finish line when it comes to cybersecurity. And we are on a continuum. And that continuum started with the creation of things like DNS and TCPIP and network access points, and the internet itself was never created to be a secure working environment. you understand the details because this is you're part of that group and of course we have this is the this is our mission critical infrastructure for our whole

economy today so there's no finish line on that which means that we all have to double down and triple down and just keep keep working on that I think at the second level we also need to be focused on a vision of what could be internet two oh a more secure internet with maybe a different set of protocols and a different configuration and I've seen some very exciting work in companies, you know, around the valley on that concept, because I think that we have the opportunity to create a more secure internet, but there is no end game on security. That is true for you. That is true for me. That is true for everyone in the audience. That

is true for every CIO. It doesn't matter who you are. You're in that game. If you're working with computers, you're in that gambit. Number two, with, I don't think that it's Snowden and what happened with that whole set of things is an accelerator or de-accelerator on that. I think that the next step, though, when I travel around the world is that countries all want their own cloud because it's actually, they realize the cloud is really, important so of course the United States more or less has its own cloud okay and when we go to other countries though for a country like we look at a country like Germany which is has a super high level of sensitivity around these issues they want the German cloud okay they don't just want the German cloud

they want computers and network switches and technology built in German They want, when they unpack the box, to still smell, okay, the sweet mustard and the knock worst that it was made, you know, was made with. All right. And they should have it. They should have their own industry. They should have their own cloud. They should have their own telecom.

The CEO of T-Mobile was here, you know, with Deutsche Telecom, CEO of Deutsche Telecom, was here for Dreamforce. They should have their own. cloud. And Cameron should have the UK cloud and Obbe should have the Japan cloud. And every country, if they want their own cloud, they should have it. If they want their own tech industry, they should have it. It's, you know, you could make that argument why that's important for their future of their economy. And I... But all powered by Salesforce. What's that? All those clouds powered by Salesforce. Well, we will certainly have those clouds. We're not going to be the only

one. So that's a cool thing about this new world. Is that everybody interoperates some of them? Do you think there will be more domestic competition for companies like yours in these countries as a consequence of this? Is this a big enough wedge? Oh, I think that that's empirical. I think if you look around the world and go through these different countries, you see

that. And that's why we set up investment arms locally. You know, like in Japan, we've made a lot of really good investments where we have our people because there are really great companies in Japan at valuations that are much more attractive than what we're paid for here.

So, and that's more about the Japanese market and having a strong domestic solution in Japan. No, countries like Germany and Japan are, you know, in a lot of ways, you know, maybe more similar to the U.S. than different. You get to countries, potentially Russia or Brazil, as two examples, where arguably there's another thing going on, which is they would like,

they would like more and more to have a more Chinese kind of ish approach to the Internet overall. They'd like to have. So the consumer companies now that are setting up countries are finding, these countries want, number one, they want the ability to do surveillance on their own citizens. And then number two, they want to make sure that they are truly firewalled from, you know, from U.S. intelligence agencies. And then they also want the ability to do censorship. It's a lot of envy about the Chinese, the Great Firewall of China.

So the consumer companies are all really trying to figure this out in coping with this, and there's very difficult questions. Do you guys face that in those kinds? No. Okay. Because you have to remember a truth, which is that 90% of all enterprise saw, software is only bought in seven countries. Okay. Yeah. So what will that be in 10 years?

Probably about the same. Really? So this is one of the big mistakes a lot of entrepreneurs make, is they, and I know because I end up buying their companies. For a lot of money. For a lot of money, you know, and you end up getting the company, and then you'll look and like, you know, say it like, why did you do this? I mean, you know, and...

You mean go into too many countries? Go into too many countries or set up some, you know, buy something in another country where it's like, for software entrepreneurs, they need to recognize that there are, for enterprise, certainly enterprise entrepreneurs. There are mega markets that need to be addressed and before they go waste their time because, or maybe they have some exotic trip. And then as soon as they make themselves, as soon as they get excited,

all their employees start to waste their time in some location that is not going to buy any software from them. Right, right. Interesting. And so we end up having to undo a lot of things. Okay, so we're already running short on time, but I want to go a little bit long because I want to get to the other big topic, which is philanthropy and corporate responsibility.

So I think everybody in the audience knows, Mark is an individual philanthropist and with his wife, a tremendous local philanthropist, including the... As are you. Well, yeah, but we're talking about you today. So I'm just going to keep shifting it back over. So Mark and his wife originally donated, I think, $100 million to create the UCSF Benioff Children's Hospital

that I think just opened, which is a brand new state-of-the-art, exactly. Brand-new state-of-the-art children's hospital in San Francisco. We turn the lights on, but we open February 1. Okay, good. And then also, you know, and Mark and I've talked and argued about this a lot over the years, Salesforce, right out of the gate, set up the Salesforce Foundation.

And we have a second one in Oakland now, too. Oh, fantastic. Good. Even better. So the Salesforce Foundation from the very start dedicated 1% of the company's profit, equity, and employee time to philanthropic causes. This has become a little bit more fashionable now, but at the time, that's a very big. Right.

It was much easier then because we had no equity. We had no employees and we had no time. Yes. That does help a fair amount in between your job at Oracle. So let's say I mean... What I learned because I was running the foundation at Oracle and we would like show up and do these work in these inner cities and we were putting, you probably remember Net Day and these kind of things

and John Gage and we'd be like in these... Waring schools. We'd be, you know, we were in these inner cities and we'd be like wiring these schools and all this stuff and wiring is much easier now with wireless. So, and, you know, Oracle employees would not show up to put the computers in the schools. They were busy closing deals. And then that's when I read. realized if you're going to do philanthropy right in your company, you've got to make it part of your

culture. And the only way you're really going to make it part of your culture is day one, you've got to say, okay, we're going to really in it to win in on philanthropy. So, you know, when we started the company, March 8, 1999, we had three goals. A radically new technology model, which we've kind of talked about cloud computing, a radically new business model, which we also talked about subscription and a radically new philanthropy model where we took 1% of our equity, 1% of our profit, and 1% of all of our employees' time, and put it into a 511C3 public charity. Now it turned out to be a good decision because we've now been able to give away $68 million in grants, 700,000 hours of community service, all our employees, following more than 90% of our

employees volunteer. The first day of employment, the morning they do an orientation of the company, the afternoon, and they always go and do service work for the afternoon, just to let them know they're at a different company. And three, we run over 23,000 nonprofits and NGOs for free on Salesforce, universities, et cetera. And that's been really gratifying and really fulfilling part of our business is that we're not just running your portfolio companies,

but we're also able to offer great service. services, the same services we offer to the general electrics and the general motors or the great companies, we can offer right to the nonprofits. And Dreamforce, because that has become the largest nonprofit conference in the world. So more nonprofits go to Dreamforce than any other nonprofit conference in the world because they're, number one, they're all coming there to learn about technology. But there's just so many of them just, they just aggregate in and we don't charge them to come. So it's like just this incredible thing. And it's become a great part of our company

and our culture and our ability to give back. And so I really encourage you that when you fund a new company, that you get them to put in the one-one-one, because it's a great thing. And for the companies that have followed us, companies like Google, companies like Yelp, we have dozens and dozens of companies who've done one-one now.

It's hugely successful for each and every So do you, I was going to ask you, so if I'm a new founder and I come to you and I come to you for advice on this, do you recommend that I do the same thing that you did 15 years ago? Absolutely. Or have you learned things that you would do differently if you were starting from school? Well, we certainly have appended our model, and of course we have a whole site called share the model.org, but we, we have a whole, we had an interesting thing happen. At some point, some of the really big nonprofits like Red Cross, who are just like,

who've done, really gone to town with the technology. You're like, okay, we have this free thing, but we want to pay for this, and we need these services. And here, we've got a lot of money and take some of this. And we're like, we're not going to take your money, okay? But we're like, well, if we did have, you know, if we actually charge this or that, we did a little bit, maybe we had a highly discounted program,

90% off or whatever. So then we created a 501c4. So we created a 501c4. And it established commercial relationships with nonprofits who wanted to get to this really high level with us. And the 501C4 then receives that money, gives us to the 501C3, then grants it back out.

And so that's a really exciting extension to the model. It's very sophisticated in terms of getting people to understand how that works. But Salesforce has no commercial relationship with these nonprofits or NGOs. And any money that is basically provided, they give to the business. that 5-1-C-4 then gets granted back out.

So you get, the final question, you get kind of two reactions when you talk to CEOs about this, I've found. One is that's a great idea, we should do that. The other reaction is, you know, as a CEO, I have a fiduciary responsibility to my shareholders. You know, I get this money and I'm supposed to like spend the money building the business. And philanthropy is something that individuals should do. Right. And for companies to do it is, you know, potentially a violation of fiduciary responsibility. What do you say to them? How do you square the circle on that? Well, I mean, you know, you kind of Milton Fried

said the business of business is business, okay, but you have to kind of decide what kind of company are you going to be? Are you going to be a company all about your shareholders? You're going to be a company all about your stakeholders. Because in today's world, we have a lot of companies who are really only focused on their shareholders. And I think we only have to go look out our window to see what that's doing to our whole planet, to our communities, to our education systems, to our safety net, to our country. And we have a lot of companies that don't care about it and that their employees are not engaged, you know, with the communities that they serve and that they live in. And I think that, you know,

a good example is you have a lot of, you know, great new portfolio companies, a lot of which are in San Francisco. And a lot of those kids you're hiring and, you know, they're getting married and they're having kids and they want to send them into the K-12 schools in San Francisco, and you want them to live in San Francisco, don't you, Mark? Well, they, they, They're kind of worried about that, actually. They're worried about housing. They're worried about the safety net at San Francisco. They're working about, they can't afford the private schools, you know.

They even have the IPO yet, and they're like, gee, what am I going to do? So, you know, our ability to then focus on a social issue is really easy for Salesforce. Like, we have, you know, in San Francisco, and we're like the only ones is crazy. we have put more than $10 million into the middle schools in San Francisco. We've been wiring these schools now for two decades, but we just rewired all these schools with all the wireless, all with iPads,

and all this blended learning technology. We have our employees in there. We offer a full package. We give every principal in San Francisco for the last two years of the middle schools 100,000 innovation grant, that they can do anything they want with the 100 grand,

in their school. So that is exciting for us. Now, one, we get a lot of huge fulfillment, makes us happy because there's no greater joy you're going to get than giving. All that's great is you get the personal fulfillment. Number two, your employees are thrilled because they want to send their kids to these schools

and the schools are actually getting better. It's material. Like, they walk in and they can go, wow. Like, I've been in there and I'm like, this is as good as it gets, actually, and blended learning. And then three, the community at large is going to benefit. So, and does it really cost us, you know, that much?

Not really. I mean, we're on the margin here. And so I think it's extremely important. I think every company has to do it. I think every individual has to do it. I think our whole world is just kind of teetering a little bit. And our country and, you know, education is a great example, K to 12, where we all need to be working more in our K to 12 systems. One of the reasons we really focused on in a dream force this year because it's something that we can all do.

And technology, things that we're doing actually can impact those schools. Our employees can impact those schools by being in there. And when you can deliver a full package, and a full package is the money, of course. so they all need some cash, technology. And the people, that is, our employees are in the schools so they can volunteer in the school, and they're in art class, or they're in the tech program or they're there mentoring, and that's key.

And I learned all about that. In 1997, I went to this thing called the President's Summit for America's Future, which was the five living presidents, and I had never heard of any of this, because I went to have an undergraduate business degree from USC. We don't talk about any of this stuff. It's not like we didn't have a great teacher like your wife, you know, is Stanford teaching about social programs. There was no social

programs. So that was the first time I'd ever heard about. I go, this is a great idea. We have all these resources at Oracle, you know, we have the people, we have, but I couldn't get the throughput. But at Salesforce, we have the throughput. I mean, we can get things done. And when we focus on technology. Of course, we're going to deliver a great product. We're going to have great customer relationships, but we're also going to make our communities better, and that's a key part of what we're doing. And I'm sure that at the end of the day, you know, people may not remember Salesforce, okay, they may never, not even remember cloud computing, but they're going to definitely remember how we made our community better while we were here. That's really

important to us. Good. Ladies and gentlemen, Mark Rennioff. Thanks.