The past few months have not been kind to Salesforce, the 23-year old company that led businesses to the cloud for their apps and services, kicking off a shift in how businesses manage everything from their CRM, marketing, analytics, internal communications with applications like Slack and even IoT networks.
Fraught with executive turnover, layoffs, muted growth and a persistent lack of profitability, investors and analysts are questioning the software-as-a-service (SaaS) giant’s future.
“I think the sentiment has been decidedly negative and has been that way for some time now,” said Gregg Moskowitz, managing director at Japanese financial services firm Mizuho. The combination of disappointing financial results, macroeconomic challenges and increases in executive turnover have led to what Moskowitz described as a “a loss of confidence with respect to Salesforce’s ability to execute in this environment.”
Amidst the trouble at the company is broader turmoil across the enterprise tech market, a string of costly acquisitions like Slack ($27.7 billion) and Mulesoft ($6.5 billion) that have yet to be fully integrated, a major unproven product in Genie and ambitions to deliver historic operating margins — all in a stiff economy.
Can Salesforce deliver?
The question on every investor's mind then is: can Salesforce deliver with behemoth hyperscalers such as Amazon Web Services (AWS) pushing into the space?
From its software application marketplace AppExchange to customer data platform Genie to integration and automation provider Mulesoft, Salesforce’s broad product suite puts it in direct competition with a broad array of vendors, from AWS to Microsoft to ServiceNow.
For example, Salesforce’s AppExchange marketplace primarily sells applications built by third party developers, while the AWS Marketplace focuses on infrastructure applications, but there is nothing stopping AWS from moving up the tech stack or making an acquisition, said Rebecca Wettemann, CEO of tech industry analysis firm Valior. For example, the company already owns Amazon Connect, a cloud-based contact center.
Drawing the two companies into further competition, is the fact that partners and developers are sometimes divided on whether to build applications on top of Salesforce or AWS.
“Do I build something on AWS? Or do I start building the next layer up on Salesforce where I already have building blocks built for me, security guard rails built for me, those sorts of things,” said Wettemann. “So if you talk to a lot of Salesforce partners, they're like, ‘I get 40 to 60% of that kind of core development work done that I would have to build myself if I were on GCP or on AWS.”
However, Microsoft might actually be the greater threat when it comes to software applications. “Amazon does not have the application portfolio that Microsoft or Salesforce has, and if I were looking one to one to compare, I'd be looking more closely between Microsoft and Salesforce than I would GCP or Amazon,” said Wettemann.
Then there’s Mulesoft, arguably the leader in integration software when it was acquired, which helps customers connect data, applications and systems across cloud and on-premises. It could position Salesforce to be a leader in robotic process automation, artificial intelligence and low-code/no-code functionality, but has failed to realize its full value.
Mulesoft “filled a big hole in what Salesforce was saying that it could do around integration and frankly, what it’s promising to be able to do with Genie. So I see Mulesoft as a big cornerstone of the whole Genie value proposition,” said Valoir’s Wettemann. But “I think the biggest challenge for Salesforce with Mulesoft is they were selling to a very different buyer.”
The Mulesoft product is highly technical which is why Salesforce has notably struggled with the sales process, but the company has also faced difficulty integrating the acquisition into the broader Salesforce ecosystem.
Within the integration services space, Salesforce competes with both ServiceNow and various AWS products across integration, analytics and data such as AppFlow. And in the closely related customer data platform space, Salesforce has to contend with the likes of Oracle, Adobe, Twilio and others.
Investor pressure for profitability
Because Salesforce has products in highly competitive markets, is facing investor pressure for profitability and is rife with its own internal challenges, the company risks losing market share to competitors that don’t suffer from the same hurdles.
To compete effectively, Salesforce will need to simultaneously improve the integration of its products, drive down operating costs and increase the efficiency of its sales process.
Noted Mizuho’s Moskowitz, “I think when you see turnover of this magnitude and again, especially amid some of the execution challenges and then all of the macroeconomic concerns that are out there, it just kind of breeds some concern with some investors that it may just be too much and it may just make it harder for Salesforce to hold their own versus a lot of other companies that are out there.”