's Balancing Act

As the maker of CRM software expands into new areas, it risks rankling rivals small and big alike

Sooner or later every software company succumbs to the law of gravity that pulls down its pace of growth as it swells in size. Case in point: Revenue at (CRM), the maker of software that helps corporations manage customer relationships, is expected to grow 45% this year, compared with 60% growth in 2006 and 76% in 2005. Like its peers, will try to buck the trend by mining new areas, but it needs to do so without treading on the toes of the companies that build add-ons to its products that boost its own sales. Chief Executive Marc Benioff plans to unveil a potential solution at an Apr. 10 press conference in San Francisco, where he will announce the acquisition of startup software maker Koral Technologies and plans for a pair of products that can help companies manage the slew of documents, spreadsheets, PowerPoint presentations, and drawings that underpin their business—all from within's existing software.

Later this year, plans to deliver software based on Koral's technology that can help users find computer files that don't reside in a database, based in part on how much weight other employees assign them, and a programming tool to let companies weave those functions into their daily work flow. Kendall Collins, senior vice-president of product marketing at, says the company plans to knock on software buyers' doors in departments outside its traditional domains of sales and marketing. The new targets include human resources, finance, and legal divisions. "This is an answer to where goes next," he says. declined to disclose how much it paid for Koral, a nine-person company based in San Mateo, Calif., but said the amount wasn't material. The acquisition closed in late March, Collins says.

Controlled Growth's customer-relationship-management (CRM) software helps sales reps schedule meetings, book orders, and view forecasts. It runs inside a Web browser, so can quickly push updates to users. Benioff has said he's rapidly hiring sales staff, and the company signed up 90,000 new subscribers for its software during the quarter ended Jan. 31, for a total of 646,000 users.

Last year, the company's revenue grew 60%, to $497.1 million, though it broke even because of stock-option expenses. Sales in 2007 will rise as much as 45%, to $720 million (see, 12/12/06, "Strong Sales Spark"). To boost growth, needs to enter new areas. But Benioff has also said he's wary of expanding too aggressively into markets beyond CRM, so as not to squelch the prospects of small companies that build additional features for—and help drive new license sales. Such companies include Rally Software Development, EchoSign, and PowerSkills Solutions.

By entering the market for managing so-called unstructured content including Office documents, HTML code, and video, while also releasing a tool for independent software developers to add new capabilities, could strike a compromise. "They have the steady CRM growth," says Rob Bois, an analyst at AMR Research. "Now, they're broadening out the footprint."

Organization Tools

But's upcoming products—ContentExchange for end users and Apex Content for developers—will also compete with offerings from large software vendors such as Microsoft (MSFT), IBM (IBM), and EMC (EMC), whose products are entrenched at companies. Employees who use often need access to order forms and invoices that live in corporate applications from vendors such as Oracle (ORCL) and SAP (SAP) or to marketing materials that sit on a company's intranet. And departments such as HR need to manage large numbers of Word files and other documents that aren't always easy to retrieve.

As a result, IBM, EMC, Oracle, and Open Text (OTEX) have been acquiring makers of document management software. And Microsoft has been aggressively selling its SharePoint Server software, a complement to its Office suite that can comb companies' intranets for files. While can't match those companies' distribution levels, its skill at word-of-mouth marketing could be an asset, Bois adds. "Your average HR person will know of," he says, "and they've probably heard positive things."

Empowering End Users

The acquisition of Koral is's third. It bought handheld computer software company Sendia in April, 2006, for $15 million, and Kieden, which lets users manage Google (GOOG) marketing campaigns, in August, 2006, for an undisclosed amount. is expanding into other areas too, including desktop market data for financial advisers (see, 3/5/07, "Up Front: An Assault on Fortress Bloomberg?").

The company's foray into content management could make its core sales and marketing software more useful, says Sheryl Kingstone, an analyst at market researcher Yankee Group. "No CRM system has been great about managing unstructured data," she says. "It's been one of the limiting factors for CRM as a whole."

A bigger challenge may be helping companies weave together processes that span departments—something traditional business software hasn't done well. Most application software targets a specific area, such as sales, marketing, customer service, or HR. "The whole point is to blow that all up and empower the end user," Kingstone says. will need to tread gingerly as it does so.

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