Salesforce.com 2007 Annual Report Download - page 24

Table of Contents
acceptance. Our success will depend to a substantial extent on the willingness of enterprises, large and small, to increase their use of on-demand application
services in general, and for CRM in particular. Many enterprises have invested substantial personnel and financial resources to integrate traditional enterprise
software into their businesses, and therefore may be reluctant or unwilling to migrate to an on-demand application service. Furthermore, some enterprises may
be reluctant or unwilling to use on-demand application services because they have concerns regarding the risks associated with security capabilities, among
other things, of the technology delivery model associated with these services. If enterprises do not perceive the benefits of on-demand application services,
then the market for these services may not develop at all, or it may develop more slowly than we expect, either of which would significantly adversely affect
our operating results. In addition, as a new company in this unproven market, we have limited insight into trends that may develop and affect our business.
We may make errors in predicting and reacting to relevant business trends, which could harm our business.
Our success also depends on the willingness of third-party developers to build applications that are complementary to our service. Without the
development of these applications, both current and potential customers may not find our service sufficiently attractive. In fiscal 2006, we introduced the
AppExchange directory, a central online marketplace for on-demand applications that we host for our customers, developers and partners to exchange custom
on-demand applications that are built on, or can integrate with, our service. These custom applications, some of which are not CRM-related, include
applications ranging from expense management to purchasing to recruiting. It is uncertain whether this service will be accepted and adopted by our customers,
developers and partners or will increase the demand for subscriptions to our service.
We cannot accurately predict customer subscription renewal rates and the impact these renewal rates will have on our future revenue or operating
results.
Our customers have no obligation to renew their subscriptions for our service after the expiration of their initial subscription period, which is typically
12 to 24 months, and in fact, some customers have elected not to renew. In addition, our customers may renew for fewer subscriptions or renew for shorter
contract lengths. We cannot accurately predict customer renewal rates, particularly for our enterprise customers who purchase a large number of subscriptions
under multi-year contracts. Our customers' renewal rates may decline or fluctuate as a result of a number of factors, including their dissatisfaction with our
service and their ability to continue their operations and spending levels. If our customers do not renew their subscriptions for our service, our revenue will
decline and our business will suffer.
Our future success also depends in part on our ability to sell additional features and services, more subscriptions or enhanced editions of our service to
our current customers. This may require increasingly sophisticated and costly sales efforts that are targeted at senior management. If these efforts are not
successful, our business may suffer.
Our growth could strain our personnel resources and infrastructure, and if we are unable to implement appropriate controls and procedures to
manage our growth, we may not be able to successfully implement our business plan.
We continue to experience a period of increasing headcount and growth in our operations to support a growing customer base, which has placed, and
will continue to place, to the extent that we are able to sustain such growth, a significant strain on our management, administrative, operational and financial
infrastructure. We anticipate that further growth will be required to address increases in our customer base, further development of our service, as well as our
expansion into new geographic areas.
Our success will depend in part upon the ability of our senior management to manage this growth effectively. To do so, we must continue to hire, train
and manage new employees as needed. If our new hires perform poorly, or if we are unsuccessful in hiring, training, managing and integrating these new
employees, or if we are not successful in retaining our existing employees, our business may be harmed. To manage the expected
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