Salesforce.com 2008 Annual Report Download - page 42

Table of Contents
We intend to continue to invest additional resources in our enterprise cloud computing application service. The timing of these additional expenses will
affect our cost of revenues, both in terms of absolute dollars and as a percentage of revenues, in a particular quarterly period. For example, we intend to open
a data center in Singapore in fiscal 2010. We expect the annual cost to be significant.
Research and Development. Research and development expenses consist primarily of salaries and related expenses, including stock-based expenses, the
costs of our development and test data center and allocated overhead. We continue to focus our research and development efforts on increasing the
functionality and enhancing the ease of use of our enterprise cloud computing application service. Our proprietary, scalable and secure multi-tenant
architecture enables us to provide all of our customers with a service based on a single version of our application. As a result, we do not have to maintain
multiple versions, which enables us to have relatively lower research and development expenses as compared to traditional enterprise software companies. We
expect that in the future, research and development expenses will increase in absolute dollars as we upgrade and extend our service offerings and develop new
technologies.
Marketing and Sales. Marketing and sales expenses are our largest cost and consist primarily of salaries and related expenses, including stock-based
expenses, for our sales and marketing staff, including commissions, payments to partners, marketing programs and allocated overhead. Marketing programs
consist of advertising, events, corporate communications and brand building and product marketing activities.
We plan to continue to invest heavily in marketing and sales by increasing the number of direct sales personnel in order to add new customers and
increase penetration within our existing customer base, expanding our domestic and international selling and marketing activities, building brand awareness
and sponsoring additional marketing events. We expect that in the future, marketing and sales expenses will increase in absolute dollars and continue to be our
largest cost.
General and Administrative. General and administrative expenses consist of salaries and related expenses, including stock-based expenses, for finance
and accounting, human resources and management information systems personnel, legal costs, professional fees, other corporate expenses and allocated
overhead. We expect that in the future, general and administrative expenses will increase in absolute dollars as we add personnel and incur additional
professional fees and insurance costs related to the growth of our business and international expansion.
Stock-Based Expenses. Our cost of revenues and operating expenses include stock-based expenses related to option and stock awards to employees and
non-employee directors. We account for stock-based expenses pursuant to the provisions of Statement of Financial Accounting Standards No. 123 (revised
2004), Share-Based Payment, or SFAS 123R which we adopted on February 1, 2006. SFAS 123R requires that share-based payments, including grants of
employee stock options be recognized as an expense in the statement of operations based on their fair values and vesting periods. These charges are
significant and we expect them to increase in absolute dollars in the future.
Joint Venture
In December 2000, we established a Japanese joint venture, Kabushiki Kaisha salesforce.com, with SunBridge, Inc., a Japanese corporation, to assist us
with our sales efforts in Japan. During the third quarter of fiscal 2009, we increased our ownership interest in the joint venture from 65 percent to 72 percent.
Because of this majority interest, we consolidate the venture's financial results, which are reflected in each revenue, cost of revenues and expense category in
our consolidated statement of operations. We then record minority interest, which reflects the minority investors' interest in the venture's results. Through
January 31, 2009, the operating performance and liquidity requirements of the Japanese joint venture have not been significant. While we plan to expand our
selling and marketing activities in Japan in order to add new customers, we believe the future operating performance and liquidity requirements of the
Japanese joint venture will not be significant.
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