Salesforce.com 2004 Annual Report Download - page 42

Table of Contents
management controls and our reporting systems and procedures. The additional headcount and capital investments we are adding will increase our cost base,
which will make it more difficult for us to offset any future revenue shortfalls by offsetting expense reductions in the short term. If we fail to successfully
manage our growth, we will be unable to execute our business plan.
We derive a significant portion of our revenue from small businesses, which have a greater rate of attrition and non-renewal than medium-sized
and large enterprise customers.
Our small business customers, which we consider to be companies with fewer than 200 employees, typically have shorter initial subscription periods
and, based on our limited experience to date, have had a higher rate of attrition and non-renewal as compared to our medium-sized and large enterprise
customers. If we cannot replace our small business customers that do not renew their subscriptions for our service with new customers quickly enough, our
revenue could decline.
Our limited operating history may impede acceptance of our service by medium-sized and large customers.
Our ability to increase revenue and maintain profitability depends, in large part, on widespread acceptance of our service by medium-sized and large
businesses. Our efforts to sell to these customers may not continue to be successful. In particular, because we are a relatively new company with a limited
operating history, these target customers may have concerns regarding our viability and may prefer to purchase critical CRM applications from one of our
larger, more established competitors. Even if we are able to sell our service to these types of customers, they may insist on additional assurances from us that
we will be able to provide adequate levels of service, which could harm our business.
As more of our sales efforts are targeted at larger enterprise customers, our sales cycle may become more time-consuming and expensive, we may
encounter pricing pressure and we may have to delay revenue recognition on these customers, all of which could harm our business.
As we target more of our sales efforts at larger enterprise customers, we will face greater costs, longer sales cycles and less predictability in completing
some of our sales. In this market segment, the customer's decision to use our service may be an enterprise-wide decision and, if so, these types of sales would
require us to provide greater levels of education to prospective customers regarding the use and benefits of our service. In addition, larger customers may
demand more customization, integration services and features. As a result of these factors, these sales opportunities may require us to devote greater sales
support and professional services resources to individual customers, driving up costs and time required to complete sales and diverting sales and professional
services resources to a smaller number of larger transactions, while at the same time requiring us to delay revenue recognition on some of these transactions
until the technical requirements have been met. In addition, larger enterprise customers may seek volume discounts and price concessions that could make
these transactions less profitable.
The market in which we participate is intensely competitive, and if we do not compete effectively, our operating results could be harmed.
The market for CRM applications is intensely competitive and rapidly changing, barriers to entry are relatively low, many of our competitors are larger
and have more resources than we do, and with the introduction of new technologies and market entrants, we expect competition to intensify in the future. If
we fail to compete effectively, our operating results will be harmed. Some of our principal competitors offer their products at a lower price, which has resulted
in pricing pressures. If we are unable to maintain our current pricing, our operating results could be negatively impacted. In addition, pricing pressures and
increased competition generally could result in reduced sales, reduced margins or the failure of our service to achieve or maintain more widespread market
acceptance, any of which could harm our business.
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