Salesforce.com 2005 Annual Report Download - page 22

Table of Contents
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. Although we do not presently charge for use of the AppExchange directory, 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 do not have an adequate history with our subscription model to predict the rate of customer subscription renewals 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 and in fact, some
customers have elected not to do so. In addition, our customers may renew for a lower priced edition of our service or for fewer subscriptions. We have
limited historical data with respect to rates of customer subscription renewals, so we cannot accurately predict customer renewal rates. 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 are currently experiencing a period of rapid growth in our headcount and operations, 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, 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 growth of our operations
and personnel, we will need to continue to improve our operational, financial and 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
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