Salesforce COO Keith Block explains how to win even if you're not one of the 'Big Five'

Key Points
  • Since ex-Oracle exec Keith Block became Salesforce's COO in June 2013, the company has nearly tripled its revenue to an expected $12.5 billion next year.
  • Block says the secret is to focus on customers' needs and not worry about the competition.

Salesforce CEO Marc Benioff once called Keith Block "the best sales executive the enterprise software industry has ever seen."

The remark came in early 2014, six months after Benioff hired Block away from Oracle — where Benioff himself got started — and made him COO. At the time, Benioff said he'd been trying to hire Block for 10 years.

Benioff is not prone to understatement, but his respect for Block has been borne out.

Since Block started, Salesforce's revenue has approximately tripled, from $4.1 billion in the fiscal year ended in January 2014 to an expected $12.5 billion for the year ending in January 2019. Its share price has jumped more than 160 percent during his tenure, giving Salesforce a market value of over $75 billion.

That makes Salesforce the rare counterexample to the dominance of the "Big Five" — Apple, Alphabet, Microsoft, Amazon, and Facebook — which have added a total of over $1 trillion in value this year.

In particular, Salesforce has managed to stay one step ahead of Microsoft, a competitor in the space where Salesforce made its name: Customer relationship management software.

While CRM is what sales organizations use to keep track of customer interactions, Salesforce has expanded into adjacent markets like marketing, and has deftly signed partnership agreements with enterprise giants that include IBM, Amazon and even Alphabet's Google.

As Block explained to CNBC during the company's massive Dreamforce conference last week, the way to compete with giants is not to worry about the competition.

"We are laser-focused on the customer. We're not worried about ERP, we're not worried about consumer electronics, we're not worried about servers, storage," he said.

"Some of those five that you're referring to, that's their world — that's not our world. And I think that world largely represents the past, and our world is about the future — It's about customer engagement and growth," Block added.

Salesforce does have a partner agreement with Microsoft to make it easier for customers to integrate its products with Microsoft's Office 365, among other things. The two companies cozied up to each other after Satya Nadella took over as CEO in 2014, and Nadella was a major presence on stage at Dreamforce in 2015.

But the relationship has again soured. The two companies were in sharp competition to acquire LinkedIn last year, and the gloves came off after Microsoft won. Benioff has gone back to taking potshots in public.

Block stays out of that fight, letting his voluble boss do the honors. He prefers to focus on the business.

"If you go back to the origins of that relationship with Microsoft, that was in response to what's best for our customers," he said.

Here's a transcript of our conversation, edited for length and clarity.

CNBC: Can you give me an overview on how things have changed in the four and a half years since you've been there? What's improved?

Keith Block: If you go back to the roots of the company, [when] I started with the company -- it was about 4 billion in revenue at that particular point in time. We just gave our forward guid[ance] of 12 and a half billion, which means that the company will triple in five years, in terms of revenue, going from 4 to 12 and a half billion.

So we're all very, very excited about that. But the roots of the company were single cloud sales force automation. Largely selling into the SMB [small and mid-sized business] space. And since then, the company's gone through a transformation where we've moved very, very aggressively, both globally, in terms of our international expansion, as well as moving into the enterprise. And if you look at our business mix, you can see that the enterprise business has been on fire.

CNBC: Did you have to build up vertical expertise in the sales team?

Block: Yes, so all the go-to-market organizations today are very deliberately moving towards more vertical market selling and services expertise. We released vertical products for the first time last year. Financial Services Cloud, which was focused on the wealth management business, and Health Cloud, which is the relationship between the patient and the provider. A couple weeks ago we announced the retail bank solution. So we have deep industry expertise, deep industry knowledge. Our customer-facing teams are focused by industry. We've released products specific to those two industries.

CNBC: As you guys were trying to move up market and go into the enterprise, what were the biggest challenges you faced?

Block: In certain cases, there's a market awareness challenge, historically, because some companies thought we were just in sales force automation and clearly we're not; we are a customer success platform. And there's a cultural change, even inside the company, to think differently about the life cycle, the relationship, the strategic nature of going after those customers. The international expansion is very important because if you are going into the enterprise, these are global companies. So you need to be able to service them all over the world.

CNBC: As an outsider, it's sometimes a little hard to get a read on Saleforce because you typically don't have a huge product release every few years. How do you guys think about that kind of rolling product development and how do you work with company IT departments to get them comfortable with that?

Block: The days of, "We are gonna work years, and then there's going to be a big release," is -- it's over. That is the thinking of the past. You know, big upgrades, big bang, wait years for innovation. It's done. I lived in that world for a very long time. Part of the challenge with that it, if you wait three years for anything, the technology changes -- certainly nowadays, because we've seen this accelerated technology -- but your business changed.

So the whole market can change underneath you, while you're trying to figure out what to do for three years. So I think increasingly, customers are embracing the notion of agile, very quick. You know, you hear the expression of "scrum teams," that's very, very new to engineering.

CNBC: Do you need more of a high-touch, constant-touch sales and communication process because of that? Again, from the outside, I'm unsure whether to treat Salesforce as more of a software company or more of a services company or consulting company. You're kind of neither; you're kind of both. How do you look at that?

Block: We're a transformational company. We're a solutions company. And, you know, specific to the enterprise, we have offerings that we provide called ITCs -- "innovation technology centers" -- where we'll put a cadre of people who are on site and they're driving adoption. And even if you don't use an ITC, that's part of our regular success services. So when you buy something from us, no matter what, you automatically are connected with a journey and somebody who's going to support you and shepherd you through this transformation.

CNBC: Do you find other companies in the enterprise space mimicking that approach more so than they were four years ago?

Block: I think that if you're a legacy technology company that has been doing business for a very, very long time, it's no different than any other company in any other industry that is facing market dynamics around, "you must transform," because your market is being disrupted. And I think those legacy technology companies — it's like turning an aircraft carrier in pre-stormy seas. It's hard.

CNBC: The big talk in tech these days is how five companies really dominate —The New York Times, for example, talks about the "Frightful Five." And in the enterprise space, the most talked about frightful five is Microsoft. The perception is, if you're not one of those five, you have no chance. Salesforce has conclusively disproved that. How much do you concern yourself with the really huge players at the top? And as you move up into the enterprise, who do you run into and what kind of tactics are you running into where they try to block your progress?

Block: It's very interesting the way that's been positioned. Here's what I would tell you: Number one, all we care about is our customer success; everything that we do is about the customer. We are laser-focused on the customer. We're not worried about ERP, we're not worried about consumer electronics, we're not worried about servers, storage. Some of those five that you're referring to, that's their world -- that's not our world. And I think that world largely represents the past, and our world is about the future -- It's about customer engagement and growth. That's our vision, that's our mission. It's aligned with the CEOs in the world. If you look at the market statistics, we're the number one in CRM. We're the number one in sales, we're the number one in service, we're the number one in marketing. The beat goes on. So we're playing our game, we're laser-focused, 20,000 employees -- that's all we do.

"Some of those five that you're referring to, that's their world -- that's not our world. And I think that world largely represents the past, and our world is about the future."
Keith Block
Salesforce COO

CNBC: I want to talk a little bit about the announcement of the partnership that you guys are doing with Google. There had previously been an announcement with AWS, and a partnership there. Are you now reselling Google Cloud to customers who want it? Are you moving internal infrastructure to Google Cloud?

Block: Frst of all, we have a number of strategic partnerships. Amazon is one of them, of course, Dell is another, IBM is another -- we have a strong relationship with IBM, particularly around Watson.

GCP [Google Cloud Platform], it's another play -- another infrastructure play. It's a preferred partner just like Amazon is a preferred partner. And this is really in response to our customers. As we continue to scale our business, we have a private cloud, we have a public cloud, we have a portfolio of public cloud now with AWS and Google.

CNBC: What about the deal with G Suite? How does that align with what you'd previously done with Office 365 a couple years ago?

Block: We still have a relationship with Microsoft. And again, if you go back to the origins of that relationship with Microsoft, that was in response to what's best for our customers. And it's the same sort of thing [with G Suite]. We have a common interest with Google in terms of serving our customers and providing integration..

CNBC : I'm familiar with Google Analytics for tracking activity on public-facing web sites. How does Google Analytics work with CRM?

Block: If you think about our B-to-C experience, we started this out when we acquired ExactTarget a few years ago, four years ago, right? So that started with Marketing Cloud. Most recently we acquired Demandware, which is our Commerce Cloud offering. And then Krux, which is all about DMP [data management platform]. And you think about the rich data that's available to everybody -- because the world is about data -- and then you look at this player and you say, "Wow, Google Analytics. How about marrying Google Analytics with all of these capabilities?" And what does that mean to the consumer? What does that mean for rich marketing campaigns, rich customer experiences, what can you do with that data to drive more sales and cross-sale marketing?

Salesforce CEO: Salesforce and Google Analytics together 'really exciting' for customers
Salesforce CEO: Salesforce and Google Analytics together 'really exciting' for customers

CNBC: Have you had talks with Microsoft about working with Azure? Is that another platform play that you would consider making?

Block: We've had plenty of conversations with Microsoft about a lot of different things. And again, we're very responsive to what our customers' needs are.

CNBC: Some of Salesforce's rhetoric has been pretty heated about Microsoft lately. Do you guys feel like you have a productive relationship with them or are you mostly competitive? Have you heard anything about how they feel about you?

Block: Here's what I would tell you: For where we sit as a company, we are laser-focused on success for our customers. You know, there's rhetoric, people like to say things and talk about things and that's fine, but at the end of the day, what we care about is making sure our customers are very successful.

CNBC: Thinking about those customers, do you get most of your incremental revenue from existing customers or is it mostly new customers now?

Block: It's a very balanced portfolio. I was at the Analysts' Day, and I had this conversation with the analyst and if you look at our roots historically, we've been largely a business in the United States. You asked earlier what has changed. We still do a very, very healthy clip of net-new logos. But even in the United States, which is our oldest market if you will, there is so much opportunity for us to continue to take share in the United States. So, some of that is cross-selling and upselling to the existing bases as the portfolio falls out and some of it is net-new logos.

CNBC : So cross-selling and upselling -- do you do that by seat? Or is it by product line within a company? How does that work?

Block: It's both. Some of it is organic -- so a company grows, we grow with it, right? They're a Sales Cloud customer, they have to expand their seats, so we refer to that as "organic." And others are -- many companies realize that they want a 360-degree view of the customer. The walls between sales, service and marketing are coming down. So they expand into service, they expand into marketing -- they want to take advantage of our platform. You go back to the vertical discussion, and if you look at the financial services cloud, most of those customers are brand new logos to Salesforce, so it's a proof point as to the power of going with an industry-specific solution.

CNBC : When you're talking to your customers, what are they worried about? What do they need your help with? What's the sort of CIO or other customer complaint that we're not hearing?

Block: We're not like other companies in the technology space, and I'll tell you why. This is something that Marc and I talked about 24 months ago. We started to see this phenomenon where a lot of these technology companies are talking to the CIOs, and the CIO has always been an integral part and they continue to be an integral part of the technology landscape.

But what we've started to see over the last 24 months is how important it is for CEO engagement. And we have a steady drumbeat of CEOs who are coming to us to talk about: What does digital transformation mean in my industry? What is your point of view? What is disruption? How can I leverage all these amazing technologies of cloud, mobile, social, data science, artificial intelligence in changing our business model? And it is a regular dialogue with the CEO. I don't believe that is happening in Redmond [where Microsoft is based] or Redwood Shores [where Oracle is based] on a regular basis, or in Waldorf [where SAP is based], but we are having those conversations.

In fact, here at Dreamforce, we have a CEO track. So, I've been to many technology conferences in my career, I'm sure you have, as well. I don't remember seeing a CEO track. So the fact that CEOs are coming and having this level of engagement with us, I think speaks volumes of what they're looking for from us, in terms of, "What does this world mean?"

CNBC : I hear the term "digital transformation" and I don't know what it means. It sounds like a buzzword. Say I'm a financial services company -- what are the things I have to do? Or I'm a retail bank -- what are the things I have to do?

Block: I had a conversation with the CEO of one of the largest banks in the United States last week. Historically over 90 percent of his [technology] spend has been on IT legacy, maintaining regulatory compliance, keeping the lights on -- doesn't leave a lot of room for innovation.

Now, he's got two forces working against him. Number one, the world has changed from a technology perspective, and over 70 percent of all banking transactions are done on this device. [points to his iPhone] OK, this has changed everything, right, it's changed our lives.

The other thing is that of [all] the money that goes into that bank, 70 percent of the money comes out of that bank. And it's being spent with his competition. So he does not have a 360-degree view of the customer, he does not have an omni-channel engagement with his customer, he has no customer journey with those customers to prevent the 70 percent from bleeding out.

So he's got competitive forces, he's got technology forces and he's handcuffed because 90 percent of his IT spend is spent on legacy. That is the same story for almost every bank in the world.

So the digital transformation -- think about what Amazon did to retail. Remember when Uber started coming out, and they said, "Oh it's about the taxis, about the limousine services -- it's about transportation and logistics." That's happening in everything, in every industry. It's happening in health-care, it's happening in telco. The consumer experience that we have in our personal lives with social technologies and mobile devices is what we expect from the companies that we do business with. And that, to me, is what digital transformation is all about.

CNBC : What is Dreamforce to the company? This is a huge event, and downtown San Francisco's transformed. You have 100,000 people or something like that here. What do you get out of it?

Block: Well, we do other events — we do world tours, we did TCX, which is our big developer conference. We do some vertical-specific stuff, but Dreamforce is really important for so many reasons. It's important for our culture, it's important to our customers, it's a celebration of their success, it's an opportunity to drive and innovate with our customers and our partners. It comes at the beginning of our annual planning cycle, and we use it as a launching pad into next year. We get incredible feedback from our customers and our partners.

It is an incredible enablement of opportunity for everybody, including our employees. You know, we hire so many people and we have to onboard them very quickly. So, you come here, you learn what the company message is, you hear what partners are saying, you talk about the ecosystem.

CNBC : The Big Five are super powerful and they've got all this cash on the books. There are a lot of smaller companies that reach a certain threshold, 100 million a year in revenue, and they stop. They can't get higher. Do you think there is going to be an increased wave of M&A?

Block: First of all, we don't comment on that sort of thing. [But] Marc actually brought it up in the analyst day. I think the wild card is repatriation.