Dive Brief:
- Salesforce saw software sales slide during the three-month period ending April 30. “We saw elongated deal cycles, deal compression and high levels of budget scrutiny,” President and COO Brian Millham said during the CRM giant’s Q1 FY 2025 earnings call Wednesday.
- The company grew revenues 11% year over year, to $9.13 billion, on par with last year’s first quarter increase but a steep decline from Q1 FY 2023’s 24% bump. President and CFO Amy Weaver expects the slowing trend to continue through the end of the company’s fiscal year, as customers downsize software purchases and delay implementations.
- CEO Marc Benioff framed the slowdown as a temporary pause to prepare for AI adoption. “What we're seeing is not only the installation and integration and implementation of the platforms that we've sold in the last four years, but the layering in of this new capability.”
Dive Insight:
Software spending is a perennial pain point in the ongoing push to modernize the enterprise. SaaS solutions in CRM and ERP systems can drive budgets skyward just as surely as software upgrades power digital transformation.
Global software spending is expected to increase an average of 12% annually for the next several years, reaching $1.4 trillion in 2027, according to Forrester. But cost is now the top procurement consideration, Gartner found.
The enterprise focus on optimizing cloud spend has spread across the software stack, as customers look to contain SaaS sprawl and get the most out of recent investments.
“No company in any economy wants to be overbuying,” Liz Herbert, VP and principal analyst at Forrester, told CIO Dive.
In CRM, where Salesforce retained its longstanding status as the top vendor by market share last year, an optimization cycle was due, Herbert said.
“Salesforce is at this point in their maturity where a lot of customers bought big and didn’t fully utilize,” Herbert said. “You’ve got companies spending millions of dollars a year who haven’t adopted all of the things that they pay for and it’s very hard for Salesforce to grow those accounts.”
Broader macroeconomic factors have an impact as well, particularly as enterprise customers reorganize workforce and consider layoffs, Herbert added. “With a lot of these software deals, you’re not protected: you end up having to pay for the seats you’ve committed to,” she said.
Salesforce and several other key enterprise vendors have raised software prices to boost revenue in the last year.
Creating premium bundles and shifting to consumption-based pricing models are two additional levers software providers have leaned on to buoy business, Scott Bickley, advisory practice lead at Info-Tech Research Group, said.
SaaS vendors are also leaning on generative AI add-ons, including coding assistants and other built-in productivity and summarization tools, to lure customers. Salesforce added low-code developer capabilities to its Einstein Copilot, bundled AI and data governance tools and introduced a healthcare natural-language assistant in the last several months.
But one of Salesforce’s biggest pushes has been in the data space, where the company rolled out an integration that connects its cloud-based data solution with the Einstein 1 CRM in September.
“Customers are getting their data estate in order as a precursor to leveraging AI capabilities and we're seeing that with the growth of Data Cloud,” Millham said.
The company added more than 1,000 Data Cloud customers in Q1, Benioff said, referring to the solution as “our next billion-dollar cloud.”
Salesforce is taking the long view with AI solutions and Data Cloud, Bickley said.
“They want to keep AI curated and grounded in their data environment,” Bickley said. “But they definitely realize that if you have garbage in, you're getting garbage out, so you need to get your data layer clean.”
