On the surface, the 32-year-old Marc Benioff had it all…
He had amassed several million dollars in savings as a software executive at database software giant Oracle (ORCL). Software came easy to Benioff. At age 26, he had become the youngest vice president in the company’s history.
But by 1996, he was burned out and needed a change. So he took a sabbatical from Oracle. He spent two months in India with a friend, visiting various spiritual leaders.
That’s where his meeting with the Mother of Immortal Bliss changed him forever – and inspired him to create an entirely new kind of business…
The Hindu spiritual leader is known as the “hugging saint” because she hugs everyone she meets. She has calluses on her face from hugging more than 34 million people.
Through her charities, she has built more than 125,000 free houses for homeless people in India and Sri Lanka.
She also cares for 500 children in an orphanage in her hometown of Kerala, India.
Benioff describes their private meeting in his book Trailblazer: The Power of Business as the Greatest Platform for Change…
With a chorus of Hindu chants and clouds of incense wafting over us… I told her about business goals and how, we suspected, they were connected to the existential confusion we both felt. Then Amma looked at us with her compassion and intensity, and said, “In your quest to make money and succeed, don’t forget to do something for others.”
As Benioff explained in his 2009 book Behind the Cloud, Amma convinced him he could give back to the world while at the same time pursuing his business ambitions. Ironically, the ascetic guru inspired Marc Benioff to build a new type of company… one that changed the course of capitalism and transformed the millionaire into a multibillionaire.
It’s a type of business that’s good for both the company and its customers. And it allowed far more people to benefit from technology than ever before.
You see, back when Benioff was meandering through India, he knew the Internet was beginning to change everything. He saw how Amazon (AMZN) was revolutionizing the way people shopped. He knew it couldn’t be long before the Internet disrupted the business world, too. As a veteran of Oracle, Benioff knew the software business best.
He was determined to deliver software in a new way… using the Internet. His goal was to “democratize” software, making it cheaper and easier to buy and use.
So in 1999, Benioff left Oracle and started Salesforce (CRM). Following his inspiration from Amma, he set aside 1% of the stock to be used in the future for people in need. His company got to work, selling an application that every business needs: software to manage customer information and track sales leads and orders.
Benioff started from scratch. He hired a small team of developers and built software, designed from the ground up, to run on the Internet. He called it “the end of software.”
Instead of taking six to 18 months to install, companies could start using his Salesforce software immediately over the Internet. It had an attractive, simple user interface. But more important, customers no longer had to be tethered to their network computer to use it. They could access it on any device, anywhere in the world… as long as they had an Internet connection.
Benioff charged around one-third of the price that the big boys like Oracle charged. And customers would only pay for the licenses they used. That allowed customers to get a return on their investment in six to 12 months, rather than three to five years with legacy software offerings.
To say Salesforce disrupted the market doesn’t begin to describe what a blockbuster success it was. The company went public in 2004 with sales of less than $100 million. Its sales have grown nearly 40% a year on average since then, to more than $17 billion in 2019. They’re expected to be nearly $21 billion this year.
Benioff had invented a new selling-and-delivery model for software, now known as Software as a Service, or “SaaS.”
Today, we take it for granted that we can use the Internet to access software “in the cloud.” But at the time, it was a radical idea.
Before Salesforce, software companies sold their software under what’s known as a “perpetual license model.” Under this model, the customer owns the software and pays a large, one-time license fee up front. But the costs pile up from there… everything from installation, equipment, and maintenance to troubleshooting and support calls.
All that changed when Benioff introduced the SaaS model…
Customers don’t own the software – they just rent it. They pay as they use it. The software is stored on the vendor’s servers, rather than the customer’s servers. All the processing takes place in the cloud.
In short, the SaaS model makes buying and using new software much more convenient for customers.
But it’s also a great business. The lowest-margin parts of the old perpetual model are normally hardware and installation. The SaaS model got rid of both. Not only that, but almost all SaaS sales are recurring… So they pile up, year after year, as customers renew their contracts and new customers are added.
In the past 16 years, shares of Benioff’s business have increased 90-fold. But this isn’t a story about one business…
In fact, since 2004, around 80 different companies have gone public while emulating the model that Benioff pioneered upon his return from India. Since then, these businesses have collectively become the single hottest sector in the entire stock market – by a wide margin.
Thanks to this huge outperformance, Wall Street has learned to love this sector. But look in the right places, and you can still find incredible opportunities in this part of the market.
Good investing,
— Mike DiBiase
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Source: Daily Wealth