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Episode 2: The Birth of the AppExchange with Jim Steele

In this episode, Sean is talking with Jim Steele, President of Global Strategic Customers at Salesforce, about the birth of the AppExchange itself. Jim tells an incredible story as he walks us through some of the history, early beginnings, and amazing impact a decisive moment back in 2005 had on his career and the trajectory of Salesforce as a company.

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Sean (00:01):

Hello, everyone. Welcome to “How I Launched This” podcast by CodeScience. In this podcast, we’re going to talk to founders, entrepreneurs, chief product officers, people that are creating cool solutions built on top of Salesforce, launching them into the market, and we’re going to check in, see how it’s going, what experiences they’ve learned, lessons they’d like to share back to the general community. In beginning this podcast, I couldn’t think of a better guest to invite, but none other than Jim Steele, who’s the President of Global Strategic Customers at Salesforce. He’s had a number of roles working at Salesforce for many, many years. Really helped with Marc and other key executives get the company off the ground and where it is today.

Sean (00:48):

And one time back in my Salesforce career, I was in a meeting that Jim was in, and Jim told an amazing story about how the AppExchange even became a thing, and how Salesforce originally decided to even create it, eventually launch it, and where we are today, roughly 15 years later. So with that, I want to welcome Jim. Jim, thank you for carving out some time and giving back and tell us what you do, a little better job than I did for Salesforce right now.

Jim Steele (01:23):

Thanks John. I appreciate it. Yeah, I actually started with Salesforce in 2002 as president. I had the sales organization, I had services, I had the partner organization plus marketing, and I was here for about 12 and a half years and helped the company grow from about 22 million in revenue to, when I left, about 6 billion and I left for a few years and came back just six months ago in 2020 to lead this focus on our biggest, most strategic customers and deals. So that’s what I’m doing. I’m working with all the teams globally on all of our big, important strategic accounts to help make sure we’re bringing the best of Salesforce, one Salesforce team, and harnessing the full power of what we can bring to them to drive breakthrough value to them and growth to both our customers as well as Salesforce.

Sean (02:26):

Awesome. And where are you dialing in from Jim? I kind of like the background you have.

Jim Steele (02:32):

I am in Park City, Utah, my home here. You can see, we have a little bit of a snow storm here, so I’m inside and staying warm.

Sean (02:42):

Nice. Okay, well it’s perfect. We want to create this as a fireside chat environment, so we’ve got the fireplace behind you. So let’s jump into today’s discussion, but first I want to hear a little more about you, your background, the simple questions of what’d you study in school and what’d you think you were going to become in your career when you’re young and how it turned out for you?

Jim Steele (03:06):

Well, that’s a funny question. I actually went to school in Lewisburg, Pennsylvania, Bucknell University, and I graduated with my bachelor of science in civil engineering. My classmates at Bucknell had voted me as the most likely to succeed at anything other than civil engineering, so thankfully, no one’s driving over bridges or dams that I built. But I started my career out of college at IBM in New York City. IBM was looking for people with a technical education that they could help train to sell. So I started selling mainframe computers on Wall Street in 1978 and I was at IBM 23 years, all over the world. I ran sales for IBM in Asia, traveling to China and India and all over. I lived in Japan for four years.

Jim Steele (04:06):

And then IBM moved me back to Silicon Valley in 1999, and that’s when I was introduced to the Silicon Valley world and left IBM in 2000 to go to a company called Ariba, which runs this big Ariba commerce network now for SAP with billions and maybe trillions of dollars… Well I know it’s trillions, of transactions and dollars flowing through that network. And that’s when the dot com bubble, if you remember, was happening and we were probably one of the top victims of that. So right when things went south with the dot com bust, I got a call from a head hunter that Marc Benioff wanted to talk to me at Salesforce. So that started my interview process with Marc in 2002.

Sean (05:05):

Great, great. So back to the topic at hand, so Salesforce is rolling, you’re managing multiple teams at the time, and you and I got into this meeting and the challenge was a very interesting challenge. There could be no slides. It was about a room of 40 people. And you had to tell why you were here and why you were excited about the partnership between this company and Salesforce. And you led us off, I think you talked for 30 to 40 minutes, in this amazing story of what you and Marc were doing tag teaming with the business at the time, finding new customers, and you had an incredible opportunity that you wanted to close, and that’s where our story begins. So Jim, why don’t you take us back in time and we’ll sit back and listen and enjoy?

Jim Steele (06:05):

Well that was a fun event, I remember exactly, in San Jose. I won’t talk about the name of the company, but they’re a good Salesforce customer today. So in 2002, when I was interviewing with Marc, he said… I said, “Marc, why do you want a guy like me? I spent all my time on Wall Street and called big Global 2000 companies for the last 20 plus years of my career. It appears that you’re an SMB a company.” He said, “Jim, we’re going to…” He said, “We’re going to dominate the enterprise. We’re going to be one of the largest enterprise software companies in the world. And we’re going to disrupt the industry. We’re going to change the way technology’s delivered to big companies.” And I said, “Well, Marc, what evidence do you have? Do you have any big customers today?”

Jim Steele (06:53):

And he kind of paused and he said, “Well, not really, but we do have our biggest customer, Autodesk.” I said, “All right, Autodesk, respectable technology company, but how big?” And he said, “Well, they have 200 licenses. They do $200,000 a year.” And I laughed, I said, “Marc, honestly, I’ve never had a customer that small ever since I started selling.” I said, “I’ve never sold anything to a company that didn’t spend millions of dollars with us.” And he said, “Well, that’s why I want to hire you because you’re going to change all that with Salesforce.” So anyway, I started… Coming from IBM, I had a lot of experience on Wall Street, so we started calling on banks and early on none of them really wanted to take that leap of faith with a company like Salesforce. But by 2004, we had closed a couple of big deals, one with ADP, one with Honeywell and SunGard Data Systems, which sold a lot to Wall Street companies.

Jim Steele (08:01):

We had just closed SunTrust bank down in Atlanta. And we start calling on Merrill Lynch. And Merrill Lynch was the biggest customer in the world of Siebel. So we are going right after our biggest competitor. And I knew some people at Merrill Lynch and I had hired a team. This guy, Dave Rinitski and Joe Williams had had experience at Merrill Lynch. And we called on Merrill Lynch over and over again and found that they were not happy with Siebel. They spent a lot of money. They weren’t getting any value. They had very low adoption rates. So we spent all of 2004 and most of 2005 handling their objections. And it was one objection after the next. They wanted to know… We would go in and say, “Hey…” Our sales pitch back then was we’re easy to use, we’re fast to deploy, and we’re very-

Jim Steele (09:03):

inexpensive. That was my sales pitch, and Merrill said, “Hey, that sounds great. But what about security, reliability, scalability, performance, integration, customization.” And we were not really good on some of those things, especially things like customization because we had this one-to-many approach with Salesforce. We built the code, and everyone had access to the same exact application and use of Salesforce. But they were so disenchanted with Siebel that they kept working with this over and over again. We had Parker Harrison involved, we had Marc Benioff involved, Jim Cavalieri. We had all of our top executive team. We were thinking, wow, if we can crack Merrill Lynch, we can win all of Wall Street. We can win the banking industry worldwide. That was the way we looked at it.

Jim Steele (10:05):

We get to the point where Marc was doing his banking at Merrill Lynch and he had a lot of personal experience sharing his stories about how they had all these disconnected systems, none of them were talking to each other. And he shared that over and over again with his financial advisor to the point where the business side started looking at us and saying, “Yes, this is what we need.” But IT and operations did not want to move towards Salesforce. So business was moving forward, IT was stopping us.

Jim Steele (10:44):

So Marc invited all of the IT team out to San Francisco. We had a briefing with them, and this was a very important meeting. We thought, all right, if we can just get them to the point where they’re going to give us a shot and get our foot in the door, we’re going to win. And they got to the point where they said, “Okay, fine. We love your application. The business team loves the application. We’re ready to make a decision, but we have one request that will be the difference maker. If you allow us to buy your software on-premise and run it ourselves, we will write you a check for tens of millions of dollars.” And me as the sales guy, I was like jumping out of my seat. I wanted to say, “Yes, I’ll take the business.”

Jim Steele (11:41):

And Marc started shaking his head and he said, “I’m sorry. We cannot do that. That is against everything we stand for. We are all about one-to-many. And if we give you our software, we will be like every other software company where we’re basically selling you the roadmap, telling you all the things that we’re going to do in the future and never satisfying you. Will create a high expectation and will under perform, under deliver. And you’ll never be happy. So no, I’m not going to do that.”

Jim Steele (12:17):

They couldn’t believe that Marc was saying no to this giant check. And I couldn’t believe it.

Sean (12:24):

Yeah, what were you feeling as the sales leader, and team, how were they dealing with it?

Jim Steele (12:29):

I was so deflated. I’m like, how could we turn this down? I was thinking, oh, let them have it. We don’t have to do it for everybody, but give it to Merrill Lynch. And Marc said, “Look, we cannot do that because we’ll always be behind. We’ll be out of sync with one version versus another version for this customer versus that customer. This is not going to work.” And he said, “However, I have an…” And they were getting ready to basically get up, pack their bags and leave and say, “Okay, we’re going to go back to Siebel now and see what we can do with Siebel.”

Jim Steele (13:09):

And Marc said, “I have an idea. We can open up our APIs. We can give you the access to the code that our developers are working on. We’ll give you access to our developers and we’ll let you basically build all the customizations, build anything on our platform that we could do ourselves, but we’ll keep that separate so that it doesn’t affect the overall instance of Salesforce.” And the customer said, “Well, how does that work?” And Marc said, “Well…”

Jim Steele (13:50):

And up until that point, we had something called, I think we called it multiple things, but it was Multi Force, it was Custom Force, it was S Force. And basically it was allowing customers to change the tabs on the top of the application. You could make some modifications, but it was basically menu driven and point and click technology. It wasn’t real custom code. Marc said, “Well, look, we customize the code all the time, but when we’re ready to put it into production, we take it from our sandbox to production. Every customer in the world gets it instantaneously. We can do this, so we can basically ring fence the coding that you do.”

Jim Steele (14:40):

And let me tell you, there’s a glimmer of hope here because the customer, they sat up and said, “Well, tell me more about that.” And Parker and Marc started to explain what this was and how it could work. And they said, “Well, who else is using this?” And Marc said, “Well, no one. You would be the first customer in the world to ever do this.” And it took about, I would say somewhere between four to six months from the time we had that meeting to the time that we got them comfortable, that this is something that would actually work. It would give them the best of all worlds. It would give them the one-to-many approach that Salesforce was so good at that when we make changes and improvements in the application, which we do three times a year with security features and new functionality and better performance, they would get the advantage of all that.

Jim Steele (15:41):

But at the same time, they’d be able to customize the code, to be the Merrill Lynch version for their financial advisors. And that became AppExchange as we know it today. That was allowing them to build on force.com and change the code in any way they wanted to, but not have it have an impact on any other customer. And we closed that deal, we celebrated, that happen late in 2005 and we all celebrated like this is going to change the world for us because once we announced on our earnings call that we had closed this deal with Merrill Lynch and this big deal happened, it would’ve happened probably January 31st of 2006. The world changed forever for Salesforce because this was close to a $30 million three-year deal. We never had anything of that size up until then.

Jim Steele (16:44):

Every sales person in the world got excited that they too could close a big deal. Every big customer in the world said, “Wow, if Merrill Lynch is buying this from Salesforce, maybe we should look at it too.” It completely changed the game for Salesforce at that point forward.

Sean (17:01):

Wow. What an incredible story. That you didn’t tell in our meetings so I just learned something new, which is very fun. I realize that the impact that a successful deal can have on your sales team, on your marketing team, just momentum in the company, but let’s take a step back. Marc really makes the call. He makes a decisive moment call about creating something new, literally in the meeting. Did you guys talk about that beforehand? Or was it an impromptu idea?

Jim Steele (17:38):

This is vintage Marc, classic Marc. His brain works in ways that none of us can ever possibly understand. With my, what I would call conventional learnings and wisdom from IBM from 20 plus years at IBM, none of that applied to anything that made me successful

Jim Steele (18:03):

at Salesforce, because Marc would challenge us in ways that I’d never been challenged before. He’d come up with ideas that none of us with our conventional wisdom would have thought would have worked. And he just pushed us in ways.

Jim Steele (18:22):

So no, none of this was discussed ahead of time. He knew that there was a lot of work going on behind the scenes to take Sforce to a new level and create this ecosystem of partners that could build applications that eventually became the AppExchange. And I think he basically pre-announced this to Merrill Lynch. He said, “What if we can make this happen?” At the time we were not ready to make it happen, but in the course of those six months after that meeting, believe me, it accelerated. Sometimes Marc would set an objective or a goal and he’d make a commitment. And now all of the development organization under Parker would have to compress their timelines to meet that goal that Marc had just committed to the customer. And in the conventional software world, that never happened. In fact, it would probably be just the opposite. There’d be a marketing announcement and then there’d be a huge lag from the marketing announcement at the time that software companies could actually deliver on that marketing announcement.

Jim Steele (19:38):

Marc just made it happen. This is the magic of Marc. He wills things to happen that mere mortals could never make happen.

Sean (19:49):

Yeah, amazing. So he makes that call, you’re in the meeting, you feel the deal’s lost. Did you need the deal at the time?

Jim Steele (20:00):

It wasn’t that we needed it. One of the beauties of working at Salesforce is the run rate business. And Marc had created this two tier system at Salesforce and the top tier, I’m going to tell you, it’s like the inverted pyramid. The run rate business was the commercial business. We call it the CBU. And it was run by Frank Van Veenendaal and Brian Millham. And they created this cadence of closing deals on a regular basis every single month. And that was the run rate business that we would take to the bank. They were paying the bills every single month. And Marc brought me in to focus on these big enterprise deals. And no, we didn’t need any of those big deals. When it happened, of course it was great PR because Wall Street and the financial analysts, the press, they love hearing these big iconic brands.

Jim Steele (21:09):

And so we never, I would say needed it, but you knew that it was such a game changer. There was going to be a lot of commission dollars paid to the sales team. So of course, when you hire these enterprise sales reps, they come in, they want to become famous. They want to get their names in lights and have these big, incredible announcements. And so of course we wanted it, we were hungry for it. The sales team were maybe too eager to close the deal. And the patience that Marc showed and just sticking to his original vision of one-to-many, when we were challenged so many times by these big companies to basically change our vision to allow them to bring the software on premise. Well, I’ll tell ya, today you look at that and say, “What a genius move.”

Jim Steele (22:06):

But how tough a decision was that to make then when we were a small company? In 2004, that’s when we went public and we were only doing, in 2002 fiscal year, we did $22 million. Then we did $50 million in 2003. We probably did $100 million in 2004. By 2005, when this deal was closed, we probably were doing close to $200 million in revenue. So you can imagine a $30 million deal, the kind of impact that would have on the company.

Sean (22:46):

Absolutely.

Jim Steele (22:47):

Marc did the right thing.

Sean (22:49):

The reason I asked the question is, I love the enthusiasm of sellers and enterprise selling and that game and how it’s played. It’s fantastic. But in product, you can’t chase bad revenue and this deal had all the markings of bad revenue. You would’ve had totally inverted your entire model support system and you would most likely have gotten another customer success Siebel experience because it was the same process at the time that they were ironically asking for. So I think to your point, the foresight to stick to the foundation, the philosophy and not grab bad revenue in the short term, but play the long game.

Jim Steele (23:30):

Yeah, Sean, that’s a great point. All those players that were the big players in the market back then, Oracle, SAP, Microsoft and Siebel. Siebel was the big 800 pound gorilla. They were the ones that basically invented CRM, at least what became the industry leader in the late 90s. And all these companies, that hybrid approach of both an on-premise solution, as well as a, now what we call Cloud solution. Back then it was on demand or utility computing or ASP Generation II. But all these companies, their market share over time, dwindled, dropped significantly. I think today we’re over 19% market share of CRM where Oracle, SAP and Microsoft combined, the big three combined, are less market share than we have today. Which is they all offer a hybrid approach…

Sean (24:37):

Yeah. Amazing. So the decision’s made, product and Marc say, “Okay, we’re going to create something and create it fast.” You close the first platform, what we’ll call The Platform Deal, where Merrill could then build their own unique application on top of it.

Sean (24:56):

And now let’s take a moment to reflect on what’s happened since. So I gathered some stats in advance of this call, Jim, and I want to rattle off a few of them and get your reflection on looking back. The disappointment of losing that one deal, but looking forward how much energy and new economic life that has been brought into the economy based on that decision.

Sean (25:22):

So it officially launched in 2006 as a directory, I’m talking about AppExchange, that was 15 years ago. In 2011, it officially became a marketplace, which is 10 years ago. By 2022, which is just next year, the economy around Salesforce and the AppExchange from an ecosystem standpoint, is projected to be about $850 billion. By 2024, it’s going to go over a trillion dollars in revenue generation. That is six times larger than Salesforce itself. So an interesting stat is $5.80 of revenue for every dollar Salesforce generates in terms of revenue from the broader ecosystem.

Sean (26:12):

You have companies like Veeva that currently has a market cap of over $42 billion. nCino, a market cap of $6.6 billion, are just two of the now 4,000-plus ISVs that are building businesses on top of the AppExchange.

Sean (26:29):

This was a very interesting stat, Jim, there’s over 5 million developers now creating either custom solutions for their employer or working within the broader Salesforce ecosystem. That is an incredible statistic of innovation that was enabled based on that decision by you and Marc back in the day.

Jim Steele (26:52):

Wow. By the way, I’d also add to that, a hundred percent of the Fortune 500 use the AppExchange and something like 96%

Jim Steele (27:02):

of all Salesforce customers globally use the AppExchange to meet their needs. And like you said, Sean, this is what we call now or has been called, I’m not sure if we branded this or someone else, but the Salesforce economy where there’s so many of these partners, these third-party developers that have built applications for unique customer requirements, industry requirements. And, if you’re looking to Salesforce or any company to provide all your IT, all your application needs, no one company has the corner on the market for all those applications. So, having that platform with AppExchange now that marketplace to deliver all these valuable applications to different industries and different geographies, companies of all sizes, that is so powerful.

Jim Steele (28:03):

And, that’s really been such an important part of our success. I look back, I think that move with AppExchange, that Marc made in 2005, 2006 and to see what it’s become, that was one of the most pivotal, most impactful decisions ever made at Salesforce. Because, it did create this ecosystem that’s so valuable. And when customers buy from Salesforce, they’re buying access to all these applications from other third-party developers. And, the adoption rates are much higher, the renewal rates are much higher, because they’re getting value from multiple sources. They’re not 100% dependent on any one company.

Sean (28:03):

Jim Steele (28:51):

I’m excited on where this can go. I think with over 6,000 applications on the AppExchange, and I believe CodeScience, from what I’m told, you are all responsible for about 10% of the total AppExchange population out there of all the different apps. And, I believe you’re our only partner at the master level. So, we really appreciate the value that CodeScience has brought. And, I know you’ve built applications for Salesforce when we’ve needed that skill set that you provide in a very unique way.

Sean (29:32):

Yeah. Well, thank You, Jim. We’re pleased to be a part of that. It just, to me, is an amazing development, that’s taken years of people, investment, the skills you have to learn, the commitment you have to make, to make new stuff for customers to use. And, we’re seeing that happen day in and day out. So, I think that is literally what I wanted to cover in this first series of How I Launched This. So, that was the very beginnings of the decisive moment of how this thing became a thing. And, so many people are employed around it and developing cool stuff, as well as all the system integrators are configuring and extending the platform. It’s just an amazing thing to see.

Jim Steele (30:22):

Just one last point I’ll make, Sean, is with the AppExchange, to me, it represented a way to deliver what the customer needs. The customer… You can ask the customer all the questions in the world, they’re never going to design your development plan that’s perfect for the market, but they can push you to think about ways to meet the needs of the market. And, that’s what this did. Had Merrill Lynch not pushed us, I don’t know what Marc would have done. I don’t know when or if AppExchange would have been announced, it was a need for the market. And, Marc would not have done it if he thought it was a one-off kind of deal. If it was only for Merrill Lynch, he would have never done it.

Jim Steele (31:13):

But, because they pushed us and Marc stuck to his principles, the original vision of Salesforce, one-to-many, and having the economies of scale to deliver value and applications at speed with great value to the market, that really, he filled a need for Merrill Lynch, but at the same time, filled it for thousands of other businesses around the world. So, thanks for giving me this opportunity to talk about it, it’s a fun story.

Sean (31:49):

Thank you Jim, for sharing. We very much appreciate your time and giving back to the overall community. And, I appreciate your taking some time with the prep for this call as well.

Jim Steele (32:02):

Great. Well, thanks Sean. Appreciate it.

 

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