Salesforce.com (NYSE: CRM) will report its quarterly earnings tomorrow night, and while one analyst firm expects the cloud CRM leader to have no problem meeting Wall Street estimates, the analysts say the real story is the direction of the company's Chatter collaboration and enterprise social networking service.
Stifel Nicolaus analysts Tom Roderick and Gur Talpaz wrote in a research note today that Chatter "is rapidly becoming critical to the company's product vision. As our industry checks are loudly indicating that demand for social media and collaboration capabilities is exploding, we think it is valuable for investors to explore how Salesforce.com will further capitalize on this trend."
Roderick and Talpaz said they are seeing strong interest in Chatter from enterprise customers. "Clearly, the appeal of the product, furthered by enhanced business user functionality in release 2, lies in its usability by employees from various departments at all levels of an organization," they wrote.
Salesforce is also moving into live chat via the September acquisition of Activa Live and the rumored acquisition of DimDim, the analysts noted. "With enterprise demand for social media integration (both internally facing and customer facing tools) heating up at an impressive pace, we see incredible potential for Salesforce.com to extend the Chatter platform into the service cloud and even more broadly into customer facing functions," they wrote.
The Stifel Nicolaus analysts said the company's goal appears to be "to gradually morph Salesforce.com into a collaborative platform where all users are connected in real time."
Yammer and Jive Software appear to be Chatter's biggest competition, they said, with Jive the greater long-term competitive threat because of its more complete end-to-end social media platform.
"With this in mind, we believe that Chatter, and really Salesforce.com, are about to approach a crossroads of sorts," the analysts wrote. "Salesforce.com will need to decide whether it chooses to extend Chatter (and various collaborative features soon to be embedded within the system) beyond the needs of the business users inside the purchasing organization. In other words, can Salesforce incorporate features like social media monitoring (Radian 6) and community building (Lithium, RightNow's Hive Live), or will it maintain its current stance as a social vendor focused primarily on delivering tools that focus directly on the internal enterprise (more directly similar to Yammer)?"
"Ultimately, we believe that Chatter will continue to evolve into a full-fledged enterprise social media platform, and we believe the next major step is the development of external engagement tools," they wrote.
The Activa Live acquisition made sense, they said, because "chat functionality was perhaps the most glaring missing feature within Salesforce.com's Service Cloud 2 offering, creating difficult competitive compares with more robust feature sets from LivePerson and RightNow. With the company aiming to offer a true multi-channel customer service experience, chat was an easily noticed missing component.
"We believe that Salesforce.com could eventually look to push chat functionality across other product lines, most notably Chatter ... chat is a natural complement to existing Chatter functionality, enabling employees to interact with each other more quickly. Over the next several months, we expect chat to be a central theme in the company's product development."
Acquiring DimDim would take that a step further by adding Web conferencing technology. "Web conferencing represents a natural feature addition to the existing platform, particularly as Salesforce.com pushes deeper into collaboration," and the feature would also benefit the company's sales force automation offerings with the addition of video conferencing sales pitches and presentations.
The analysts have a Buy rating and $120 price target on Salesforce.