Marc Benioff - Chief Executive Officer, Chairman Steven Cakebread - Chief Financial Officer David Havlek - Vice President of Investor Relations

Jason Maynard - Credit Suisse Rick Sherlund - Goldman Sachs Laura Lederman - William Blair Kash Rangan - Merrill Lynch Thomas Ernst - Deutsche Bank Brendan Barnicle - Pacific Crest Securities Brent Thill – Citigroup Peter Goldmacher - Cowen Michael Huang - Think Equity Mark Murphy - First Albany

At this time I would like to welcome everyone to the Salesforce.com second quarter fiscal year 2007 financial results conference call. (Operator Instructions) . I would now like to introduce Mr. David Havlek, Vice President of Investor Relations. Thank you. Mr. Havlek, you may begin your conference.

Thank you, Brooke. Welcome everyone to Salesforce.com's second quarter fiscal year 2007 financial results conference call. Joining me, as always, today are CEO and Chairman, Marc Benioff; and CFO, Steve Cakebread. Following Marc's and Steve's prepared remarks today, we will open things up to you for your Q&A. Before we begin, let me briefly address a few formalities. First, in order to provide a better understanding of our business, we will reference certain non-GAAP measures during today's call. A reconciliation of GAAP and non-GAAP results is available in the earnings press release issued earlier today and filed on Form 8-K with the SEC. The press release contains a complete review of our financial performance for the second quarter. Additional financial information beyond what is provided in the press release may be found on our website. Second, today's call is being webcast, and a replay will be available shortly following the conclusion of the call through Friday, September 1. To access the press release, the financial detail, or the webcast replay please consult our Investor Relations website at www.Salesforce.com/investor. Third, please be reminded that the primary purpose of today's call is to provide you with information regarding our second quarter fiscal year 2007 performance. However, some of our discussion or responses to your questions will contain forward-looking statements. These statements may include projected financial milestones, goals and results; subscriber, financial and operating metrics; business strategy; the timing of future services; product or platform releases and their capabilities; demand for on-demand services generally or our products and services for the AppExchange specifically; anticipated growth; market opportunities; expected implementation of our services by certain customers; data center hardware or software initiatives; future system and service availability; the decline of the enterprise application market, or other business-related topics. These statements are subject to risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize, or should our assumptions prove to be incorrect, actual Company results could differ materially from these forward-looking statements. These risks, uncertainties and assumptions, as well as other information on potential factors that could affect our financial results are included in our reports filed with the Securities and Exchange Commission, including our Form 10-Q for the quarterly period ended April 30, 2006. The Q is available on our IR website. Finally, please be reminded that any unreleased services or features referenced in today's discussion or other public statements are not currently available, and may not be delivered on time, or at all. Customers who purchase our services should make the purchase decisions based upon features that are currently available. With that, let me turn the call over to Marc.

Thanks, David. Q2 was another milestone quarter for Salesforce.com. Not only did we deliver an excellent financial, customer and operational quarter, but the on-demand revolution that we have been talking about for the past seven years continues to transform our industry. Today virtually every major software vendor in the world is talking about the end of software. While other software companies talk about an undefined on-demand future with undefined products that may or may not be available at some point in the future, Salesforce, like other major Internet companies, is delivering the promise of on-demand services to nearly 25,000 customers with more than 500,000 subscribers around the world today, powered by two leading-edge data centers that now deliver an average of more than 50 million transactions a day to customers in over 50 countries and 12 languages. Salesforce.com is executing while others dream. Our vision of building the pre-eminent platform for businesses to build and acquire on-demand services for all aspects of their operations is becoming a reality with the growing momentum of our AppExchange platform. Let me quickly recap our financial performance this quarter. Revenue for the second quarter was $118 million, up 64% from the second quarter of last year, and up 13% from Q1. Our second quarter revenue performance was excellent, particularly in a quarter where other large enterprise software companies, like SAP, stumbled. Our relative revenue performance indicates that we continue to grow market share at the expense of Oracle, Microsoft and SAP, and in their collective inability to deliver on the promise of on-demand computing. Our goal has always been to become one of the fewer than 25 visionary software companies that have achieved greater than $1 billion in annual revenue. The reality is we have an obligation to become one of these companies, to set the pace and to create an industry in on-demand for all the new entrepreneurs and companies that are emerging today. In the first quarter we surpassed the $400 million run rate revenue level by achieving the first-ever $100 million revenue quarter for an on-demand software company. Now we are poised to surpass the $500 million revenue run rate level during our next fiscal quarter, Q3. This performance makes us the fastest-growing software company of our size anywhere in the world today. While there's a lot of work ahead, we are well on our way to joining that elite group of billion dollar software companies by becoming the first-ever billion dollar on-demand services company. Our strong revenue performance drove excellent profitability and cash flow. Fully diluted non-GAAP earnings per share was $0.06, $0.02 above the high end of our outlook at the beginning of the quarter. Finally, our cash generation was excellent. Net cash from operations totaled roughly $30 million for the quarter, and we now have more than $334 million in cash and marketable securities. In addition to our financial success, we had a very successful customer quarter in Q2. Customers of all sizes and all industries continue to embrace the flexibility, scalability and enhanced benefit of on-demand services. In total, more than 24,800 customers are now enjoying the benefits of Salesforce.com's applications and platforms. This represents an increase of more than 2,100 customers from our first quarter, or nearly 35 new customers every business day of the quarter. Compared with a year ago, we have added 7,900 customers, an increase of 47%. When we started Salesforce.com back in 1999, we offered a single edition of our on-demand service. Today, after launching our new partner edition, an OEM edition in the second quarter, we now offer seven completely unique service editions. In addition to our complementary personal edition, which we do not include in our subscriber metrics, our subscriber line-up now includes Team Edition, Professional Edition, Enterprise Edition, Unlimited Edition, Partner Edition and OEM Edition. For the second quarter this line-up of services allowed Salesforce.com to achieve a new milestone level of subscribers. Total net paying subscribers have now eclipsed the half-million mark, ending the quarter at approximately 501,000 -- 63% higher than the 308,000 we had when we exited the second quarter last year. Our 57,000 net new subscribers during the quarter were a Company record and I would like to congratulate all Salesforce.com Company employees, partners and customers for this achievement. While every subscriber represents a tremendous future opportunity for Salesforce.com, particularly as the AppExchange platform evolves, our revenue growth is becoming less correlated with our subscriber growth as we move forward. With seven service editions, a broad array of add-on products like Sandbox and AppExchange Mobile, and a very large installed base, subscriber growth is just part of the larger revenue growth story today. A great example of this is Sprint Nextel. By deploying AppExchange Mobile to approximately 2,800 salespeople, Sprint is enhancing their field productivity and customer satisfaction by making their customer data stored in Salesforce.com available for retrieval and update from virtually any wireless device carried by any of their sales and service professionals. This is huge value creation for Sprint and represents additional revenue for Salesforce.com, as evidenced by the sale of 2,800 copies of our AppExchange Mobile. But the add-on sale did not result in any incremental new subscribers. That is why subscriber growth is just part of the revenue growth story at Salesforce.com. Sprint was just one of many customer successes this quarter. Mizuho Financial Services added more than 1,300 subscribers during the second quarter, to bring their total deployment to more than 1,500 subscribers. Mizuho chose Salesforce.com from a long list of competitors because of rapid time to deployment, ease of customization, and our proven record of data security and system reliability, leaving behind their previous vendor, Siebel Systems. Mizuho, Shinsei Bank, Societe Generale, Deutsche Bank, Merrill Lynch and many, many other banks are demonstrating that Salesforce.com is becoming the international standard for securely managing customer data. Our success with Mizuho in Japan was matched in the U.S. this quarter by an exciting new win at Bear Stearns. Bear chose Salesforce.com over an on-premise Siebel solution, because our service allowed them to deploy more quickly while lowering their overall cost of ownership. In addition, after a long competitive evaluation, Bear identified Salesforce.com's Unlimited Edition as the best tool for them to improve their account management and prospecting capability. They are now deploying our service to roughly 1,000 sales, trading and research employees. Mizuho and Bear joined an even larger list of Salesforce.com success stories in the financial services industry around the world, including: Merrill, Morgan Stanley, SunTrust, ABN AMRO, Citizens Bank, Wells Fargo, The World Bank, ThinkEquity, AmeriTrade, eTrade, SG Cowen and others. As you know, our strategy from the beginning has been to start with small customers and to grow our customers, to create value in their environments and then grow them as they seek to add incremental on-demand capabilities, or expand their deployments. Or what we call at Salesforce.com, our Johnny Appleseed marketing concept. At Hitachi, a 1,000 subscriber deployment expanded this quarter to 2,000 subscribers during the quarter. Like so many other customers, Hitachi joined Salesforce.com last year after abandoning a failed Siebel on-premise solution. Their growing deployment is proof again that customer success creates opportunity for Salesforce.com. More and more customers are also discovering the value of our Unlimited Edition. In addition to the Bear Stearns opportunity I just mentioned, Citrix Systems is doubling the size of their UE deployment to more than 1,000 by adding 500 new service and support customers. And Enterasys upgraded nearly 600 subscribers to Unlimited Edition during the quarter. They join a growing list of customers enjoying the benefits of Unlimited Edition that now include: FileNet, Altium, Chevron, McKesson, Coherent, FedEx, Kinko's, The L.A. Times, Seagate, Red Hat, Interwoven. The list is beginning to go on and on. In addition to financial performance and customer performance, product usage speaks volumes about an on-demand company’s success. Customers who are getting value from a service use it. In Q2 we processed more than 3.1 billion transactions, an increase of roughly 140% from the year ago quarter. We are processing those transactions at record speeds, with an average transaction time of less than 300 milliseconds, or roughly the time it takes you to blink your eye. Unlike legacy on-premise software vendors who subordinate customer value to revenue performance by selling shelfware, or in even some cases, vaporware that never gets used, Salesforce.com starts with customer value and encourages usage that can be measured. Value creates usage by our customers, and usage creates opportunity for Salesforce.com. Of course, all of this can be measured very easily. In fact, system availability is the lifeblood of any on-demand company. Our availability performance in Q2 is a testimonial to our data center architecture, our outstanding IT staff and their excellent execution. Our availability was once again outstanding for the quarter. Our real-time performance reporting at trust.Salesforce.com continues to be an unmatched industry standard for a level of transparency that we believe is an obligation in our new industry. This quarter, as I mentioned a moment ago, we launched two new services. In May we introduced our OEM Edition, which allows third-party developers like [Remet] and Rally Software, DreamFactory, MyLoanBiz and others to build custom on-demand services and then market those products directly to their end customers. In effect, our OEM product is creating an indirect channel for Salesforce.com by allowing others to sell customized, limited use solutions built and delivered on our platform. While we're still in the very early days of this business, it will be an exciting space to watch in the future. In addition, last month we launched Salesforce Partner Edition, connecting enterprise and partners through the power of the AppExchange to the business web. This service is the first integrated and on-demand partner relationship management or PRM service and customer relationship management service delivering a single view across direct and indirect sales organizations. The response from customers to this new offering and to this new architecture has been outstanding, and has exceeded our expectations. With Salesforce Partner Edition, companies can now benefit from comprehensive visibility across all channels, high levels of partner adoption, complete partner lifecycle management, and reductions in channel conflict. Companies can easily distribute sales and marketing information quickly and efficiently across a multi-tiered and global distribution channel through customized and international on-demand portals that are easy to use as a common website. Initial response, as I mentioned, has been tremendous. Already significant companies like Nokia, a long-time customer of Salesforce.com, SoftBank and F5 Networks have improved their channel operations with a goal of growing their channel business using this important new technology. Our pipeline contains many more companies looking to enhance their channel relationships and business visibility with this amazing new service. Last month we also launched the 20th version of our namesake CRM application via our summer '06 release. This is an incredible record in an industry where software updates are more typical every two or three -- or in some cases for some software companies -- five years. As with all of our releases, this update occurred seamlessly to our customers, preserving all of their customizations, integrations and customer information. Summer '06 brought with it an enhanced integration capability, as well as enhanced lead history tracking, mobile enhancements, advanced call scripting, and a services entitlements capability. Our integration capabilities continued to lead the industry with the help of Salesforce.com partner OKERE, Symbol Technologies was able to fully deploy their enterprise edition solution to more than 100 associates in just three months, with integrations to Siebel and SAP. A global rollout to Europe and the Americas soon followed, with a full worldwide deployment that was completed in just six months. As our customers continue to look beyond CRM to manage more and more of their business operations with on-demand services, our strategy for building the world's foremost platform for creating and acquiring those services continues to gain momentum. The AppExchange platform gives customer and ISEs alike the ability to build, deploy and run applications of all kinds anywhere, anytime on-demand. The AppExchange directory lets ISEs published those applications for use by any of our nearly 25,000 customers. Our customers, or our ISVs and Salesforce.com are using the AppExchange platform to build capabilities that go way beyond CRM, built on customizations and match-ups with other open API Web services. Our ecosystem is building solutions for virtually every area of business. As of the end of the second quarter, our customers had built over 50,000 custom objects using our AppExchange technology. Now they have access to over 300 full applications created by more than 200 ISVs on the AppExchange directory. There is no better example of the power of the AppExchange platform than at Altium. Using our Unlimited Edition Altium has built six custom applications on the platform, many of them built from existing AppExchange applications. The ability to easily modify pre-existing applications is the cornerstone of social production and the reason AppExchange continues to be so valued by our customers. Looking ahead, we see the AppExchange as the leading platform for powering the business Web with hundreds, perhaps thousands, of customized applications. There is more to come. We're now preparing for DreamForce, our annual global gathering of customers, partners and developers. This year from October 8 through 11 at Moscone Center in San Francisco. This year's event will be bigger than ever, with keynotes from former Secretary of State Colin Powell; influential venture capitalist, Ray Lane; and eBay's COO, Maynard Webb. We're also proud to announce a Who's Who of technology sponsors, including Accenture and Cingular. We are expecting 5,000 attendees and we expect them to see the latest AppExchange applications on our largest expo floor ever. As always, we have more to share with you about our award-winning applications and platform, including a special program for analysts and press. Last year at DreamForce we unveiled the AppExchange. This year at DreamForce we plan to show you the next generation of innovation for the business web, and we will have a lot of surprises for you. Before turning it over to Steve, I want to give you an update on our CFO search. After interviewing more than 20 candidates, we have identified the right CFO to help Salesforce.com achieve its goal of becoming the first-ever billion dollar on-demand software company. Now this person that we have found brings 30 years of high-tech experience, including the CFO at a billion dollar software company, which was very important to us. Also, this candidate had a tremendous experience with high growth in the software industry, and also ran the financial operations for one of the largest on-demand companies in the world. That distinguished background belongs to our own Steve Cakebread. I'm very happy to share with you that Steve has agreed to save his retirement for a later day, opting instead to remain as CFO of Salesforce.com, and to join us on our journey to $1 billion and beyond. This is the best possible scenario for Salesforce.com, its employees, and its shareholders. After an exhaustive search of meeting every significant CFO candidate in the industry, it was my greatest pleasure that Steve decided to stay with the Company because we found nobody better. With that let me turn things over now to our new CFO, Steve Cakebread.

Thanks Mark. I appreciate the kind words and cannot be more excited about staying at Salesforce. Last quarter I made the decision to transition from the Company, and we notified The Street as soon as that decision was made. As we began to interview candidates to succeed me though I found myself describing the long-term opportunities at Salesforce and it became more and more clear to me that there was still a lot more exciting challenges ahead on our way to the billion dream and beyond. That ended with an incredible promise of our technology that brought me to Salesforce, the 1,600 plus people behind it that convinced me that I wouldn't want to be anywhere else and that decision to leave was very hard, but the decision to stay is an easy one. So now let me get back to business and turn to the details of our very strong results for the quarter. Non-GAAP operating income for the second quarter was $9.5 million, an increase of 84% over a year ago, and a sequential increase of 25%. Non-GAAP net income of $6.6 million reflected a tax rate of 45% and excluded roughly $10.2 million associated with stock-based compensation and approximately $541,000 in amortization of purchased intangibles. Including these expenses, and the related tax benefits, we essentially broke even on a GAAP basis for the quarter. On a per-share basis, fully diluted non-GAAP EPS, as Mark said, was $0.06. Let's provide a little bit more detail on the P&L. Revenue for the second quarter was an outstanding $111 million, up 64% from the year ago quarter and up 13% sequentially. On a geographic basis, revenue in the Americas was roughly $93 million for the quarter. That is up 60% from last year and 11% from Q1. Revenue in Europe grew by 76% from a year ago to end at $18 million for the quarter, an increase of 18% sequentially. In Asia Pacific revenues grew by 89% from last year and 19% sequentially to finish at $8 million. Looking at our revenue composition, subscription and support revenues of $107 million was up 63% year-on-year and 13% from last quarter. This is outstanding performance, which was driven by a number of factors, including our continued strong subscriber growth, a focus on higher value selling services to existing customers, and a growing number of service editions. ASP, as measured by ending subscriber revenue divided by ending subscriber count, finished at $71. That is unchanged from last quarter and unchanged even from a year ago. Our aggregate ASP is now the result of six revenue-generating editions and a multitude of add-on products. So it is important to note that because we have now more than 500,000 installed base subscribers, any change to our aggregate ASP would likely occur slowly over time. Let me conclude my revenue summary with professional services, where revenue grew 82% from last year and 13% from Q1, to finish the quarter at $11 million. This business continues to grow at roughly the same rate as our subscription business, and remains a strategic imperative for Salesforce.com as we continue to grow our major account business. Moving on to the rest of the P&L, non-GAAP gross margin for the quarter was 77%. That is down 1 point from Q1 and down 1 point from a year ago quarter. The primarily driver, as we have discussed over the last several quarters, was our investment in our IT infrastructure. That investment pushed non-GAAP subscription margins down 1 point from Q1 to 86%, and down 2 points from last year. We believe our data center and delivery capabilities are key competitive differentiators, and we will continue to make these investments. Non-GAAP gross margin for our professional services business continued to improve this quarter as well, although they still remain mildly negative. Given the demand for integration and customization services by our largest customers, we are continuing to invest heavily in this business at the expense of near-term margins. On a GAAP basis, overall Company gross margin finished the quarter at 75%. That is down 2 points from last year and down 2 points from Q1. On the operating expense side, we did a great job of managing costs during the quarter. Our reported non-GAAP operating expenses ended the quarter at 69% of revenue. That is down 1 point from Q1 and 2 points from last year. As a percentage of revenue there were no material changes in any of our expense areas. On a GAAP basis, operating expenses declined 1 point sequentially to end the quarter at 76% of revenues. We have continued to add people throughout the organization to support our growth, but our hiring has been very disciplined, so I was pleased with our expense management this quarter. Overall we finished the quarter with 1,625 full-time employees. That is an increase of 145 from Q2, and 566 from last year. Regarding the balance sheet, as we have consistently stated, our quarterly cash flows will be somewhat variable as we manage our tremendous growth. After a Q1 cash performance that was pressured by timing aspects of accounts payables, we saw a nice bounce back in our operating cash performance in Q2. Cash from operations totaled $30 million in the quarter. That is more than twice what it was for Q2 last year, and more than double from our Q1 performance as well. The balance sheet continues to be rock solid and I'm really pleased where we exited this quarter. Total cash, cash equivalents and marketable securities ended the quarter at more than $334 million. That is up $36 million from Q1. At this level, our cash balance is more than $100 million higher than it was a year ago, for an increase of 44%. Continued strong orders from our products resulted in a milestone quarter for reported deferred revenue as well. For business that has been invoiced, but not yet delivered, our balance sheet deferred revenue finished above $200 million for the first time in our history, closing at $203 million. This represents an 11% increase from Q1 and a remarkable 73% increase from last year. Before I move on to outlook, let me just expand on Marc's comments and the ones that I made earlier regarding how we measure our business. When we started the Company, the only real way to grow revenue was to add subscribers. However, today with six revenue-generating editions ranging in list price from $17 a month per subscriber, which is our Team Edition, all the way up to $195 a month per subscriber for our Unlimited Edition, plus a broad array of add-on products that enhance customer value, our business now has many revenue levers. In addition, each of our service editions and add-on products carry with them different delivery costs, gross margins, operating costs, such as R&D and selling costs. While subscribers remain a component of our growth, they are just a part of a larger business portfolio. And as our business grows and our installed base continues to expand, the subscriber and ASP metrics will continue to become less insightful. It is for this reason that we manage ourselves to revenue and operating profit. That is probably the best way for you to do that as well. Before I continue on with the outlook let me just do one thing here. I misspoke on the quarter. We reported revenues for the second quarter of $118 million, not $111 million. So my apologies. We're up 64% from a year ago quarter and 13% sequentially. Sorry about that. We had a great revenue quarter and it was even greater than I spoke. Let's move on to outlook here and talk about our fiscal third quarter. We now expect revenue for our fiscal third quarter in the range of $126 million to $128 million. Excluding the amortization of purchased intangibles and the impact of stock-based compensation, we now also expect Q3 non-GAAP EPS to be in the range of $0.04 to $0.05. This estimate assumes a non-GAAP tax rate of 45% and a fully diluted share count for the quarter of 121 million shares. For the full year we now believe that strong demand for our products and services will push revenues for our full fiscal year '07 into the range of $488 million to $493 million. Again, on a non-GAAP basis, EPS excluding amortization of purchased intangibles and stock-based compensation expense is now expect to be in the range of $0.19 to $0.21. This estimate assumes a non-GAAP tax rate of 45% and a fully diluted average share count again of 121 million shares. By any measure, Q2 was an excellent quarter. Our financial performance was outstanding, with strong revenue, profit and cash performance. Our customer success was reflected in some of the great wins that Marc discussed, and also in our balance sheet with deferred revenue which for the first time exceeded $200 million. Our delivery performance was again excellent, and we introduced several new and exciting products that position us well for the future. That is why we raised our outlook today, why we remain so bullish about our future as a leading provider of on-demand services that power the business web. Now I would turn the call back over to David Havlek.

Thanks, Steve, and welcome back. We know you all have a lot of questions today following our outstanding second quarter. I can see the call queue is already filling fast. Because we want to get to as many of you as possible, and as a courtesy to others, I ask you limit your inquiries today to a single question area or clarification. If we don't have time to get back to you today on the call, I encourage you to contact Investor Relations directly following today's conference call. I thank you in advance for your cooperation there. With that, let me turn the call back to our operator and open it up to your questions.

(Operator Instructions) Our first question comes from Jason Maynard - Credit Suisse. Jason Maynard - Credit Suisse: Good afternoon, guys. Congratulations on the quarter. Steve, welcome back to Salesforce. As you guys look forward, can you maybe talk a little bit about how you're thinking about balancing your resources across both the large end organizations, as well as some of the very small organizations? How do you allocate whether it is sales or support or partnerships as you attack this multiple segment and customer model?

As you know, one of the approaches of the on-demand model is that it is able to reach small, medium and large customers, because it is built on the Internet, but also because we built our code to scale. So of course, we can run a very large company, like a Cisco or a Merrill or a Symantec with 5,000 to 7,000 and above users, or we could manage a very small company with maybe five users or less. That has been important to us, because in the past with software small companies had to buy one type of technology, medium another, and large another still. As we have grown our business, we always wondered how would that breakout? Because really no enterprise software company before us had this type of an offering, and we didn't know what to expect. Well, as we rolled out our product about one-third of our subscribers were in small companies; approximately one-third of our subscribers were in medium-sized companies; and about one-third of our subscribers were in large companies. That surprised us. But probably the most surprising thing is that now, even after this quarter, that mix really hasn't changed at all. In fact, I just reviewed those numbers last night, and it is still one-third, one-third and one-third. I think that is really one of the most exciting parts of Salesforce.com's business is that it is able to reach any company of any size, anywhere in the world. We think that is a pretty big market to address.

Our next question comes from Rick Sherlund - Goldman Sachs. Rick Sherlund - Goldman Sachs: Thanks. Great quarter. I know you would like to dissuade us from looking too closely at the net new subscribers on a quarterly basis, but that was a pretty big increase. I'm just wondering in terms of setting our own expectations for next quarter, was there something unusual in that number?

There is not anything unusual in that number. We have a number of different editions, as you know, Rick. We have our Team Edition. We have our Professional Edition, Unlimited Edition, our Enterprise Edition. We also have our OEM Edition, and we have our Partner Edition. All of these different products address slightly different markets and different customer requirements. At the end of the quarter we add up all the subscribers that we have sold from all these different editions and that is the number. I mentioned that there is some large customers in there, like Hitachi, who's going from 1,000 subscribers to 2,000; or there is Bear Stearns or a Nokia with the Partner Edition, or a SoftBank. But the reality is that there's a lot of small and medium customers in there too, kind of in reference to my last answer. For us, we believe that all of our products are very attractive to all these different markets, and that it's just the continued acceleration of our business. It really shows up -- and I hate to bring you back to the GAAP numbers, Rick -- to the revenue and the profit and the cash flow, which I think is what is exciting about our business today, and really is the best indication of how we're doing.

Our next question comes from Laura Lederman - William Blair. Laura Lederman - William Blair: Two quick questions. One, can you talk a little bit about competition? Much has been made that competition is increasing. I wanted to know what you guys are seeing. Following up on Rick's question, were there just two deals over 1,000 seats that were added in the quarter, the ones you mentioned earlier? Or was there a greater big deal content? Congratulations on a great quarter. Steve, welcome back.

I think that the competition question is extremely interesting because I had been reading a lot about these new competitors. There is one competitor that I was reading about how they have this new on-demand product. It is a big software company -- and I won't name names here -- I was talking to the reporter, and I said, well, can you tell me what is the URL for their on-demand offering? They said, well, you know, this is a big software company and they are in the Pacific Northwest. They are known as leaders in the software industry. I said, yes, but can you give me the URL, because in the on-demand world the difference between the software world and the on-demand world is we have these URLs. So ours are Salesforce.com and AppExchange.com. What is their URL? They said, oh, I guess they don't have one. I said, well then they probably don't have an on-demand product either. It is kind of amazing to me, because this vendor had announced an on-demand product every year for the last five years in press releases, press tours, demonstrations, but there's no URL. Where's the URL? How do you log on? I think you have to be very careful, because the reality is that in this new on-demand world you have to be able to go to this website. You have to be able to try it out. You have to talk to customers, users and look at the reviews. Talk to the analysts, and see the technology. Also in this new on-demand world the way we report subscribers like we did today, I'm sure you know, when we announced 57,000 increasing to 501,000, these are net numbers. That is this is 57,000 net new subscribers for the quarter. It is not the total subscribers we sold for the quarter, right? This is the subscriber count less attrition for the quarter. So this is our net subscriber number for the quarter and our net customer number for the quarter. Other vendors are reporting gross numbers and comparing them to our net numbers. I think that is something you have to be very careful of in this new competitive environment, where software companies are somehow comparing gross license sales over a five-year period to a net subscriber number reported. Be cautious there. And also be cautious in looking for real products and real technology. Do your own evaluations. I think it is extremely important. Thank you very much.

Our next question comes from Kash Rangan - Merrill Lynch. Kash Rangan - Merrill Lynch: A very nice quarter. I will try and keep it to a two-part question. So briefly, first since you spoke about this small software company based in the Pacific Northwest, let's say hypothetically they are going to be launching a product sometime next year. How do you see the market shaking out? What do you think will be Salesforce.com's specialty niche and differentiation versus the volume model that this company in the Pacific Northwest might likely go after? Secondly to you, Steve, congratulations and welcome back. I wondered if you can give us some metrics on the number of Unlimited subs, OEM subs, Mobile subs and all those subs, just to gauge where the upside of the subs came from. Was it up-sell, or anything along those lines? Thanks.

Thank you, Kash, for that question. Let me just dive in a little bit more deeply in comparing these two strategies. As you know, we have been working now for I think over seven years on building our service. As you also know, it is a multi-tenant shared service. There is really just only one copy of it in our data center, and it is running all of our customers. That is not so unusual in the Internet industry. Of course, eBay has that same model, and Amazon also. In fact we have exactly the same architecture they have. We use similar databases and application servers and fourth generation and third generation languages and so forth. But as we roll out and build our service, we focus on reliability, scalability. I'm sure you have been to our trust site as well. You see how many transactions we deliver every day, the speed of those transactions and so forth. Well with Microsoft, the first thing that they did in 2002 was they announced their CRM offering. They said not only will we have a CRM product that you can buy, but also we will offer a service just like Salesforce. And you can go back and look at the press release in 2002, or I am happy to share with you. To install their product you had to buy SQL Server. You had to buy Active Directory. You had to buy almost every piece of software Microsoft has ever made. It was actually kind of amazing. You had to buy their application server, IIS. You had to buy their security technology, on and on. Customers have had various levels of success integrating it, because it is really a beast. And we have probably seen a lot of blogs, and even things on Microsoft's own website from their own resellers commenting on how difficult it is to install and then upgrade all these different components, keep them in check. If you go and look at the system requirements, it is amazing. It is amazing. Then somehow they said partners could then take that thing and then host it for you. Well, I really don't know one example of that. After five years, I don't know of one customer running in the hosted environment. I'm sure it must exist. It has to. Now I know that there are customers who buy that CD-ROM and jam that stuff into their organization and try to get it running, much like SAP customers do, or Oracle customers do. It is all that stuff still shipped on that CD-ROM, all those different components. All that stuff, all the complexity and cost, ownership costs, that we have been trying to eliminate at Salesforce. At Salesforce we're trying to create a service that is low-cost and easy to use. There's no software to install. There's no hardware to buy. There's nothing to upgrade or nothing to maintain. So we have been very successful with this model, as you know. Yet Microsoft in the last five years, each of the last five years they announced they are going to have the software product and the hosted product, or the on-demand product, or whatever their nomenclature is of the year. But it just has not played out that way. We just don't see it. Where's their on-demand product? I know they have a software product, but where's the on-demand offering? Now they say, well, you know, yes, we made a mistake. We have to rewrite our product. We're going to rewrite it to be a multi-tenant product. Now Marc is right. We need to have a multi-tenant shared service. This is their new line and Steve Ballmer was onstage I think last month or the month before saying, yes, we know, we have to build a new product. And we're going to have it available in 2007. I think that that is interesting. But what is really interesting is what he said next. He said in this piece of software that we're going to write, we will host it and run it, or the partner can host it and run it, or the customer can host it and run it. Now let me just tell you one thing after seven-and-half-years of running this Company, and keeping this product running for our 25,000 customers around the world. This is very different than what I did at Oracle for 13 years. I am running a service, and this is really a whole different game: performance, reliability, scale, availability. Look at our trust site, delivering 50 million transactions a day, 3 billion transactions a quarter. It is a whole different core competency. But not just a whole different core competency on the technology, but also a whole different core competency in the marketing and sales of the product as well. I don't know how -- which is why I left Oracle to begin with -- you take this idea and then implement it using this Microsoft model that Steve Ballmer talked about, where he is going to do it, his partner is going to do it, and his customers going to do it. I will be very impressed when I can go to Microsoft's website, logon to their service, their multi-tenant shared service -- which I can't do today -- also to go to a partner and to go to a customer to see it implemented in this triumvirate somehow. And then to see their trust site with their availability, their transaction volume, speed, and so forth. I can understand why they're upset. We are transforming the industry. That is our job. We're trying to move the industry away from software and toward services. We have partners in that. Companies like Google and Yahoo!, who are building things like email on-demand, spreadsheets on-demand, word processing on-demand. We're part of a larger movement to get companies off of software and on to the Internet. You have to be careful. Because even when Microsoft comes along and says, yes, well I know Salesforce. They reported 57,000 subscribers. But here at Microsoft we reported 50,000 this quarter. So yes, Salesforce did 57,000 but we did 50,000. But did you know that we are reporting net numbers, Microsoft is reporting gross numbers? Do you know what Microsoft's numbers include? Do those include upgrades and updates? If I bought version 1.1 or version 1.2 of Microsoft CRM and then I bought version 3, is that counted again in the 50,000? This is a different business model. This is a different technology model. To make those analogies, I don't completely understand it. And I really don't understand how they are going to get this strategy to work, which is why it is not at all. Which is why if you want Microsoft CRM, and you want to get a CD-ROM, and you want to get SQL Server, and you want to get IIS, and you want to get Active Directory, and you want to get the Kerberos authentication, you want to get all these things and install them, God help you. Because the complexity that they have brought to this market is unparalleled to anything they have ever done before. Compared to us, where it is just logging on and getting going with Salesforce.com. I think that is very much how I see the market changing, and how we see our position in the market today, highly differentiated and with an unparalleled level of customer success. Thanks very much for the question.

Our next question comes from Thomas Ernst - Deutsche Bank. Thomas Ernst - Deutsche Bank: Good afternoon, thank you. Marc and Steve, you mentioned a number of times in your talk about the traction you're getting with Unlimited. Give us a sense for the penetration there. How many of your subscribers, approximately, of the 500,000 are on this product? What is the catalyst today? Is it AppExchange? Is it the Sandbox mobile product? Thinking the next step forward, is your Salesforce evangelizing AppExchange here yet, and is that driving Unlimited sales, or is that yet to come?

Thank you very much for the question. I really appreciate it. Part of our strategy here at Salesforce is the continuous and really unparalleled innovation. As you know, we have released 20 versions of our product in the last seven years, and we're working on more. We also have lots of new products and new technologies. Some that we have acquired like you mentioned, like our new AppExchange Mobile, which allows you to take an AppExchange application and run it on a Blackberry or a Windows CE device, or a Symbian device, or really any mobile capability. Some of it we have built ourselves, like our Sandbox technology that you mentioned. We found that customers were coming to us and asking us, how can I take advantage of all these great new offerings you have: AppExchange, Mobile, Unlimited, et cetera? We saw a business opportunity for ourselves to move beyond what we had at the time called Enterprise Edition, which was $125 a user a month, which was our retail price, and to offer a new bundled offering called Unlimited Edition, which was $195 per user per month. And to bundle in all these new capabilities: AppExchange capabilities, the Mobile capabilities, and also the Sandbox and support capabilities. That has been received very, very well. Of course, it is still an early product. It has only been available for a few months, but we are very optimistic about our customers and how they are approaching this product. We think it will be an exciting part of our future, and also really represents the ability for us to sell this bundled offering. Thank you very much for the question.

Our next question comes from Brendan Barnicle - Pacific Crest Securities. Brendan Barnicle - Pacific Crest Securities: Thank you. I was hoping to follow-up on AppExchange. I was interested which applications are seeing the most traction and the most appeal, and which you see potentially as being the biggest growth and most successful on AppExchange?

We see a lot of action on the AppExchange. You probably know we are seeing a lot of new applications emerging there every month. We also see a lot of new applications coming along as well that have not yet been posted. If you want to know what the most popular are, the computer itself is actually reporting that. You can go to AppExchange.com, and you will see a list of the most popular applications -- that is put together by the system, not by us -- as well as new postings that happen every week. I recommend that you go there on a frequent basis to see the action. It is a wide variety of things that are emerging on the AppExchange. It could be components. I'm sure you probably know there's something called Adoption Dashboards that are very popular on the AppExchange. This is a component. We built it. We published it. Customers pull it down, a couple of sets of dashboards and reports. It could also AppExchange applications like Vertical Response, a company a few blocks from here who sells an email marketing product; very popular, very easy to use. Or a product like project and issue management. Project management is a hot category on the AppExchange. We have a little application that we have built as a prototype that customers are taking and modifying and customizing. There's also some commercial software available, including one called DreamTeam. There's other ones as well. There's even a new one called Prodigy. All these things are just kind of emerging. If you had asked me six months ago what would be popular on the AppExchange, I wouldn't really know what to tell you. Today we see the AppExchange emerging all over the world as an exciting new metaphor for how software can be built, distributed and sold to customers. One of the exciting things about AppExchange is that our partners get to first of all use our infrastructure to build their applications; use our data centers and our databases and our application servers. The second thing they get to do is they get to use our distribution network through the directory. I'm sure you have heard a lot of these AppExchange partners of ours who are out there closing a lot of deals because we give them the distribution capability. The third thing we give them is this customer infrastructure, 25,000 customers ready to buy. It is not a surprise to me that these nine AppExchange ISVs just closed $100 million in venture capital, because there is a lot of action out there and a lot of them are starting up without any capital at all. There just bootstrapping. We're really excited about the potential. We still think it is very early days. You're going to see some exciting announcements around AppExchange at DreamForce. We have learned a lot since we first announced it and it hasn't even been a year. I think is been ten months since I first even mentioned the word AppExchange to the market. No one had ever heard of a directory of enterprise applications running on a consistent platform. It is also very differentiated from our competitors. It really shows that Salesforce has evolved past just CRM. You can build your own tabs, build your own fields, add components. You can save your components to the AppExchange. You can share modules with other customers. None of our competitors have anything like this. It has really become our primary differentiation, in concert with our dramatic customization capability, and our very deep integration offering. Of course, AppExchange takes advantage of the customization and integration. As we move into a world of match-ups and all these other new technologies, AppExchange is really well poised to show how the future of software looks. We couldn't be more delighted with the progress so far. Thanks so much for that question. I really appreciate it.

Our next question comes from Brent Thill - Citigroup. Brent Thill - Citigroup: There was some concern in the quarter over pricing promotions. Obviously, it didn't impact ASP, but can you talk about the uptake rate that you saw with the promotions for the subs in this quarter?

Thank you very much for that question. As you know, we operate in a lot of different markets. I think I mentioned that today. We have small business that we promote to and sell to and distribute to, medium business and large business. Because we're in so many different segments in so many different geographies around the world, it is important for us to be able to market and sell to these different segments in the ways that they expect us to market and sell to them. You may see us do various promotions or programs or pricing events, addressing some specific niche that we're in. It really, as you can see from the numbers, doesn't necessarily impact one part of the business or another part of the business. It is really about growing the total business. We want to grow, as I mentioned earlier, all three segments, small, medium and large with equanimity, just as we have been doing. These promotions are just part of our standard business as usual that we have always done. I saw, like you did, some activity around that and I was honestly surprised, because it is does something we have always done in that part of the market that expects that type of an offering to create the direct response. It is nothing less than, for example, you might open up your Sunday newspaper and you take out the supplement on Dell's computers. You know it is going to be there. You expect it, if you are a consumer buyer, that is where to go. If you are a small business buyer you're going to be motivated by that type of an offering. But we really want to grow all three segments with equanimity and we are doing everything we can to grow our business accordingly.

Our next question comes from Peter Goldmacher - Cowen. Peter Goldmacher - Cowen: It sounds like business is really firing on all cylinders in a different number of different markets segments and also different products, not just the core products, but the ancillary OEM and partner products. Can you walk me through your thinking on as the business gets more complex you're trying to get The Street to focus on fewer metrics? And exactly why are you unwilling to give us a little more detail beyond just subscribers, but actually down into the product segment?

Well thank you, Peter, for that question. As you know, Salesforce.com is evolving as a Company. As I mentioned, no numbers are more important than our GAAP numbers. We really believe that. Of course those GAAP numbers are looking really great, especially with these quarters' results. There's another set of numbers that are also very important, and I know that you pay attention to them, and those are the numbers at trust.salesforce.com. Those are our reliability numbers and our transaction volumes and our performance numbers. Those indicate usage, and how many pages we're delivering every day, the number of API calls that are being made. There's other numbers that we make available, the number of applications on the AppExchange, the number of ISVs that are available. These are important metrics as well. And of course, the subscriber number. But there has been kind of an incredible focus only on the subscriber number, even though it is really just a part of a portfolio of numbers. The only numbers that are ultimately critical are the GAAP numbers. We really want to start focusing even more on that. We understand we have an evolving business. We went to give you as much transparency into our business as possible. We believe that we give you more transparency than any other enterprise software vendor. Certainly our trust page is an indication of that. I think we're even one of the only software companies in the world to report net subscribers numbers. As far as I know, I don't know of any other publicly-traded enterprise software company that gives net subscribers number by quarter. I think even Siebel now has stopped doing that since they become part of Oracle. We believe that we're really leading the edge, and we want to be the most transparent software company today, and we believe that we are. Thank you for the question.

Our next question comes from Michael Huang - Think Equity. Michael Huang - Think Equity: Can you comment on the quality of your sales reps and what of type of upgrades you're making in advance of a broadening platform proposition?

Of course, we are a direct sales company, as you know. We do not really sell through a channel per se, except for our OEM Edition, which is a new offering for us. The vast majority of our sales are conducted and concluded by our worldwide direct sales organization. It is an important part of our Company. We've always believed that is important for us to control our own channel, not just our people, but also AppExchange as well, as an example of that. We have continued to grow and invest in our direct sales organization around the world. We have done that with equanimity. We have different types of salespeople that are depending on what type of market we are selling to. They are highly segmented and they are structured by geography and by business type. In each one of those areas it requires a slightly different type of salesperson and so it is hard to make a broader statement around the specific type of sales quality, except that it is important for all of our salespeople to make their quota and we encourage them to do that. Thank you very much for the question.

Our final question comes from Mark Murphy - First Albany. Mark Murphy - First Albany: Thank you. Mathematically this would appear to be one of the stronger large deal quarters that you have had in about a year, if we just take a look at 27 subscribers per customer that you added during the quarter. First off, is that a fair assessment or not? Also, at this point should we still be expecting to see this normal ebb and flow of large deals quarter to quarter, or is it possible that you are starting to see a more repeatable benefit from the improved up time and transaction speeds that could potentially make customers more comfortable with large deployments?

Thank you very much for that question. I appreciate it very much. First of all, it has been another great quarter for reliability and uptime at Salesforce.com. You can see that at trust.salesforce.com. But you can also hear that directly from the customers themselves, who are receiving more transactions faster from us than ever before. We have been investing very significantly to make sure customers have that experience and you have seen those investments over the last several quarters. Large customers, of course, demand that, but I have to tell you, small customers demand it as well. Because when it comes to delivering high quality performance there really is no finish line at Salesforce.com. We believe this is really the heart of our business and it is that level of performance and transparency that is key for us. I would want to say that of course we do have a lot of large customers on Salesforce. That has been something that has been very important to me personally. I believe that is going to continue to increase. Our largest customer today is Cisco Systems with 7,500 subscribers, but we have many other large customers on our system and many of those larger customers are getting larger. We expect, hopefully shortly, it hasn't happened yet, to have our first 10,000 subscriber customer. It would be a delight to me to be able to report that at some point. That is a personal dream I have and a goal that I have for the Company. But just as I want larger and larger customers, because that is strategic, it is also important for us to have small customers, lots of small customers. We want to have medium customers, like your Company, for example, and others. We think that is so important for us. You guys are a great example of the mid-market customer. We want to have that experience. I can't tell you that we're trying to focus on any one particular segment, because we're not. We have done a good job of growing all segments with equanimity, and we want to continue to do that. That is what our numbers demonstrate and nothing else.

Thank you. Mr. Havlek, please proceed with your closing remarks.

Thank you very much everybody for joining us today. As I mentioned earlier, please do contact Investor Relations with follow-ups. We encourage you all as well to look forward to the DreamForce conference which Marc mentioned, October 8 through 11. You will be receiving invitations here shortly, but I encourage you to go out and register now on our website as well. With that, we will go ahead and conclude our call. We will look forward to catching up with you next quarter.

Thank you. This concludes the Salesforce.com second quarter fiscal year 2007 financial results conference call. You may now disconnect.