David Havlek - Investor Relations Marc Benioff - Chief Executive Officer Graham V. Smith - Chief Financial Officer

Tom Ernst - Deutsche Bank Securities Kash Rangan - Merrill Lynch Brendan Barnicle - Pacific Crest Securities Laura Lederman - William Blair & Company Keith Weiss for Adam Holt - Morgan Stanley Karl Keirstead - Kaufman Bros. Sarah Friar - Goldman Sachs Philip Rueppel - Wells Fargo Securities Mark Murphy - Piper Jaffray Robert Breza - RBC Capital Markets Philip Winslow - Credit Suisse

At this time I would like to welcome everyone to the Salesforce.com Q2 fiscal year 2010 financial results conference call. (Operator Instructions) I will now turn the call over to David Havlek, Vice President of Investor Relations.

Welcome everyone to today's call. Joining me today from San Francisco headquarters to discuss our second quarter fiscal year 2010 results are Chairman and Chief Executive, Marc Benioff, and Graham Smith, our Chief Financial Officer. A full disclosure of our second quarter results can be found in a press release issued about an hour ago as well as in our Form 8-K filed with the SEC. Additional financial information, including historical financial detail beyond what is provided in the press release will be made available following today's call as well. Today's call is being live Web cast. A dial-in replay will be available shortly following the conclusion of the call until September 10, 2009, and a Web cast replay will be made available for approximately 90 days. To access the press release, the additional financial detail, the Web cast replay, or any of our SEC disclosures, or simply to learn more about Salesforce.com, I encourage you to visit our Investor Relations Web site at Salesforce.com/Investor. All of our financial commentary today will be in GAAP terms unless otherwise stated. In addition, at times in our prepared comments or in response to your questions, we may offer certain metrics about our business or our quarterly results. Please be advised that we may or may not update these metrics on future calls. Let me make this call official with a quick brief Safe Harbor. The primary purpose of today's call is to provide you with information regarding our second quarter fiscal year 2010 performance. However, some of our discussion or responses to your questions may contain certain forward-looking statements. 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. All of 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 SEC, including our most recent Form 10-Q, particularly under the heading Risk Factors. Please also be reminded that any unreleased services or features referenced in today's discussion or in 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 on features that are currently available. Following some of our brief comments today from Marc and Graham we will open to accept your questions. Because we have plenty of analysts in our call queue and as a courtesy to others, I ask that you please limit yourself to one question. Thanks in advance for your cooperation and with that, let me turn things over to Marc.

I am pleased to report Salesforce.com's second quarter financial results. Revenue was approximately $316.0 million, an increase of 20% from a year ago. Salesforce.com remains the very fastest-growing software company of its size in the world today. GAAP earnings per share was $0.17, an increase of more than 110% from a year ago. That's more earnings than we achieved in all of fiscal 2008 and our first half earnings per share of $0.32 is nearly equal to what we achieved all of last year. Operating cash flow was $46.0 million for the quarter, translating into roughly $0.36 per share of cash generation. And I am very excited to say we have achieved another milestone this quarter by exceeding the $1.0 billion mark for cash and marketable securities. That translates into more than $8.00 per share of cash and equivalents. Powering all of this financial success was another very solid quarter of customer success. During the second quarter we added approximately 3,900 net new paying customers, matching the pace we saw in the first quarter. Over the past 12 months we've added nearly 16,000 net new customers, to bring our total global community of customers to more than 63,000. This represents a year-over-year increase of 32% and positions us well for future growth. Let's take a look at some of our major wins this quarter. Highlighting our second quarter were three marquee transactions. First, I am thrilled to announce that another leading insurance broker and risk management company, Marsh, has selected Salesforce.com for sales and marketing automation in a win against Oracle and Microsoft. Marsh is driving higher employee productivity and greater customer satisfaction by fully integrating their Salesforce.com CRM and third-party news feeds and account contact information. With an initial deployment of roughly 2,500 subscribers, Marsh plans to grow their Salesforce.com deployment to over 10,000. Insurance has become the second pillar of our success in financial services. Marsh joins a long list of insurance brokers and providers using Salesforce.com, including Aeon, A. J. Gallagher, Allianz, AIG, Lincoln, Liberty Mutual, Chubb, and as we announced last quarter, Japan's leader, Sampo. Our tremendous success in Japan continued in the second quarter with a huge win at the Japanese government's Ministry of Economy, Trade and Industry [METI]. Salesforce.com is being used by the Japanese government to implement the nationwide eco-point program. Consumers get points for buying eco-friendly appliances and receive credits that they can use towards future purchases. Built on our new Force.com site service in just three weeks this new application is expected to serve more than 8.0 million consumers. METI joins a long list of Japanese customers using Salesforce.com, including the Japan Post, MTT, Mizuho, Canon, Shinsa Bank, Hatachi, and as I mentioned, Sampo. And finally, I am excited to welcome back Success Factors to the Salesforce.com family. Success Factors dropped Oracle On Demand after the application failed to deliver and sales reps pleaded to return to Salesforce. When sales teams are demanding your application to support their own success, you know that you've got a superior service and certainly that was a factor. Success Factor joins a long list of customers who failed with Oracle On Demand and then signed with Salesforce.com, including Motorola, Axion, Sun Power, GTSI, Xerox, and Barclays. And really, that's just to name a few that have switched off of Oracle service. Overall, our win rate against Oracle, both in service and in software continues to be very strong. In addition to the Marsh and Success Factor deals I just mentioned, we won large deployments in the second quarter against Oracle at Comcast, Thompson Reuters, NCR, AT&T, Abbot, Waste Management, Capital One Services, BBVA, Bancomar, the Frank Russell Company, and Developers Diversified Real Estate. We also continue to be successful against Microsoft with head-to-head wins at Fujitsu, Progressive Media, Fain Capital, Reid Exhibitions, Gannett Supply, Saveology, and Etech. And while we are seeing SAP quite a bit less these days in the CRM marketplace overall, we recorded solid wins against them at Cardinal Health, Thomas Cook, and Winovo. As most of you know, our enterprise cloud computing strategy today consists of three main businesses: the Sales Cloud, which includes our core sales force and marketing automation services; the Service Cloud, our solution for customer service and support call centers and self-service Web portals; and the Custom Cloud, our Force.com cloud platform for developing and running custom applications. Our Sales Cloud was once again recognized as a leader in Gartner's Magic Quadrant for Sales Force Automation. In fact, we dramatically extended our leadership of both vision and ability to execute. And for the very first time, we have put ourselves in the very highest top of the upper-right-most position, higher than all other vendors in the leader quadrant. And while our Sales Cloud continues to be our flagship product, our Service and Custom Cloud businesses are both delivering impressive growth as well. In Q2 our Service Cloud and Custom Cloud services once again represented more than 25% of new business signings. The Service Cloud logged another record quarter in Q2 with business in the quarter up more than 175% from the year ago. The Service Cloud let companies join the conversation where the consumer is: phone, chat, email, or increasingly on social networks like Facebook and Twitter. There is no better way to run customer service and build enduring relationships than in Salesforce.com's Service Cloud. The Custom Cloud got a big boost in the second quarter when Force.com Sites went live. Force.com Sites gives our customers around the world the ability to share any kind of data or application in real time with anyone, directly, on the Web, as a Web site, or as a portal, or an Internet site. And it's deeply integrated with our core services. More than 500 customers, as I mentioned, including METI, are already using Force.com Sites and we have served up more than 20.0 million pages since we unveiled it at Dreamforce last fall. Force.com Sites is an exciting new and very differentiating capability for Force.com as well as our Sales and Service Clouds. In all, customers have now created more than 123,000 custom applications on the Force.com Cloud Platform. For customers, the benefits are clear. The Force.com Platform lets them develop apps five times faster, and at half the cost, of traditional platforms. For Salesforce.com the benefits are also clear. Customers who build and customize on our platform tend to have the highest levels of loyalty and adoption. That is a key reason why we announced Force.com free edition during the quarter. We told our customers, "Your first app is on us." And customers have responded with an amazing 8,000 sign up since launch. Crescent Health Care is using Force.com to develop seven custom applications on our platform to monitor key aspects of patient care, from intake through pharmacy needs. Chicago's Rasmussen College, building on their success with the Service Cloud, is using Force.com to develop a custom app for a student enrollment portal, which cuts a three-week paper-driven process down to a couple of days. And finally, we recently invested in Practice Fusion, which you can find at PracticeFusion.com, enabling them to port their electronic medical records system to the Force.com platform. During the quarter we also continued to make important investments in the Force.com Cloud infrastructure. First, I am thrilled to announce that our Singapore data center is now online and fully operational. Together, with our two data centers here in the United States, we now have three global production data centers with complete data mirroring. Second, I am also excited to report that our transition from proprietary Unix servers to open, standard Dell servers, is yielding some pretty amazing efficiency improvements. Today all of our application servers and roughly half of our data base servers are now running on Dell, and they are delivering price performance improvements of roughly 20x versus our previously-installed Sun Solaris servers. It's incredible what Dell is doing for us today. And, even as we are making these improvements to our data center, we still managed to deliver our best up-time performance in our history: 99.997% planned availability, which you can track at Trust.Salesforce.com. We believe this performance sets the standard for the cloud computing industry and I would like to congratulate all of our technology teams here at Salesforce for making the Force.com data center infrastructure a key competitive advantage. And, customers are putting that infrastructure to good use. During the quarter we delivered some pretty amazing numbers: 15.0 billion customer transactions, up 30% from a year ago; sub-300 millisecond response time for the third quarter in a row; 81.0 million lines of Apex code; and 312,000 custom Visual Force pages, both up ten-fold from last year. And our customers have now built an amazing 576,000 custom data base objects and 245,000 custom work role rules; both roughly doubled last year. That's simply amazing growth in Force.com, which is really setting the stage for what cloud computing application development and deployment is all about. It's really taking platform-as-a-service to a new level and now with these statistics we can see the tremendous adoption by our customers of this important and strategic technology. During the second quarter, we continued to take our cloud computing message around the world with more than 150 events, from Singapore to Seattle, reaching more than 20,000 attendees. And at virtually every stop throughout the globe, at user events in Europe and Asia and here in the U.S., customers continue to tell us that they losing patience with their high-maintenance, low-return, inflexible, and out-dated enterprise applications and platforms. That's one reason why we plan to turn up the volume with a series of announcements this fall, leading up to Dreamforce. For those of you in our West Coast analyst community, please join us for a special event on Wednesday, September 9, where we will be announcing a major new Salesforce.com service. Contact David Havlek to reserve your seat now for this important announcement on September 9. And if you haven't already done so, please mark your calendars now for Dreamforce 2009 from November 17 to November 20 here in San Francisco. We're expecting more than 10,000 attendees at what will be our biggest and most exciting Dreamforce event ever. And we have some tremendous, exciting, and amazing new surprised for you there. As we all look forward to the economic recovery to come, each business has to ask, "Do we want to spend the next five years creating better products, delivering better service, selling more, having higher productivity, being more successful and delighting our customers, or do we want to buy more software from Oracle, SAP, and Microsoft?" Salesforce.com's vision of enterprise cloud computing offers the lowest risk, lowest cost, and fastest results to help every type of business thrive in the months and years ahead. That's why our growth continues to outpace the software market and why we were able to deliver such a solid quarter. Now, let me turn it over to Graham. Graham V. Smith: Execution and tight control, together with a somewhat stabilizing [inaudible] environment, allowed us to record excellent financial results in Q2. With strong revenue, earnings, and cash performance, our second quarter also continued to demonstrate the resilience and the inherent leverage in our recurring revenue business model. Let me begin with a brief review of the P&L. As Marc noted, revenue for the second quarter was $316.0 million. Reported growth was 20% but in constant currency terms it was two points higher, at approximately 22%. Revenue was a bit higher than our projection entering the quarter primarily because a slightly better linearity and a weakening U.S. dollar. Subscription and support revenue rose by 22% year-over-year, to roughly $293.0 million, while our professional services business declined by 3% to $23.0 million. International revenue accounted for approximately 28% of revenue, unchanged from Q1. America's revenue was $226.0 million, a year-over-year increase of 20%. In Europe, Q2 revenue was $56.0 million, a growth rate of 13%. However, in constant currency terms, Europe grew 28% after allowing for roughly a 15-point currency headwind. Second quarter revenue for Asia was $34.0 million. That's an increase of 35% but we did get a benefit from a weaker dollar versus the yen as constant currency growth was 27%. Our overall attrition rate, as measured in dollars, ticked up again in Q2 and is now in the high teens but remains within the planning assumptions that we've used from the start of the fiscal year. The trends we've seen over the past few quarters continues, with most of the attrition increase in our SMB accounts, rather than in our enterprise accounts, where attrition has remained relatively stable. It is also important to note that when we talk about attrition rates, we are not including any add-on or upgrade activity that takes place within an account. We're simply comparing a set of contracts from a year ago to the same contracts in the current quarter. I make this distinction because we can't add on an upgrade activity with our install base as new business, which I will touch on later. Gross margin for the quarter was 80%. That's flat with Q1 but up almost a point from a year ago, primarily because of a mix shift toward subscription and support revenues. GAAP operating rev margin was just over 9% for the quarter. That's down a bit from Q1 but up more than 300 basis points from Q2 of last year. Year-to-date we are well ahead of the 250 basis point improvement target we set at the beginning of the year and that's helping to drive higher earnings. Stock-based compensation was roughly $21.0 million, or 7% of revenue, for the quarter. Excluding that expense, our operating margin was roughly 16%. During the second quarter we continued to apply strong headcount and cost controls. We added 46 people in key areas across the company to bring total global headcount to roughly 3,650 people. During the first half of fiscal 2010 we added less than 100 people, so this is more than 400 than we added in the first half of last year. We believe the capacity we've added over the past 18 months positions us well for growth when the demand environment improves. Our tax rate for the second quarter was 39%, roughly four points lower than we projected entering the quarter, as a result improving profitability in Europe. And that benefit of the reduction versus our expectation was to improve GAAP EPS by $0.01. GAAP EPS for Q2 was $0.17. That's more than double the $0.08 we reported a year ago. Our reported GAAP EPS result includes amortization of purchase intangibles expense of roughly $2.2 million and also includes the roughly $21.0 million in stock compensation I just mentioned. Fully diluted shares outstanding were approximately 126.5 million for the quarter. We were particularly pleased with second quarter operating cash flow of approximately $46.0 million. First, as we mentioned on our last call, we collected $20.0 million in Q1 that would normally have dropped into Q2 so we started the quarter with a bit of a deficit on the collection side. And second, we made estimated income tax payments of $17.0 million in Q2 versus just $1.0 million in the second quarter last year. Capital spending for the second quarter was roughly $19.0 million, mostly related to leasehold improvements and capitalized software purchases to support our business. We expect capex to be flat to down in Q3. Free cash flow, defined as operating cash less capital spending, was roughly $27.0 million, or roughly $0.27 per share. For the first half, free cash flow of roughly $112.0 million translates into approximately $0.88 per share. Our strong cash generation pushed total cash and marketable securities on the balance sheet to more than $1.0 billion for the first time in our history. Over the past 12 months we have added more than $200.0 million to this account and on a per share basis we now have over $8.00 a share of cash and marketable securities. Having shown liquidity in challenging times is a huge asset to our customers and our employees and to our shareholders. Receivables increase by just under $23.0 million in from last quarter. We continue to execute really well in the collections area. Our aging is in great shape and our second quarter DSO was at 49 days, a reduction of 2 days from a year ago. Total deferred revenue increased by approximately 14% from a year ago and was flat sequentially to finish the quarter at $549.0 million. This result included a currency benefit of roughly $6.0 million from Q1 and a headwind of roughly $7.5 million from Q2 a year ago. As we have discussed in the past, because of the quarterly invoicing variability, driven by new business seasonality across the quarters, deferred revenue follows a cyclical pattern of a large increase in the fourth quarter, a significant decrease in the first quarter, and relatively flat or slightly downward movements in the second and third quarters. So our second quarter deferred revenue result was in line with this pattern, which we expect to continue. Last quarter we discussed three factors that affected our new business. And all three factors were present in Q2: first, along the sales cycles across most of our business as customers are delaying purchase decision; second, smaller initial deployment sizes as customers move ahead with cloud computing but balance the benefits of innovation with tight financial constraints; and third, customers are not adding subscribers or upgrading their service levels at the same rate that they have in the past as they look to control their expenses. However, new business in Q2 was generally in line with our expectations entering the quarter so we feel the level of predictability improved versus Q1. And as Marc noted, we added 3,900 net new customers. This is really encouraging as it gives us confidence that our competitive value proposition continues to be strong and will hopefully provide additional future business opportunity as the IT spending environment improves. Let me close with our outlook. While we are encouraged by some signs of demand stabilization and by our execution in Q2, a second half outlook sees no change in the IT spending environment. We are not expecting better or worse, just more of the same. From a foreign exchange point of view, the dollar has weakened 2% to 3% since we gave full year guidance three months ago. With that concept, we now expect fiscal year 2010 revenue in the range of $1.27 billion to $1.28 billion. That's up from our prior guidance of $1.25 billion to $1.27 billion. And GAAP EPS of approximately $0.60 to $0.61. That's an increase of $0.01 on the range. Our 2010 GAAP EPS also includes the following assumptions: approximately $86.0 million of stock-based compensation; approximately $9.3 million of expense related to the amortization of purchased intangibles for previously announced acquisitions; a GAAP tax rate of 42%; and approximately 127.0 million average fully-diluted shares outstanding. More immediately, we expect revenue for our third fiscal quarter to be in the range of $323.0 million to $324.0 million. We anticipate hiring a few more people in Q3 than we did in Q2 and therefore expect expense growth to be a little higher. We project third quarter GAAP earnings per share to be approximately $0.15 to $0.16. this estimate includes the following assumptions: roughly $20.0 million of stock-based compensation expense; approximately $2.2 million of expense related to the amortization of purchased intangibles; GAAP tax rate of 42%; and an expected average fully-diluted share count of approximately 127.0 million shares. On the cash front, after a strong first half performance, we now expect operating cash flow to grow this fiscal year. This is in spite of the cash taxes headwind we are experiencing due to the fact that we have now brought all our federal tax loss carry forward. We expect that deferred revenue will be slightly down in Q3. That's from the Q2 level. I would also like to remind everybody that our Dreamforce global gathering at the end of Q4 will have a significant impact on earnings in that quarter, which is why we are projecting a sequentially down GAAP EPS number in the fourth quarter. So to close, Q2 was a very solid quarter. We executed well, delivered a very good financial quarter, have raised our outlook for the full year. I look forward to discussing our Q3 results with you in late November and I am now going to turn the call back to the operator so we can take your questions.

(Operator Instructions) Your first question comes from Tom Ernst - Deutsche Bank Securities. Tom Ernst - Deutsche Bank Securities: Marc, not that you ever speak softly about the competitive situation, but your commentary on the customer wins and the take-backs from some of the competition seemed even more emphatic than typical. I am curious, given the commentary out of the competitors, citing their increased competitiveness, what are you actually seeing in terms of competitive win rates? Have there been any shifting and specifically if you can talk as well, because they are focusing us, as investors, on their willingness to price compete. What's been happening to your price umbrella? Are you still able to get as big a premium, bigger premium, in terms of pricing?

I think at the top level you really have to look at the numbers. That's the number one thing. And we've added 16,000 net new customers in the last year during this "competitive situation" to bring our total customers to more than 63,000. I don't know how many customers these competitors have because they won't say. They won't say how many net subscribers they have. They won't say their revenue levels; their growth rates. And so from a competitive standpoint to you, they are making these broad generalizations without the facts. Where are the numbers? And specific to that point, where is the quality of service? We see over and over again that customers may in fact sign with a competitor because of a "low price" or something like that. Of course, that's true in every industry. But time and time again we see those customers come back to us. And as I mentioned, specifically in this quarter, one of their biggest most visible marquee customers said the product didn't work. And not just them, but many of those customers say the product doesn't work, that it stops, the reliability isn't there. Of course, we don't know any of things because there's no transparency. There is no Trust site for any of these competitors. There are no performance benchmarks; it's all kind of strange hearsay. So we've been sending video crews around the country and around the world, and it's been very powerful to get all of these customers to be making all these comments and we just roll these videos for these prospects and it's very impressive. Believe me, when they're sitting there and they're saying this competitor said this or they said that and then when it actually turned out, oh, they only have one data center. Actually their analytics are on premise. Oh, their disaster recovery strategy is that you buy a server and you put it behind your firewall. Oh, the system just stopped for three days and we couldn't use the report writer for two weeks. And that's the competitive situation is that we have a great product, we have a high quality of service, we have transparency in our numbers and on our product, but occasionally customers are fooled or they think that it's some kind of a commodity service and so they're going with a low price until they find out something very, very different by looking at what we can do in sales, or in the Service Cloud, where we have a tremendous lead in market share now, as well as in the Custom Cloud where none of these competitors even have the concept of a platform. Where we're running, as I've mentioned now, the millions of lines of code on our servers, the Visual Force pages, the sites pages. This is part of any competitor's strategy. So at the end of the day, we have strong technology differentiation. We have customers with marquee names who speak very, very strongly about the poor quality of our competitors' services and why they had to move to us, and no one is more successful in the enterprise marketplace than our customers with the success. So that's really how I look at it right now. Graham V. Smith: Just to be full out specific, we didn't see any material change in our price to seat this quarter versus other quarters in the last couple of years.

Your next question comes from Kash Rangan - Merrill Lynch. Kash Rangan - Merrill Lynch: I suppose I will not ask a question on the competition, but Marc, I'm curious, on the last quarter you mentioned that new business bookings dipped a little slightly compared to your earlier quarter and I was wondering, maybe not so much to quantify it, but are you seeing that rate of change get a little bit better because nobody is calling for a big turn or anything but directionally any sort of improvement you're seeing on the new business side. And also, tertiary question, if you have the time to talk about it at all, I was wondering how you are planning to staff up and grow the customers support business. We all, I think, remember that before Ciebal sold themselves to Oracle they probably had a larger business in customer support, a larger install base and when I look at your business certainly it's a much smaller portion of your revenue stream. And in some sense it could be an opportunity, I'm just wondering if I could get your thoughts on that aspect of your growth strategy as well.

Let me take that second question first, which is that we really see this kind of very strong product strategy that we have in our three clouds: our Sales Cloud, which is our Marqui Sales Force Automation Service; this essentially great new business that we have which is our Service Cloud and you are going to see us make some very exciting announcements around that product between now and Dreamforce and we have some great new technology that we have built. A lot of these call centers and contact centers are really old and their software is really old and their cost structures are completely out of date and they need to get revised and that's why we saw such tremendous growth with so many customers; and the platform. You know, we're seeing this platform strategy pay off where you see deals like METI, which is a tremendous win in the Japanese government. And in so many others, as you know, custom applications appealing throughout all of our customers really. So that's I think the product strategy. There are three pillars to the stool and it's really holding together. And of course, it's all the same integrated code, also. It's not three different servers or three different pieces of software or three different CDs. That part's very different about our business. This is one integrated service that lets you run all of your sales, all of your service, all of your customer portals, all of your custom applications, all out of the same environment. Now, in response to your first question, as you know, since we've been public we really do not like to profile bookings on a quarter-to-quarter basis and I before I answer this question I really want to reiterate that we don't intend to give an update on bookings every quarter. It's not good for us and it's not good for you because things can have different changes and different flavors. So really in the first quarter we indicated that we expected new business for the full year to be flat to slightly down year-over-year. If you remember, that's what I said on the call. And at the halfway point for this year, we continue to believe that this is really the case. And if we see a material change, I am going to update you on that. But we didn't really see anything materially different in the second quarter. So I hope that answers the question.

Your next question comes from Brendan Barnicle - Pacific Crest Securities. Brendan Barnicle - Pacific Crest Securities: Marc, just following up a little bit on that bookings question, in the past you've given us a little bit of a breakdown of Force.com and some of the non-CRM products in the bookings category since we haven't seen it yet materially in the revenue category. I was wondering if you could give us a quick update there. And also a quick update on what's going on in the channel as it relates to Force.com. Graham V. Smith: I'll just jump in and take the first one. We saw in Q2 a similar level of success with both the Custom Cloud and the Service Cloud. They were approximately 25% of our new business in the quarter. So that's been a pretty similar trend to what it's been the last few quarters, so we're very happy, particularly Service Cloud was very strong in Q2 so we're happy with the way those newer products are going.

In regards to Service Cloud, it's been over a year now since we bought InStranet and that really was the catalyst for us to really gain a new level of confidence in customer service and support and knowledge base. And a lot of that technology has come online, as you know, and more of it will be coming online and we expect to continue to make that product even more competitive and more outstanding. And the Service Cloud did lob another great quarter in the second quarter with new business in the quarter up more than 175% from a year ago. We see that as a huge multi-billion marketplace that we're now participating in fully. Our sales people really have a lot of confidence in selling that product. We have the technical credibility, the success stories. And then in the platform, on the Custom side, we continue to see strong support with these customers building all kinds of really exciting applications. We have talked about so many of those applications, whether it was the huge win that we had at Avon, the Japan Post, and now we are going to start talking about METI, which is a huge government agency in Japan that's building this application entirely on the platform. Obviously they don't have a sales force at the Ministry of Technology in Japan, that they need requirements to manage their information and share their information in a much lower cost, much lower risk, and in a much easier way than the way they've traditionally done it. And they're using Force.com. And I think by the time we get to Dreamforce and as you talk to our customers at Dreamforce, which I know you're going to do, I think it will be hard to find a customer who's not working with and planning to deploy serious Force.com applications.

Your next question comes from Laura Lederman - William Blair & Company. Laura Lederman - William Blair & Company: I would like to follow up on the turn and you mentioned the small business, small business failures, firing people, give a sense of what's happening there. And also on the subject of hearsay, and what Oracle says; they're talking about having won NetApp and McAfee away from you. I wanted to know what happened there. And if you look at the pipeline going into Q3 for big deals, does the pipeline in general for big deals look better than it did for Q2? Graham V. Smith: I will take the first one. Yes, we saw another similar kind of small uptick in attrition. As I mentioned, it's within what we assumed at the beginning of the year, so we felt good about our planning assumptions. I think roughly, very rough analysis, sort of 50% of the attrition is coming from churn in the actual accounts, where customers are, particularly these smaller accounts, smaller customers, are going out of business. And then certainly the other roughly half is coming from customers reducing the level of subscribers they have as they come up for renewal because of having to lay people off, unfortunately. So we think that this is entirely sort of predictable in terms of what's going on in the overall economy and I expect that at some point when the economy turns we will see some improvement here but not any sign of that yet.

Yes, and then in regards to the competitive situations, you know, as I mentioned, of course we're in a competitive environment and we see a lot of unusual competitive situations. I'm not going to address any one particular but we are seeing our competitors do just about anything to try to win a deal from us. You can expect them, if there were a large software vendor, then maybe they bought a lot of software from that vendor at that time. There could be all kinds of unusual characteristics. We saw that with Ciebal towards their demise, as well, increase that rate. But in terms of the specificity, I think the most important things I can say to you is that we have a tremendous growth in our core customers, that I mentioned. We have some great wins and history of customer success, and I

Your next question comes from Keith Weiss for Adam Holt - Morgan Stanley. Keith Weiss for Adam Holt - Morgan Stanley: I wanted to ask you for a little more color on your hiring plan. Graham, you said earlier in the call that you were talking about the capacity that you had from the hiring that you have done over the previous 18 months giving you good capacity for growth but later you were talking about how headcount or hiring should pick up in Q3 versus Q2. Could you help us foot those two comments on perhaps where the hiring is going to occur, where you do have that official capacity and where you don't. Help us with our modeling out of how hiring should take place over the next couple of quarters. Graham V. Smith: Well, I think it's important to put it in perspective. As I mentioned, we hired 100 people in the first half versus over 400 last year and certainly I would expect our second half hiring to be significantly below where it was for the second half last year. And I think we have to think about the future. You know we have a very long-term view of our business and it takes a while to ramp up people and it takes a while for that revenue to come through from the new business bookings. So we're thinking about what we need to do in terms of adding distribution capacity in some markets for next year. But I think we're also very concerned about making sure that our customers still feel very well supported in this environment so we'll be adding support people to support the new business we add, and then certainly we're looking to aggressively expand our market share through continuing to have leading products. So we will be continuing to add developers in the second half as well.

Your next question comes from Karl Keirstead - Kaufman Bros. Karl Keirstead - Kaufman Bros.: I would like to get some clarity on the demand backdrop. It seems the message you're conveying is that new business was roughly in line with what you thought heading into the quarter. Yet you've raised your full year guidance, you mentioned that demand is stabilizing on the deferred revenue line. Instead of being sequentially down, it's more flat. So unless most of that is currency, it feels like something upticked during the quarter and I wonder if you might add some color. Graham V. Smith: I think when we characterized that the demand environment is stabilizing, I think it's because of some of that predictability, the fact that we had a level of expectation going into Q2, we basically were able to achieve that expectation as Q1 was much more of an unpleasant surprise, I think, that happened over the course of the quarter. That doesn't necessarily imply things are getting better and I was very clear in my guidance remarks to say that we are sort of assuming the same of the rest of the year. Marc talked about our overall feeling of new business being, for the whole year, flat to slightly down. So clearly, yes, currency also has a benefit. We know that the dollar has weakened a few points and so we have tried to reflect some of that in our guidance.

Your next question comes from Sarah Friar - Goldman Sachs. Sarah Friar - Goldman Sachs: Graham, could you speak just to payment terms. Are you seeing any changes, either maybe an improvement now as the economy is beginning to bottom out, in terms of whether customers are willing to pay upfront for a year plus or are they moving to shorter-term contracts. Any particular shifts there. Graham V. Smith: The distribution of our invoicing cycles between the small number who pay monthly on credit cards, a slightly bigger number who pay quarterly, and then the largest component who pay annually, that distribution, or allocation, has remained almost unchanged. It's almost uncanny. Every quarter we look at it and sometimes earlier on I had been expecting it to move and it really hasn't moved at all over the last eight quarters. So there has been no real perceptual change in any direction around the billing cycle in terms of payment terms where there's 30 to 45 days. Maybe a marginal increase in requests to move from 30 to 45 days but that's really at the margin. And as you can tell from our collections and the success we've had in reducing our DSOs in this environment, we feel very happy about where our overall cash collections, billing cycles are.

Your next question comes from Philip Rueppel - Wells Fargo Securities. Philip Rueppel - Wells Fargo Securities: Graham, you mentioned the predictability of the business is getting a little bit better yet attrition is still ticking up. And you gave some color about what happened last quarter. As we look forward, within your expectations, are we likely to see it to continue to tick up slightly or are you seeing any signs that that might start to stabilize? Graham V. Smith: I don't think I can predict that. I'm sorry, I wish I could but all I can say is that what we've seen to date has been with our planning assumptions. I think at least what we assumed was a sensible assumption but in terms of trying to predict that, I don’t want to try and do that.

Your next question comes from Mark Murphy - Piper Jaffray. Mark Murphy - Piper Jaffray: It appears that a big chunk of your customers believe that Force.com could become as important as Java and .net over time, but there isn't really much transparency into the revenue contribution of some of those older platforms to try to assess the opportunity. Is there any way that you can help us understand how the platform bookings should ramp or perhaps when you think it would reach 10% or 15% of your new business?

We're very reluctant to give those numbers, as you know. But let me say that we're seeing tremendous growth. I mean, you did that survey of our customers and you saw the empirical data as well as qualitative data from them. I think that as I mentioned, by the time we get to Dreamforce, you are going to find a lot of customers, if not most of our customers, using our platform. Now that can mean a lot of different things. It can mean that they're building their own discrete custom applications. Certainly that's true with major ISVs who are doing work on our platform. That can be for customers like METI, as I mentioned, and so many others. And then also it can be deeply customizing our sales and service applications as well, which give us tremendous amounts of stickiness in regards to the quality of the implementation and also tremendous differentiation against our competition as well. We just aren't at a point today where we're ready to start to break out Force.com specifically as revenue and we talked about it but we're not ready. Graham V. Smith: We've talked about it with our new business some quarters but we have not wanted to give that, as Marc said, we haven't necessarily wanted to give a lot of characterization about our new business every quarter. But think of it certainly as being in that 5% range.

We're obviously very excited to be one of the leaders in this market and when we have talked to the major analyst at Gartner and other places, we continue to get very positive feedback that in terms of platform as a service, we are the technology leader.

Your next question comes from Robert Breza - RBC Capital Markets. Robert Breza - RBC Capital Markets: Marc, I was wondering if you could talk a bit about as you look out across the geographies, where you see the biggest potential growth opportunities? Maybe if you could just qualitatively rank them for us. Obviously you are doing very well in Japan. But any kind of color as you look across the world would be helpful.

We continue to see the Americas as a huge opportunity. I mean, this is a huge IT marketplace right here and we are really only scratching the surface of what is probably one of the largest and most important shifts in technology as we know it from these kind of on-premise systems into cloud computing. So right here in the United States I have to say that I still have a lot of emphasis in this market and its opportunity going forward, especially when the economy recovers. I also am a big believer in success in Japan. Japan represents, I believe it's still the largest IT market outside of the United States. It's something that we've put a decade of work into. It takes a lot of time. And that's been very important for us in Japan. And we have the very top and most important companies in Japan, Defacto, all endorsing us and having tremendous success. Much greater success, I think, than any enterprise software that they’ve ever had from an American software company, or European software company. And then after that I would rank probably Europe and then India. And then everybody else. And that's kind of how we think about our business. We're very excited about the markets we're in today and we continue to think that they're going to continue to give us some good solid growth as we've seen in the last couple of quarters.

Your final question comes from Philip Winslow - Credit Suisse. Philip Winslow - Credit Suisse: I just had a question about going-forward sales cycles. When you look at your traditional Salesforce automation sales cycles and think about moving into service and support landscaping and growing your bookings momentum there, how should we think about the sales cycles and sort of the amount of direct [inaudible] required there versus traditional sales?

I think the way you have to look at is that we're a very diversified portfolio of customers, as you know. And we're in small business, we're in medium, we're in large, we're in extra large. And perhaps we're really one of the only enterprise software vendors that has ever attempted to go after every possible business. And because of that it's hard to answer your question because the sales cycle for every company is different. So the sales cycle for your company, for example, is a lot different than for a small company. And it takes just a lot of time to build the relationships and expand and grow. I mean, we've talked about METI several times already on the call, it's taken years of building relationships and spending time with them, and confidence and trust and respect in Japan to be able to consummate a transaction with them. That's an extreme. And then you will find small businesses that are willing to do a deal with us in a couple of days. So it's hard to answer that question. I guess when I look out over all of what's happening with us today, the thing that I'm most excited about is, of course, we've made our name in sales force automation and we've done a great job in commanding and controlling that marketplace and transforming it to cloud computing. But now we really see the potential and possibility, and it's within our grasp, to do that with the customer service and support and portal, customer support portal market. And then this custom application development and deployment market. And because of this trifurcation in our business, and you see it, if you just go to our home page you will see the three clouds and the ability to dive down in three directions. Or if you go to any event we have anywhere in the world, you will see the break outs into these three directions. This has just given us diversification, that we've moved into a multi-product company. And that is what is exciting for us that we can really see that we are not just about sales anymore and that we are much, much more, and not just for any particular business or any particular geography, but for all businesses and for all locations that we serve around the world. And when you look at a quarter like this, or really if you look at the last year, in aggregate, it's been a great year for us and it's been a great year for cloud computing overall and it's because of the low risk and low cost solutions that we're able to provide. And at the end of the day we're making customers more successful than they were with Oracle or SAP or Microsoft Solutions, which for the most part are on their shelves and have never been installed and have turned into kind of high-risk fiascos and no one will ever say that about our services or our technology. We really are one of the most successful companies of our class in enterprise software because of this new model and I think that you're going to find that as more companies move to cloud computing, that the total level of success that they achieve will be higher with technology than ever before. We are going to be fighting a lot less about on-premise versus cloud and we are going to be fighting head-to-head against every software company in the world because this is going to be the dominant model. But fortunately for us, we are the number one supplier in the world of enterprise cloud computing today. And as the world moves to cloud computing, that's a damn good position to be in.

That's probably a great note to end on. I just want to remind everybody of the two events that Marc mentioned in his comments. September 9 here in San Francisco, we will be hosting an event for those of you on the West Coast, or who would like to travel to the West Coast, please contact me and we will certainly get you involved in that event. Also, please do mark your calendars for Dreamforce November 17 through November 20 here in San Francisco. It should be a great event and a pretty darn good time as well. So mark your calendar for that. And you will be hearing from Investor Relations on that. With that, thank you very much for joining us, and have a great day.

This concludes today’s conference call.