Salesforce, Inc. (CRM): The Jeff Smith Effect and the Path to Value Creation

In an era where enterprise software giants face mounting pressure to prove their worth, Salesforce, Inc. (CRM) has emerged as a battleground for activist investor Jeff Smith and his firm, Starboard Value. Smith’s sustained campaign since 2022 has pushed Salesforce to refocus on core strengths, cut costs, and align with industry benchmarks—a strategy that could redefine its trajectory. This article explores how Smith’s activism is reshaping Salesforce’s priorities and what it means for investors.

The Activist Playbook: Pressure and Priorities

Jeff Smith’s playbook for Salesforce hinges on three pillars: operational discipline, margin expansion, and innovation. By early 2025, Starboard had built a significant stake in CRM, leveraging its influence to demand adherence to the "Rule of 50"—a software industry metric requiring that the sum of revenue growth and adjusted operating margin reach at least 50% by 2028.

Smith’s urgency stems from Salesforce’s lagging valuation. Despite its dominance in CRM software, Salesforce’s shares had fallen 39.5% year-to-date by early 2025, trading at a forward price-to-sales multiple of 4.50—well below its five-year average of 5.64. Starboard argues this undervaluation reflects investor skepticism about Salesforce’s ability to match peers like Microsoft, which spends 10% less on sales and marketing as a percentage of revenue.

Salesforce’s Response: Cost Cuts and AI Investments

Salesforce has responded to Starboard’s pressure with measurable changes. In 2023, it accelerated layoffs and restructured its CRM division, appointing a new product head and committing $1.2 billion to AI-driven tools like Agentforce, an automation platform introduced at Dreamforce 2024. These moves aim to streamline legacy systems and boost efficiency. By early 2025, Salesforce’s adjusted operating margin had improved, though Starboard insists there is “a lot more to go” to meet the Rule of 50.

The firm’s focus on AI is critical. The global CRM software market is projected to grow at a 13.3% CAGR through 2030, and Salesforce’s ability to capitalize on this requires both cost discipline and innovation. Smith’s advocacy for Agentforce underscores this: automation tools could reduce customer service costs while enhancing revenue through upselling.

Market Dynamics and Shareholder Value

Starboard’s campaign intersects with broader market trends. Salesforce’s valuation discount has made it a prime target for value investors, while its cloud-based ecosystem remains a strategic asset. However, competition is intensifying. Microsoft’s Azure and Dynamics 365, alongside Oracle’s CX Cloud, pose existential threats unless Salesforce can deliver on its promise of operational excellence.

Smith’s emphasis on peer benchmarking highlights the gap. Salesforce’s sales and marketing expenses remain 5–7% higher relative to revenue than those of Microsoft or Adobe—a discrepancy Starboard attributes to misallocation of resources. Closing this gap could add billions to Salesforce’s valuation.

The Road Ahead: Risks and Opportunities

While progress is evident, challenges persist. Internal resistance to divesting non-core assets, such as the Slack acquisition, could slow momentum. Additionally, the broader tech sector’s volatility—driven by macroeconomic uncertainty—remains a headwind.

Yet, the upside is compelling. If Salesforce achieves the Rule of 50 by 2028, its valuation could converge with peers, unlocking ~$20 billion in shareholder value. Starboard’s track record at CRM—delivering a 38% return since 2023—suggests its pressure has already paid dividends.

Conclusion: A Pivotal Moment for Salesforce

Jeff Smith’s activism has forced Salesforce to confront its undervaluation and operational inefficiencies. By prioritizing the Rule of 50, cutting costs, and doubling down on AI-driven innovation, Salesforce is positioning itself to reclaim its leadership in the CRM market.

The data is clear: Salesforce’s adjusted operating margin has improved, its AI investments align with a fast-growing market, and Starboard’s sustained pressure has catalyzed strategic shifts. However, the ultimate test lies in execution. If Salesforce can deliver on its margin targets and innovate at scale, it stands to reward investors handsomely. The stakes are high, but the path to value creation is now clearer—and it’s being paved by an activist’s relentless push for change.