Online Extra: Marc Benioff: Beyond Software as Service's CEO explains how his company's new AppExchange works: We call it Internet resource planning

Over half a decade, has established itself as the pioneer and leader in delivering software as a service. Its customer-relationship management (CRM) product has not only enjoyed immense popularity with small and midsize businesses but also gained credibility with large outfits.

Now, (CRM ) is moving beyond its role as an application company and providing a technology platform upon which others can build on-demand services.

BusinessWeek Senior Writer Steve Hamm recently talked with Chief Executive Marc Benioff about the new strategy. Here are edited excerpts of their conversation:

In's most recent quarterly report, revenues grew 77% and your paying subscribers grew from 267,000 to 308,000. How do you account for the company's continued success?

The No. 1 reason we're successful is our customers are successful. Before, you were expected to fail with enterprise software. is the first company and product that companies loved and users wanted to use.

You had an especially strong quarter with enterprises. Why?

Traditionally we had good success with small and medium businesses. And when we had success in enterprises, it was 100 or 200 users. But over the past quarter we have been closing a lot of greater-than-1,000-user deals. We closed 5,000-user deals with Merrill Lynch (MER ) and AON (AOC ). These CIOs can call their friends and ask "Does it work?" They say, "It works, and it's the only way to go." You get a tipping point.

Earlier this summer, you created something you call an operating system for the Internet. Could you explain what you did and why?

We had been building a comprehensive deployment service not just for deploying your CRM but also for deploying other applications. And then we gave customers the key feature of an operating system, the ability to run multiple applications concurrently -- still with one security model and one user interface, and one data model.

It gave us the ability to demo to customers that we had deployed the beginning of a modern operating system, something that runs as a service over the Internet.

Now you're going a step further and creating a marketplace for applications.

We have built an eBay (EBAY ) for enterprise applications. We have this on-demand operating system, and we have been asking how do we take this on-demand platform to the next level? What if there was an eBay of enterprise applications where customers could share, buy, and sell applications and components, and run them on our platform?

We want to make it as easy as buying music on iTunes and playing it on your iPod. We can have customers download these applications using the same type of technology. That was the breakthrough for what we call the AppExchange. You can share apps, try apps, buy apps, test apps, you can search for apps, and publish reviews of them. You can even sell apps. You can look at the applications by company, industry, size of company, language, by price.

The power of that is you can reach this long tail of applications. SAP (SAP ) and Oracle may deliver 10% of the applications you need to run your business, but there's this large percentage of your business that won't be managed by Oracle or SAP. This is the long tail of applications.

There's also the long tail of developers, not just ISVs [independent software vendors] but individual developers, and not just developed nations but developing nations. They can have instant-go-to market using this application exchange. One hundred percent of the sale price goes to the developer. We're not taking a cut.

It's a huge step forward for the software-as-service model, but also for how enterprises will interoperate with each other and leverage each other's work.

Why is it so important to

It really takes our model to the next level. We pioneered software-as-service. This is the second major technology and business model.

Why not build more of the applications yourself, rather than rely on customers and ISVs to come up with them?

We are building a lot of applications. We released a lot of new modules this past year, including a call-center module, and a partner-management module, and an analytics module. But there's a lot of technology we'll never be able to build ourselves. For example, there's Google (GOOG ) maps. A lot of our customers are integrating it with We won't build something like that. But using our platform you can easily integrate it.

There are lots of vertical applications that we'll never build. They're too discrete and too much for a particular domain. And we won't build all the applications for countries like China. People there will build them.

Are you attempting to create a full alternative to traditional enterprise resource-planning software?

We think traditional ERP software has been made obsolete already by the Internet -- the ability to share information not just within your company but with your suppliers and customers. We think this is the next generation beyond ERP. We call it Internet resource planning, or IRP. It's the ability to go across the Internet to share and manage all of your information that's relevant to your company, not just the information inside your company. Just focusing on the information inside your company is a very 20th-century idea.

SAP says what you're doing is totally inadequate as a replacement. It also says is a low-function CRM application and the rest is a bunch of marketing hype. What do you say to that?

I would expect SAP to be dismissive, because they have let so many customers down by not going to next-generation Internet technologies. They have no software-as-service products, and very little Web services technology. This is why so many SAP customers have chosen SAP doesn't make user-friendly software. They're known for the brutal difficulty of their German engineering.

Do you think AppExchange will be at attractive proposition even for large companies with complex processes?

Eventually, this model will replace all ERP, which is a very 20th-century idea -- that you'll keep loading these discrete modules into your company, that don't have to integrate with other things across the enterprise and with your stakeholders, and that you'll manage them all yourself. This idea will eventually go away.

Instead, you'll have a series of services that will be deployed by a wide range of companies, from Salesforce, to Google, to Intuit (INTU ). You can have these mashups, where you bring all of these next generation technologies together.

It makes sense for customers and independent software makers to create extensions to, but why would customers or ISVs want to run applications on your system that are not closely related to CRM?

Most corporations don't manage and share information very well. There's a lot of data on paper or on spreadsheets. The applications that are running inside these companies are very limited.

There are so many opportunities for them to automate that you'll see a wide range of applications available in the AppExchange that will be interesting to them, and a lot of them are in non-CRM areas. Already, we have customers who are deploying in non-CRM areas. Citrix (CTSX ) built an event-management system. ADP (ADP ) is rolling out a software bug -tracking application.

And other applications are emerging. We created a blood-donation management system for the AppExchange. We've also built a series of applications for doctors' offices. We built a PR manager. We're building some of the applications, and other people are building others.

    Before it's here, it's on the Bloomberg Terminal.