A Big Sales Job For Salesforce.com

Can the pioneer of Net-delivered software prove it's more than a one-hit wonder?

By Steve Hamm

Salesforce.Com chief Executive Marc Benioff made a name by raging against the software Establishment. He labeled as washed-up those programs that corporations buy and install on their own computers. He brashly predicted that software would increasingly be delivered to office workers over the Internet, as a service. He was right, and now almost everyone has come around to Benioff's way of thinking. But that very success is about to pose a huge challenge for the Abbie Hoffman of software.

Some of the industry's most powerful companies are rushing into Salesforce.com's (CRM ) core business, software that helps salespeople keep track of how much they've sold to specific customers, when they need to call on them again, and if they've met their quota. This comes just as Salesforce.com is trying to expand into new markets. "The question is: Can this company go from being a one-hit wonder to a whole body of work?" says analyst Jason Maynard of Credit Suisse (CS ).


For now, the eight-year-old San Francisco-based company is thriving. It has 35,000 clients for its Net-delivered customer-relationship software, including Dell (DELL ), Cisco Systems (CSCO ), and Japan Post. Revenues are growing at 50% per quarter and are headed for $700 million this year.

Salesforce.Com's most immediate problem is a looming onslaught from Microsoft Corp. (MSFT ) and SAP. They were late to jump on the software-as-a-service bandwagon and now are trying to catch up, with a vengeance. In December, Microsoft plans to release a competitor to Salesforce.com's customer-relations applications, but at about half the price. On Sept. 19, SAP is to announce an online service that supplies accounting, human resources, and sales-tracking software to small and midsize companies. SAP already has a 25.7% share of the $6.5 billion market for all types of customer-relations software. SAP dwarfs Salesforce.com's 7% share, says market researcher Gartner Inc. (IT ) That leads William McDermott, CEO of SAP Americas, to predict: "Over the long haul, you'll see the death of the one-trick ponies" like Salesforce.com.

It's easy to discount this claim, given how badly SAP initiallymissed the turn toward selling software over the Net. But these days it's Benioff who is attempting to undertake a major shift in strategy. Sales- force.com has focused on selling programs that performed specific tasks on a PC or handheld computer. Now, though, it's branching out and offering technologies upon which other software makers and customer corporations can build their own programs--and pay fees to Salesforce.com. This is similar to Microsoft's strategy in the traditional software market, where it sells its Windows operating system platform and Office applications. Salesforce.com is the first company to try such a "platform" strategy in the software-as-a-service world. Declares Benioff: "We're a platform company, not just an applications company. We have a vision for the future of an industry."


All well and good. But Microsoft, Oracle (ORCL ), and IBM (IBM )long agomade such application-development platforms into cornerstones of their businesses. IBM, for instance, counts 9,000 software companies with applications that run on its software. So will corporations choose Salesforce.com over these behemoths? Some of its more adventurous customers are game. "It's worth a look," says Bill Wray, chief information officer at Citizens Financial Group, one of America's largest banks.

But analysts such as Gartner's Yefim V. Natis are dubious that many big companies will sign up anytime soon. "I don't see General Motors (GM ) writing applications on their platform," Natis says. One of Benioff's challenges is that only companies that have already adopted his customer-relationship applications would likely decide to adopt his software-development platform, so that limits the size of the market.

Benioff, not surprisingly, has bottomless faith that his software-as-a-service model will not only increase in importance but eventually prevail. He vows: "Part of our mission is to end Microsoft."

Hamm is a senior writer for BusinessWeek in New York

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