Marc Benioff learned about software from one of the best: Oracle (Nasdaq: ORCL). But he thought the industry was headed in the wrong direction and, as a result, crafted his own vision, an "anti-software" vision. He thought that software should be sold as a service.
The result was Salesforce.com (NYSE: CRM). Yesterday, the company went public with incredible fanfare, as the stock surged $6.20, or 56.36%, on 10.8 million shares. (Fools, of course, are generally cautious about IPOs of any stripe. Check out this FAQ to learn more.)
If you ask Benioff about the traditional software industry, he will give you an earful: There are large up-front licensing fees, useful features that are not used, expensive and time-consuming installations and training requirements, and expensive maintenance. There is also the complexity, which often means that many users do not even use software products.
Benioff's solution is on-demand application services. Because the software services are delivered over the Net, there is very little installation. Moreover, updates are automatic, with no need to install new software. And payment is based on subscriptions.
Even though Salesforce.com is profitable, an infusion of capital from the IPO -- and having stock as currency -- will be hugely beneficial. The reason: Just like Amazon.com (Nasdaq: AMZN) was more than selling books, Salesforce.com is more than just providing customer relationship management solutions. Rather, the company is building a comprehensive platform to allow for many types of on-demand application services.
At first, the Salesforce.com product offering was narrow, with mostly sales-force automation applications. Then a few years later, marketing and customer support was added. Recently, the company has added file and document management capabilities.
More important, Salesforce.com has introduced a development kit called sforce that allows third-party developers to create applications for the Salesforce.com platform, and the applications are proliferating.
The software industry is in the midst of tidal change. For example, to compete in enterprise software, Microsoft (Nasdaq: MSFT) attempted to buy SAP (NYSE: SAP). Or, look at the Oracle antitrust case. Evidence shows that there is rampant discounting. In light of the competitive pressures, Oracle's CEO, Larry Ellison, said in court that his company considered buying a variety of companies, such as BEA Systems (Nasdaq: BEAS), Lawson, and Seibel (Nasdaq: SEBL).
Salesforce.com offers a new vision for software and has been gaining incredible traction. But this does not necessarily mean the stock is a good investment. Right now, it is in the clutches of day traders, and the stock price is likely to be volatile. For long-term investors who like the Salesforce.com model, this is probably the wrong time to jump in.
Fool contributor
Tom Taulli
is the author of
The EDGAR Online Guide to Decoding Financial Statements. He does not own shares in any of the companies mentioned.
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