Last week, Salesforce.com (NYSE: CRM ) marked the first day in which its on-demand business platform logged 90 million transactions, each taking place in roughly one-fourth of a second. As Google (Nasdaq: GOOG ) and Amazon.com (Nasdaq: AMZN ) have demonstrated, web-based systems can be powerful competitive advantages; Salesforce.com wants to harness that same power for business applications.
In the first-quarter results Salesforce.com reported Thursday, revenue surged 55% to $162 million, with net income of $0.01 per share. Cash flow from operations skyrocketed 197% to $37 million, giving the company a total of $448 million in the bank.
Salesforce.com sells its software primarily via subscriptions. Over the past year, it increased its customer count by 42% to 32,300. The company has begun to increasingly strike deals for larger deployments, including recent wins with customers such as Computer Associates (NYSE: CA ) and Houghton Mifflin.
Salesforce.com is also doing well in Asia, including the 5,000-seat deal it scored with Japan Post. One of the largest global financial institutions, Japan Post has more than 400,000 employees. The deal is even more impressive when you consider Japan's history of preferring domestic software vendors, and its reputation as a tough market to crack.
Why the success? Besides its web-based convenience, Salesforce.com has cultivated a thriving community of developers, a growing number of specialized applications, and a new programming language. To more aggressively promote these advantages, the company is even building incubators for start-up companies to help develop even more web-based applications.
The firm has drawn criticism for focusing too little on generating profits. From what I can see, management's ignoring these calls, which I think is the right approach. Salesforce.com has a large market opportunity here, and if it wants to remain a leader, the company will need to invest in its infrastructure, new technologies, and community. That's what Microsoft (Nasdaq: MSFT ) , SAP (NYSE: SAP ) , and Oracle (Nasdaq: ORCL ) did when they built their own software empires years ago.
True, there's no guarantee that investing in the future will pay off, but Salesforce.com is currently the best-positioned player in its market to develop into a major, lasting software company.
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares of companies mentioned in this article. He is currently ranked 1,590 out of 24,619 rated players in CAPS.
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