Recently, Microsoft's (NASDAQ:MSFT) Bill Gates and his recent hire, legendary programmer Ray Ozzie, issued memos to their troops, declaring that Microsoft needs an extreme makeover. The world of software is undergoing disruptive change, and so far, Microsoft seems to be lagging behind. The memos mention a leader in the brave new on-demand software world: Salesforce.com (NYSE:CRM).

Since its founding in 1999, Salesforce.com's motto has been "The End of Software." The message is clear: Software is becoming a service. Why install a huge block of code and deal with the headaches of administering it when you can get another company to handle the tedious stuff for you? Isn't software supposed to solve problems, rather than create them?

Judging from the third-quarter results it reported yesterday, Salesforce.com is reaping the benefits of its innovative model. Revenues surged 78% to $82.7 million, and earnings increased from $0.02 to $0.11 per share, including a one-time $0.06 deferred tax benefit. Cash flow from operations was $24.6 million, an 87% increase over the prior-year period.

The company has 351,000 total subscribers, up 80% from the same period last year, and roughly 18,700 customers.

For fiscal 2007, Salesforce.com projects revenues of $460 million to $465 million. On a non-generally accepted accounting principles basis, earnings per share are expected to range from $0.20 to $0.22.

Most importantly, Salesforce.com is continuing to innovate. In the third quarter, the company announced AppExchange, which allows customers to build, deploy, and even sell customized enterprise applications. AppExchange has already bred a host of new applications for project management, HR, customer service, and more. Interestingly, Salesforce.com isn't charging for this service -- at least not yet. It's a great way to encourage development of programs that tie into the company's system. Salesforce.com is even using AppExchange to develop some of its own applications.

Salesforce.com seems to have its eye on more than simply providing customer relationship management (CRM) solutions. The company apparently wants to be the provider of all enterprise-related on-demand software solutions. If it can live up to that potential, the company could enjoy considerable long-term growth.

There are other strong players in the on-demand world, such as RightNow (NASDAQ:RNOW) and others. But Salesforce.com has a significant advantage: It built its system from the ground up on a service model, so it won't have to deal with the migration pains that companies like Microsoft may endure in trying to enter the on-demand market. Things can change quickly in the tech world, but so far, Salesforce.com seems to be making the most of its early lead.

AppExchange embodies Salesforce's brilliant admission that it cannot be all things to all customers -- as opposed to Microsoft, which has often tried to do just that. All enterprises are different, and Salesforce's focus on specific services, rather than trying to build a one-size-fits-all solution, could work in its favor.

Gates declares in his memo that "the broad and rich foundation of the Internet will unleash a 'services wave' of applications and experiences available instantly over the Internet to millions of users." It looks like he's right. But unfortunately for him, it seems that Salesforce.com is leading the wave.

Further Foolishness on demand:

Fool contributor Tom Taulli does not own shares of companies mentioned in this article.