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MARCH 3, 2003 NEWS ANALYSIS Can Salesforce.com Stamp Out Software? Its Web-based alternative to big CRM packages is gaining momentum. But now, mighty Microsoft is gunning for its business
San Francisco-based Salesforce.com grew more than 100%, to $52 million, in its fiscal year ended Jan. 31, and broke even in February. Effusive Chief Executive Officer Marc Benioff marked the occasion by inviting 200 customers and friends to a Feb. 28 concert featuring rocker David Bowie at New York's Carnegie Hall. Benioff has plenty of reasons to celebrate. In the three years since Salesforce.com launched its service, the privately held company has amassed more than 6,000 customers with 80,000 individual users in 110 countries -- including the likes of General Electric (GE ), Honeywell (HON ), AOL Time Warner (AOL ), Cigna (CI ), Avis, and Cable & Wireless (CWP ). QUICK STARTER. A number of the large customers, including Cigna and AOL, bought Salesforce.com's service even though they had previously paid big bucks for software from market leader Siebel Systems (SEBL ). "We're the fastest-growing CRM company," crows Benioff. He hopes take go public this year if the climate for IPOs improves. Beyond that, he has an audacious goal: $1 billion in annual revenues within four years. While that may prove hard to reach, there's no question that Salesforce.com is already a bona fide success, thanks to its unusual sales model. Rather than selling expensive software that customers take months to install on their own computers, it offers them a practically instant-on service that they pay for monthly -- typically an affordable $65 to $125 per user. To do their jobs, the customers' sales, marketing, and customer-service staffers simply log onto a Salesforce.com Web site from their desktop or portable computers. Even though Salesforce.com is still small, the fact that it's out in the market offering an inexpensive and simple-to-use alternative to traditional software puts pressure on Siebel and other CRM bigs. "LOOKING IN THE MIRROR." Yet in spite of Salesforce.com's winning ways, it faces greater challenges this year than ever before. That's because mighty Microsoft (MSFT ) is gunning for its business. The software giant in January delivered a long-awaited CRM package tailored for small and midsize businesses. Those two segments combined account for about two-thirds of Salesforce.com.com's customers. Microsoft has already lined up 900 companies worldwide to help sell its product and aims ultimately to for more than 5,000. By comparison, Salesforce.com has fewer than 50 resellers and only about 100 salespeople. While Microsoft downplays the competition, CEO Thomas Siebel of Siebel Systems is gleeful when he envisions Microsoft's effect on his pesky rival. "Microsoft will roll them over. They get Zambonied," he says. Benioff's response: "He's looking in the mirror. It's psychological projection. He's seeing himself in others." Indeed, many observers believe that once Microsoft establishes a foothold in the low end of the CRM market, it will set its sights on Siebel and the high end. Benioff dismisses Microsoft's threat to his business. He calls Redmond's product offering a "software lover's paradise," since customers not only buy the company's CRM application but need to buy a stack of so-called middleware products to make it usable. JUST SAY NO. Besides, Benioff isn't afraid to stick his finger in the eyes of the giants. He taunts traditional software makers with the company's motto, "The end of software," and its logo, which shows the word "software" with the universal "no" symbol stamped over it. He even has hired out-of-work actors to picket outside Siebel marketing events. "We're in a karmic bind," explains the practicing Buddhist and devotee of Tibet's Dalai Lama. Lacking size and traditional marketing clout, he feels no compunction in resorting to gimmicks to generate buzz and get companies to try out his service. Benioff knows his enemies. He worked for software powerhouse Oracle (ORCL ) for a dozen years, where he met Tom Siebel, a former Oracle sales chief. In 1999, he started Salesforce.com, joining a growing band of entrepreneurs who believed that services delivered over the Net would rapidly replace traditional software. The revolution didn't arrive on schedule, though, and most of the so-called application service providers (ASPs) are out of business. Benioff insists that the transition will come eventually, once customers get comfortable with the idea that software can be delivered to them like electricity. "Like all new models, it has to have slow incremental gains," he says. "Things don't happen overnight."
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