Who does this guy think he is, anyway?

Marc Benioff

, chairman of year-old startup Salesforce.com, is shuffling around his corner office muttering. "Larry Ellison is a small, small man," he quips. We'll generously assume that Benioff means stature-wise. While Ellison, the one-time programmer turned zen fashion plate, stands at around six feet in his kimono, Benioff is a towering 6'5". Benioff, who worked for 12 years at

Oracle

(ORCL) - Get Report

has a more serious message for his former boss, who also happens to be a major backer and a director of Salesforce.com: Software is dead, and is to be replaced, of course, by Benioff's brainchild, Salesforce.com.

That's who this guy thinks he is: the Grim Reaper, come to ferry software across the swift, chilly waters of Internet change to the great beyond.

"I had dinner with Larry last Friday evening and I told him, 'You've got a big problem. He said, 'I know,'" says Benioff. (Ellison was not available to corroborate the conversation.)

Two months ago, Salesforce.com launched a Web-based sales-force automation system that puts action behind those words. It enables salespeople to manage their contacts, calendars, news bulletins and leads online. Salesforce.com hosts the software for small to large clients for $50 per user, per month, and can get them up and running the same day. Already 2500 companies have scarfed up the concept, says Benioff. That trend sends a spooky message to conventional software vendors as well as the up-and-coming application service providers (ASPs), which hold software on centralized servers and sell access to those programs. For both sets of rivals, Salesforce.com's pricing is a challenge.

"I think it's a great thing to bring pricing back down into reality," says

Forrester Research

Senior Analyst Stacie McCullough. "Today's applications pricing is outrageous. People have gotten mesmerized by ASPs, so they're trying it without realizing they're paying an arm and a leg."

Traditional software vendors such as

SAP

(SAP) - Get Report

,

Peoplesoft

(PSFT)

,

Baan

(BAANF)

and

Siebel

(SEBL)

sell "enterprise" software by visiting a giant company, taking its temperature, courting for many moons, then hitching the client to a multimillion-dollar contract and spending months actually getting the stuff installed.

New-fangled ASPs, on the other hand, don't install software on your computers, but rather charge you to use applications on their servers that you get access to using designated lines or the Internet. As with Salesforce.com, you pay a per-person, per-month fee, but it looks more like $300 to $500. Heap on top of that a typical $500,000 to several million-dollar licensing fee to get your ASP's wheels turning. Also, a company has to wait at least two to three months for applications to be set up.

Qwest's

(Q)

Cyber.Solutions

,

US Internetworking

(USIX)

and

Kleiner-Perkins

-backed

Corio

are two confident leaders right now in the ASP world.

Salesforce.com's new, new model, Benioff says, serves up applications cheaply and easily to customers as diverse as real estate network

Jones Lang Lasalle

(JLL) - Get Report

and Web directory

Looksmart

(LOOK)

. The startup's $50-a-month price allows previously neglected small and medium-sized companies to buy pared-down versions of the tools their big competitors have used for years. Benioff's idea isn't unique. Other competitors to traditional software vendors include Siebel spinoff

Sales.com

, which has $27 million in VC money. Texas-based

Agillion

taps into the support of investment banks

Goldman Sachs

,

Hambrecht & Quist

and

Morgan Stanley Dean Witter

.

The biggest hitch is that these upstarts offer only a limited repertoire. In fact, all they offer is salesforce automation. Salesforce.com CEO John Dillon, who used to run

Hyperion

(HYSL)

says the next application, probably in the customer support arena, will be available before we wave goodbye to 2000.

In two years, Benioff expects Salesforce.com to have replicated all the features of big-ticket packages known as customer-resource management (CRM) software suites, which include customer support, call-center, billing and data warehousing. With 100 employees already, the startup will need more cash to hit its goals. It is working with an initial funding round of $17 million from angel investors including Ellison, investment-bank founder William Hambrecht,

IDG

Chairman Patrick McGovern and

KLA Tencor

(KLAC) - Get Report

founder Bob Anderson.

From that pool, Salesforce.com carved out a $10 million advertising and PR budget at the end of 1999. Ranking as high on the hype-o-meter as Benioff does, Salesforce.com isn't naming any dates just yet, but it won't likely wait long to chase the hefty IPO cash the upstart needs to compete against well-branded CRM power and those offering what is known as enterprise resource planning (ERP), software for human resources, accounts payable/receivable, supply-chain management and other hefty business applications.

The ASP market itself has the earmarks of another dot-com phenomenon that could have trouble living up to the hype. The good news is that the hype isn't in the same league as the gas that once inflated expectations for business-to-business startups. While total ASP revenue was less than $1 billion last year, according to Forrester Research, the consulting firm projects that sales will hit $11.3 billion in 2003. That's nothing compared with the overnight trillions Forrester held out for B2Bs. One leavening factor, says Forrester, is that major corporations are probably not going to scrap their investments in existing software to get the flexibility and savings of ASP applications. But small companies will fork over $3.9 billion to get basic business software, it figures. And keep in mind that a big chunk of those sales will go to companies that provide applications for customers' e-commerce sites, not the type of thing Salesforce.com rents.

For now, Benioff is carrying on his crusade as self-appointed slayer of the old software order, guiding oppressed software customers to a new way of getting and paying for software. No doubt his ambition will be violently contested by the "small men" of software. When Larry Ellison suits up for the contest, which side will he take?