Will Apple Catch Salesforce in the Wearable Software War?

NEW YORK (TheStreet) -- As every company starting with Apple (AAPL) knows, the key to every hardware market ever since IBM (IBM) delivered its first mainframe in the 1940s has been software. The company that controls the software controls the market.

Apple seemed to have learned this lesson in the early years of the iPhone and iPad, but today Google's  (GOOG)   (GOOGL) Android dominates the operating system space. Microsoft (MSFT) learned this lesson and took over the PC market from IBM in the 1990s through the operating system. 

So when approaching the wearables market, which gets its official start Tuesday with Apple's iWatch announcement, which company has the best software ecosystem out there? It's not Apple.

Would you believe Salesforce.Com (CRM) ?

Salesforce announced a developer kit dubbed Salesforce Wear in June. The software lets developers connect enterprise applications with wearable devices, and it quickly won endorsements from just about everyone else in the space -- Google, Fitbit, and Samsung (SSNLF) among them. Since then, of course, Facebook (FB) has bought Oculus Rift, which also endorsed the kit.

That leaves Apple as the only major player is missing here. But Apple missed Windows and Android as well.

As I noted more than a decade ago these technologies have many different application spaces -- medical and health being among the most important. But integration of "things" like lights, water and home appliances creates a new home automation space, which can include home security, and the entertainment space was uppermost in developers' minds for years.

The key, however, is connectivity, and the key to connectivity is software.

Apple is reportedly looking at three key attributes -- fashion, commerce, and medicine -- in building its iWatch platform. It wants to sell devices. Fashion makes the device a must-have, commerce makes it a must-use but medical applications are the true killer apps. Unfortunately, once doctors depend on medical applications they have to win approval from the Food and Drug Administration, which is an expensive, time-consuming process that leaves the finished product several years behind the market.

While the Apple ecosystem is top-down, the Salesforce ecosystem is bottom-up. It's easy for a company to get into, easy to succeed-or-fail with quickly, and meets the needs of communication and enterprise integration.

This is different from what is going on in hardware, where Intel's (INTC) Edison will, in the end, support whatever software wins.

Wearables need cloud integration. Medical devices have to integrate with the cloud to be of serious use -- the data have to get from patient to doctor. Security, home automation and commerce applications also need the cloud in order to function effectively.

By building a bridge from hosting to applications, and putting itself in the middle of the action with software, Salesforce is making itself essential to this integration. That's why the stock, at around $60 a share, is selling at over nine times sales. It's also why while everyone complains about Amazon.Com (AMZN) not making a profit, hardly anyone utters a peep about Salesforce's lack of profits -- it hasn't even had positive operating income since 2011.

At the time of publication the author owned shares in GOOG and AMZN.


TheStreet Ratings team rates SALESFORCE.COM INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate SALESFORCE.COM INC (CRM) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and generally higher debt management risk." You can view the full analysis from the report here: CRM Ratings Report

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