Skip to main content Looks to Break Boundaries

The company aims to expand its scope with a software-development platform.
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SAN FRANCISCO - (CRM) - Get Free Report may have chosen CRM as its ticker, but the company is breaking out beyond customer relationship management.

Salesforce is hoping to make a splash on Monday with the launch of a complete software-development platform,, which may propel its revenue into more lucrative territory than price-sensitive CRM software.

The company is understandably anxious to diversify its revenue stream: Business software giant


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is about to do a cannon-ball dive into Salesforce's end of the pool. SAP will unveil its long-anticipated A1S on-demand CRM software on Wednesday, throwing cold water all over Salesforce's Dreamforce conference being held here.

SAP has estimated it will earn as much as $1 billion in A1S revenue by 2010.

Web-based, on-demand CRM software sales worldwide are increasing by 21% in 2007 and expected to pick up speed, growing by nearly 26% annually over the coming four years, according to Gartner analyst Sharon Mertz.

Business software typically goes far beyond CRM. But Salesforce doesn't plan to sell the breadth of business software applications, as do giants SAP and


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Its strategy with is to create the platform for others and take in a steady stream of user fees. The platform, pieces of which have already been released, removes barriers blockading the company's potential sales territory.

Giving clients a way to develop their own software, Salesforce can move beyond its usual comfort zone of businesses with large sales staffs.

Salesforce will not only sell more subscriptions into its established customer base, "but also to more companies," said Ariel Kelman, senior director of platform product marketing.

For example,

Walt Disney

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, known for theme parks rather than sales teams, created a way to track bookings for its traveling costumed characters. Now, Mickey Mouse doesn't show up at two adjacent stores.

Salesforce provided the database and software infrastructure to write the application. The company also derives a revenue stream for hosting it, but wouldn't disclose details.

Without some indication of pricing, it's difficult to predict the impact of the new service on the company's top line. But profit margins may start to look good next to CRM packages, which will come under pressure.


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announced lower-tiered pricing for on-demand CRM software.

Salesforce has a grace period to adjust. Microsoft will release its Dynamics Live CRM later this year, but won't begin charging for it until the first half of 2008, according to the company. Eventually, Microsoft's Live CRM will start to squeeze Salesforce subscription fees.

Salesforce has had a healthy growth trajectory: Its subscriber base, which grew 60% year over year for the most recent quarter, now weighs in at 800,000 users.

The stock is no slouch either. It appreciated 33% over the past year and ended Friday at $46.38 -- about as high as the company's earnings can currently justify. Analysts polled by Thomson Financial have given Salesforce a price target of $54.

Analysts predict 2009 earnings will nearly triple the anticipated EPS of 10 cents for fiscal 2008, which ends in January. That would mean the stock is currently trading at 160 times 2009 earnings. That's heady compared to the Internet software subsector's price-to-earnings ratio of 61.

But if that sounds high, consider that Salesforce's 12-month forward P/E ratio stands at 273.

Salesforce is trying to justify such a valuation by expanding the company's reach. Indeed, businesses may flock to to fulfill pent-up demand for the same customized Web services in-house that users get from the Internet. The platform gives companies a place to design their own "mashups," which bring together two or more different tools into one dashboard or browser, such as a map view of store locations integrated with regional weather conditions.

Salesforce may hit the mother lode by solving this corporate frustration: how to get quick and easy customized capabilities without going the full-blown enterprise software integration route. In the era of Web 2.0, this could prove to be a rich new vein of income for the company.