No one knows hype better than Marc Benioff, the ebullient CEO of

Salesforce.com

(CRM) - Get Report

. Benioff is so self-confident he once tried to use the Dalai Lama as part of a marketing campaign.

The idea fell through, but not before it generated more publicity than the campaign itself would have produced. Some months earlier, he enlisted Arnold Schwarzenegger, then running for governor of California, to premiere his newest

Terminator

film at a Salesforce product launch.

The Dalai Lama stunt offended plenty of people. But like it or not, Benioff's expensive promotions (the company spends about 54% of revenue on sales and marketing) and growing technical expertise are paying off. His brash promise to replace traditional software with applications that businesses can rent and run over the Internet has moved the company onto a new playing field.

Simply put, says John Freeland, a managing partner of

Accenture

(ACN) - Get Report

, the giant consulting and outsourcing firm, "Salesforce is moving into the big leagues."

The most obvious sign of this new maturity was the news last week that Salesforce has inked a 5,000-seat deal with Merrill Lynch and is moving closer to Accenture, which partners with

Siebel Systems

(SEBL)

and

SAP

(SAP) - Get Report

, as well as many smaller players. Taken together, they demonstrate Salesforce credibility with large enterprises, a sector it couldn't penetrate 18 months ago. (Earlier reports that Accenture and Salesforce had signed a formal partnership are untrue, however.)

In mid-May, Salesforce announced a stronger-than-expected first quarter, boosting revenue by 18% to $64.2 million -- 9% better than the Thomson First Call consensus -- while earnings, with the help of a tax break, beat expectations by a penny a share and net income rose 902% to $4.4 million.

But what really got the attention of Wall Street was the company's ongoing growth in new subscribers. Paying subscribers rose 40,000 in the quarter to 267,000, up 82% year over year and 18% sequentially. Salesforce also added an additional 1,600 customers (companies whose employees use the product), to 15,500.

What's more, growth has been consistent, comments Morgan Stanley analyst Ross MacMillan. Revenue growth has exceeded 80% year over year for six quarters in a row, and total subscriber count has accelerated almost consistently over 11 quarters, ranging from 42% to 82%. Morgan Stanley has an investment banking relationship with Salesforce.com.

Since the earnings report of May 18, shares of Salesforce have appreciated 28%, while Siebel and SAP are off 5% and 2%, respectively, and the Golden Sachs Software index is up just 2%. Sell-side analysts rushed to raise their estimates for Salesforce; the mean price target of the 15 analysts who follow the company is now $20.70, according to First Call. But the stock has moved so fast it has nearly hit the target, closing Wednesday with a small loss to $20.16.

Expectations have gotten so frothy that some analysts are headlining notes to clients with words like "Wow," and "Unbelievable."

Prudential analyst Brent Thill was less effervescent, but still bullish about the company's guidance, calling it "extremely conservative," while upgrading the stock to overweight. Prudential doesn't have an investment banking relationship with Salesforce or Siebel.

But has the run-up exhausted the upside in the stock? "

It's hard to say," says Alan Lowenstein, senior vice president of American Fund Advisers, which owns shares of Siebel but not Salesforce. "If business keeps coming in, the stock will go higher," he says.

Salesforce's explosive growth has been centered in the small and medium-sized business market. Indeed, as Morgan Stanley's MacMillan writes, "the bread and butter of Salesforce's business remains the

small and medium business market and despite increasing, the average number of subscribers per customer is still around 17." Salesforce, he wrote in a note to clients, has fewer than 15 customers with more than 1,000 users.

Now, however, the company is taking on traditional customer relationship management software vendors on their own turf and is beginning to win.

Accenture's Freeland says his company now sees Salesforce as one of the three top vendors of CRM software, along with SAP and Siebel. Why? "They are increasingly gaining traction with larger businesses," he says. However, Freeland adds that he hasn't endorsed Salesforce over other companies' products, and hasn't signed a formal agreement with the San Francisco-based vendor.

The move to larger customers has already helped the company avoid the falling-price treadmill. Prudential's Thill says average selling prices have continued to grow over the last few years, increasing from $61 per user per month in fiscal 2003 to $76 this year. "The reason for the increase is not due to price increases, but instead to growing traction with larger enterprise accounts and customers migrating to higher-end editions," he says.

Analyst Mary Wardley of market researcher IDC says the company has reached "a tipping point." That is, its new products are highly customizable, an attribute they lacked in the past. And they are very simple for IT departments to deploy and integrate with existing software, something no one ever said about traditional CRM deployments.

How did Salesforce ready itself for combat in the enterprise trenches? Most importantly, the company built a global sales force to supplement its direct sales force, says Phill Robinson, a senior vice president. Meanwhile, Salesforce worked hard on the areas highlighted by Wardley -- customization and integration.

However, while rival Siebel has more than its share of problems at the moment -- falling license revenue, instability at the top and investor anger, to name a few -- the executive who has headed that company's On Demand business hardly sounds ready to surrender.

"The fact is our subscribers grew by 245% in the last quarter," says Senior Vice President Bruce Cleveland. "Sure, it was off a small base, but we started from a standstill last year and are catching up to a company that's been doing this

On Demand CRM for five years." Siebel, he says, now has 1,300 customers and 33,000 subscribers. Although Salesforce has a huge lead, Cleveland figures the company can catch up within two years.

Cleveland says his efforts have been somewhat handicapped by a lack of visibility in the marketplace. Indeed, Siebel got almost no credit for having its own piece of the Merrill Lynch deal, which is expected to grow well beyond the 5,000 seats boasted by Salesforce.

"Will we get the whole thing? I don't know," says Cleveland. "But we are still in the running." And Siebel's low profile in the On Demand business will end in June, Cleveland says, when the company launches a major advertising campaign for On Demand.

It might be tempting to think Cleveland is whistling in the dark, but IDC's Wardley believes the fight to bring CRM to small- and medium-sized businesses has a long way to go. "It's not a zero-sum game," she says. "Our surveys show that there is a huge untapped market there."

For now, though. Salesforce is on a roll that's not likely to stop in the immediate future.