I have been watching Salesforce.com for some time now. Firstly, at ProTraining.com we use the hosted CRM (Customer Relationship Management) tool. It is extremely feature rich, and when used properly, can be a very effective way to enrich your outbound sales process, as well as manage customers, leads and opportunities.
Another reason for my interest is more big picture. We have tried to emulate best of breed companies that have a hosted web-application model (sometimes referred to as Software as a Service) like ours. This is the business model that we at ProTraining.com have embraced, and it is what makes our business a lot easier to manage. Having subscription or licensed based recurring revenues is the single biggest advantage. The cash register doesn't hit zero at the beginning of the month, which takes a tonne of pressure off our company. Also customers seem to embrace hosted solutions that bring little IT and budgetary risk.
That being said, one of the risks of this model, is customer apathy. As a Salesforce user, we have used the tool moderately, and probably not to it's full potential. We have not invested 10,000's of dollars in a CRM solution, which is why we bought in the first place. That's also the same reason that we haven't made it a critical application in our business.
It is rumoured that Salesforce is trying to convince Oracle (a large competitor and owner of ASP PeopleSoft) to purchase them for around $75.00 per share. That would put them at a market value of $9B. Currently Salesforce trades at about $50.00 per share which is at a whopping 500 times EPS. The company is projecting to do $0.13 per share in 2008. I would trying to sell the company at those prices also.
I frankly think that the company sees a ceiling for both their share value, and even their rapid revenue growth. They have tried to diversify their offering from a simple CRM application, to force.com, a platform offering. In line with Amazon's S3 strategy, it makes sense on the surface to leverage their existing infrastructure for companies and developers who are looking for enterprise level infrastructure. The Salesforce APPExchange is an example of how they are opening their platform and customer base to other software providers. I don't think it has been as much of a success as they anticipated.
One of the reason's that I think their model can start to sputter, is that the companies that use the CRM application would already have an ASP in place. It's these ASP's that will eventually be the primary competitor for Salesforce, and I suspect that many of them will embrace the Software as a Service model soon. Oracle, Microsoft, NetSuite and others are entering the on-demand space in a big way.
So of course they could make that a lot easier by acquiring a solution like Salesforce, but I have a hard time believing that they would spend $9B to do it. But regardless of if they do or not, it is a very nice to see that the revenue and EPS multiples being considered for subscription based, hosted web-applications.
I am glad that we chose this model, even though many times it might have been more lucrative in the short term to sell our product differently. It's nice having hundreds of smaller customers, paying us modest amounts on a recurring basis. That will be easier to sell some day, and if your offering 9 times revenue, like this deal, we would like to talk to you now! In fact, we are having a special this week at 8 times revenue.