Salesforce.com Strategy Change: A Hail Mary Pass

By Douglas A. McIntyre Published Apr 23, 8:10AM EDT

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Stock Tickers: CRM, ORCL, MSFT, SAP

Salesforce.com (CRM-NYSE) is trying an interesting strategy: it is splitting the need to buy its core product to use the company’s online market for business software. This is intended to tap into the rising demand for web-delivered applications, but it is not without risk.

This is an opening up of its online marketplace for host business software applications without the requirement of being a client of Salesforce.com’s sales and marketing software. This should allow the company to collect royalties from its platform on a much wider base. It might even allow the company to sell more seats within organizations without the company itself having to build applications, and this will make the creation of more programs created for the online marketplace.

Perhaps this strategy will get the company closer as a real competitor for its web-based software and applications against Microsoft (MSFT), Oracle (ORCL), and SAP (SAP). There has been talk and data pointing to this in the past, so now we’ll have to see how well the execution is.

It has to make you wonder if this shows a maturing of its current model creating the need to split applications off in order to maintain its lofty growth demands. This has been one of the high-multiple and high-beta stocks, and it no doubt knows the demands that Wall Street has on it to maintain their current prices. The fiscal targets from Wall Street are demanding: JAN-2008 $0.42 EPS & $720+ million revenues; JAN-2009 $0.66 EPS & $985 million revenues. Revenues for Fiscal JAN-2007 were $497 million on what boiled down to essentially break-even EPS results. Compare this to the $4.8 Billion market cap based on a $41.75 stock price (52-week range $21.64 to $50.43), and you can see that the company has to do whatever it can to catch up to its valuations.

Jon C. Ogg
April 23, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.