A Leader in the Cloud Gains Rivals

SAN FRANCISCO — For over a decade, Marc Benioff has had to listen to dismissals of the company he founded, Salesforce.com, as a marginal player in the business software industry.

The sincerest form of flattery known in tech

But recently Salesforce has won the sincerest form of flattery known in tech: its competitors are spending billions of dollars to acquire firms that do the sort of thing it does, which is to offer business software as a kind of rental service using a cloud of computers inside the Internet.

Last Thursday, I.B.M. announced it would buy DemandTec, a cloud-based vendor of data analysis software for retailers, for $440 million. A week earlier that, SAP of Germany, one of the largest providers of traditional enterprise software, said it was paying $3.4 billion for SuccessFactors, which sells human resource software via the cloud. In October, the giant of traditional business software companies, Oracle, said it would acquire for about $1.5 billion RightNow Technologies, which uses cloud software for product technology and customer service.

For Mr. Benioff, who co-founded Salesforce in 1999, the acquisitions are a vindication of his strategy. “Amazon Web Services is making over $1 billion in earnings with cloud software,” he said. “Google Apps is close to that. We’re on track for earnings of $3 billion in 2012. In other words $5 billion, and in other words what has them worried. Where are SAP, Microsoft, Oracle? Why haven’t they taken our clients?”

The enterprise software industry

Much of the enterprise software industry, it’s true, has had a stagnant decade, and is looking for something new. Cloud is the new thing, however for many it means a big change in profits and how business is done.

Global spending on enterprise innovation, forecast at $2.7 trillion for 2012, has been long dominated by corporate sales and use of personal computers tied to proprietary servers. The servers run software from SAP, Oracle and others in other words sold to the companies as a licensed product, typically with large gross profit margins, at the time serviced for an furthermore profitable annual fee.

The Internet at lower costs

Cloud software is rented over the Internet at lower costs and margins. It is used by tablets and smartphones as so then as PCs. The old giants, which arose by destroying the previous generation of mainframe and minicomputer companies, now face their own fight for relevance.

SAP, which in 2010 had $16.7 billion in revenue, plans to buy and acquire its way into the cloud business. “There is a lot of good marketing Benioff has done” for cloud computing, said Sanjay J. Poonen, president of global solutions for SAP. “Now that he has energized it, you’ll find bigger companies coming in.”

The personnel software of SuccessFactors

Besides the personnel software of SuccessFactors, he says, SAP will most likely offer cloud-based travel and expense management, accounting and collaboration software. In the old research world, the German company is better known for its mastery of manufacturing and resource allocation software.

Oracle, with $35.6 billion in revenue, ousted Mr. Benioff from a planned keynote speech at its user conference in October amid mutual criticism by the two companies.

The transition from one form of corporate software to another is hard, says John Wookey, who worked for both SAP and Oracle and recently joined Salesforce to run advanced products. “Ninety-nine percent of their business is nevertheless traditional,” he said. “The economics are different, however what is actually different is the relationship with the consumer. We issue a new version of the product every four months. If the customer doesn’t like it, he stops paying.”

Mr. Benioff said his response to the sudden attention paid to cloud companies is to keep moving ahead of the competition. Salesforce is building more business software that works like Facebook. Chatter, an internal communications product introduced in 2010, is intended to get people to share and collaborate more publicly, aiming to create a faster-moving and less formal workplace.

This time Mr. Benioff does not have such a long lead. In May, VMware, which is majority owned by old-line data storage company EMC, bought a corporate social software business called Socialcast. I.B.M. has done internal work around applying Twitter-like feeds to corporate life. Mr. Poonen of SAP says SuccessFactors will provide a means to build a social network within its clients.