On the face of IT, Salesforce.com and Microsoft couldn't be much more different, culturally and commercially. Yet top execs from both companies were in New York last week delivering a similar message: Amid the economic downturn, the time is now for business technology organizations to consider moving some of their IT resources into the cloud.

As a pure-play software-as-a-service vendor, Salesforce is more aggressive about the model's potential benefits. CEO Marc Benioff argues that applications such as Salesforce's CRM, delivered and updated over the Internet as subscription services, are 80% to 90% cheaper than comparable premises-based apps, factoring in hardware, maintenance, support, and related costs. And when Salesforce data is integrated with third-party Web apps, the revenue potential can be explosive. For example, Salesforce last week demonstrated a proof-of-concept mashup that integrates an online slot machine game from Harrah's Entertainment, built on Google App Engine, with a Harrah's VIP guest site hosted on Salesforce's Force.com platform and using Salesforce customer data.

Stephen Elop, president of Microsoft's Business Division, hasn't gulped down so much of the SaaS Kool-Aid, as Microsoft can't be undercutting its core premises software just yet. Still, Elop, whose $18.9 billion unit oversees the Office, Exchange, SharePoint, and Dynamics CRM lines, sees software services delivering total cost of ownership savings of 10% to 40% compared with premises versions. "The degree of interest in online services is greater than I expected," he says, "and it's the economy that's causing that." Customers, Elop says, are anxious to discuss projects that cut costs over the next 12 months, with no capital outlays.

Holding to its "software plus services" mantra, Microsoft forecasts that half of the revenue from its substantial Exchange, SharePoint, and CRM businesses will come from online versions within five years. Compare that forecast to what Oracle, SAP, and other entrenched app vendors are saying about SaaS: It's a quaint little model, but not really viable short term.

Yet Benioff singles out Oracle and Larry Ellison as Salesforce's biggest threat. "When you see him coming out so strongly against cloud computing, you know he's worried," Benioff says, noting that Ellison is a student of Sun Tzu's The Art of War--when weak, feign strength. It's also worth noting that Ellison, Benioff's former boss at Oracle, owns a chunk of Salesforce, so Benioff isn't so quick to slag off the master as he is to go after Microsoft.

Benioff, always the agitator, says he's less than impressed with Microsoft's SaaS maneuvers, including its rollout a month ago of Exchange Online and SharePoint Online. (Microsoft's Dynamics CRM Online service has been available for several months, and Office Communications Online goes into testing early next year.) When Microsoft rewrites its Office and Exchange apps from scratch for a Web environment, Benioff says, then he'll take notice. When Microsoft offers a version of Hotmail for enterprises, "then they'll be there," he says.

When it comes to taking on Microsoft and other software companies, Benioff may be betting on another Sun Tzuism: Whoever is first in the field and awaits the coming of the enemy will be fresh for the fight; whoever is second in the field and has to hasten to battle will arrive exhausted.

While Microsoft is indeed late to the cloud fight--it talked about a Windows Azure cloud operating system and related Azure Services Platform in October, but it refuses to give a delivery timetable--it's clearly on the march. Microsoft has sold more than a half-million seats of Exchange Online, SharePoint Online, and Office Communications Online, Elop says, and more than 10,000 customers have signed up for trial versions of the Exchange and SharePoint offerings. Microsoft should have a $1 billion cloud computing business within 24 months. Microsoft may arrive in the cloud exhausted, but it will arrive in force very soon.

Rob Preston,
VP and Editor in Chief
rpreston@techweb.com

Rob Preston

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