Salesforce.com should not drop the SME ball

As we discuss SaaS, in the Enterprise and in SME markets, the first company that comes to mind is Salesforce.com (Nasdaq: CRM).

2007 was an excellent year for Salesforce.com. It crossed the 1 million mark in subscriptions. Its stock price has increased almost 50% from $36 last year to around $53. It hit a 52-week high of $65.52 on December 21. Its market cap is around $6.2 billion. While still expensive, it is by far the strongest beneficiary so far of the SaaS trend, CEO Marc Benioff having been the original trend-setter who set the industry in motion.

In the latest quarter, it reported revenue of $193 million, a growth of 48% y-o-y and 9% sequentially. GAAP net income was $6.5million, up 74% sequentially. For 2008 or its fiscal year 2009, it expects to be the first on-demand company to exceed $1 billion in annual revenue. It has 38,100 customers, up 41% y-o-y and 8% sequentially. Its impressive list of big customers includes Merrill Lynch, Dell, Cisco, Citigroup and Walt Disney (it won this contract against Microsoft’s .Net development suite). Earlier in the year, it acquired an OnDemand Content Management SaaS company, Koral.

Salesforce.com has started the New Year with a bang winning a big customer, Carlson (a $37 Billion Travel conglomerate) for its new Force.com platform. This on-demand application development platform is expected to help Salesforce.com expand its subscriber base beyond its trademark CRM. It also expects Force.com to help face competition from Microsoft, Oracle, and SAP. Oracle has recently come up with its own on-demand “social” CRM that Larry Ellison claims will challenge Salesforce.com’s dominance in the market.

Long before the Webex acquisition by Cisco, I had suggested that Salesforce.com, Webex, and NetSuite should merge to offer a separate alternative to the big boys. I still feel Salesforce.com should consolidate the SaaS category before someone else does it.

One final comment on the topic of mid-market SaaS: Salesforce.com should make sure that it keeps an eye on this ball, and not let its largely enterprise-oriented “Oracle-culture” drop it.
The SME opportunity is large and robust. It is not Oracle’s strong-suit. Salesforce.com, once upon a time, had penetrated the market through this door. There is no reason to let that core-competency dwindle.