At long last, Salesforce.com goes public

After a delay, Salesforce.com debuted on the New York Stock Exchange this morning. The move is expected to bolster the hosted model and investment in high tech.

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"CRM" made its debut on the stock market this morning -- at least the ticker symbol did.

Hosted software provider Salesforce.com, now trading under the symbol "CRM," offered 10% of the company to the public on the New York Stock Exchange today. Chairman and CEO Marc Benioff rang the opening bell to mark the occasion.

The San Francisco-based firm enters the public domain after two delays and much speculation. Along with Google, its initial public offering (IPO) is expected to fuel renewed interest and investment in high tech. Salesforce.com must also live down the disappointment of early application service providers, companies that host software in an effort to save businesses lengthy installations and costly ongoing maintenance fees.

"This should be a high-quality IPO, and it will get a lot of attention and make the path a little easier for other hosted companies," said Denis Pombriant, managing principal of Beagle Research in Stoughton, Mass. "If the marketplace isn't careful, it will go through a typical cycle of boom and bust. We could see an [investment] backlash against hosted applications in general."

The Salesforce.com IPO was announced in December, but has been delayed twice. In April, the U.S. Securities and Exchange Commission asked Salesforce.com to reconcile its new accounting methods with past financial statements. One month later, following a story in The New York Times that quoted Benioff, Salesforce.com itself postponed the public offering. The quote appeared during the SEC's "quiet period" leading up to an IPO.

Salesforce.com priced its initial shares at $11, exceeding the $8-per-share target price it set in April. In early trading, the stock surged as high as $15.30 before falling a bit.

Salesforce.com will raise about $110 million by going public.

New investments

Just where all that newfound capital will go remains to be seen. Throughout its existence, Salesforce.com has invested heavily in marketing at the expense of development. According to a study from Stamford, Conn.-based Gartner Inc., the company spends 7% of its annual revenue on development and 57% on sales and marketing.

"That's not going to cut it moving forward," said Wendy Close, CRM research director at Gartner. "I don't believe [Salesforce.com] will change colors overnight. They've always been strong marketers and they will continue to be, but they must invest more in R&D."

Not coincidentally, rival NetSuite Inc., of San Mateo, Calif., raised the hosting stakes Tuesday by adding new e-commerce capabilities. Moving forward, Salesforce.com will have to develop capabilities like NetSuite's to compete, Close said.

Two other competitors, San Mateo, Calif.-based Siebel Systems Inc. and Boston-based Salesnet Inc. have recently announced vertical editions of their hosted software.

Until now, Salesforce.com has relied on partners to fill its functional gaps using its custom development tool, Sforce.

"Sforce is little understood by the competition for what it can do," Pombriant said. "The technology has the ability to put literally thousands of developers to work on new applications in a way that doesn't suck down Salesforce's capital and gives them a plethora of applications pretty quickly."

Erin Kinikin, analyst with Cambridge, Mass.-based Forrester Research Inc., thinks Salesforce.com needs to look overseas. RightNow Technologies Inc., a hosted customer service provider in Bozeman, Mont., filed for an IPO earlier this year. Thirty percent of its revenue comes from outside the U.S. and Salesforce.com gets 20% from abroad, Kinikin said.

Kinikin also thinks Salesforce.com will need to add functionality and vertical features. Siebel's technology is only six to nine months behind Salesforce.com, she said. Those Salesforce.com enhancements will likely come through the partner network, and she expects the company to invest in forging new relationships.

Ultimately, the IPO will bring money and attention to the hosted model, and Kinikin predicts it will mean more acquisitions. SAP AG in Germany, which does not have a hosted product architected specifically for the delivery model, will need to offer a service soon, she said.

"Salesforce.com has validated a market," Kinikin said. "Now the question is, can they keep control of the market they created?"

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