SaaS Is Real: Salesforce.com Boasts of 500,000 Subscribers

While most companies want to run their own applications, there is increasing traction for the idea of selling software as a service, or under a SaaS model, if you want to use the IT lingo. The poster child for SaaS is Salesforce.com, which was founded on the idea of selling a hosted version of its customer relationship management software seven years ago.

Last week, Salesforce.com–which may be in use at your company–announced that it has managed to grow its end user subscriber base to 500,000 seats, despite a number of embarrassing system outages earlier this year. Those seats are in use at approximately 24,800 companies, according to Salesforce.com.

One of the key features of Salesforce.com–and probably the one that is causing its systems designers and administrators such headaches–is that it concurrently releases software patches to all customers who use the service. On July 12, the company released its 20th iteration of the Salesforce.com software suite to 22,700 customers, which was its full customer base at the time. Salesforce.com processed more than 3.1 billion transactions in the second quarter of 2006, and had its first 50 million transaction day on July 31, only two weeks after installing the latest release of its code. Average response time of pages on the Salesforce.com suite–provided it was up, of course–was less than a third of a second. Salesforce.com also said that 1,000 non-profit companies are using the software.

Perhaps most interesting of all is the success of the AppExchange service that Salesforce.com launched last year. With AppExchange, you get the Salesforce.com API set and you create add-ons to the software, which you can then share with other Salesforce.com users. There are now over 19,000 developers and 500 independent software vendors registered with the AppExchange program, and they have created some 300 applications so far. And nine new companies that are creating AppExchange add-ons have been able to capture a total of $95 million in venture funding to help them get started.

“Revenue at legacy client-server companies is dominated by maintenance fees and services, not new licenses,” said Marc Benioff, Salesforce.com’s chairman and chief executive officer. “Venture capitalists have shifted virtually all their investments to on-demand. When you combine those trends with the major milestones we are reporting, it’s clear that ‘the code ahead,’ as we like to say, is software as a service.”

SaaS sometimes doesn’t get a lot of respect because the ASP, or application service provider, concept from the Internet bubble didn’t pan out exactly as advertised. But, if Bill Gates has tapped Ray Ozzie, the genius behind Lotus Notes/Domino messaging and Groove peer-to-peer networks, to spearhead Microsoft‘s own efforts in SaaS, and Salesforce is showing such numbers, now is the time for the rest of the application base to get into the game. But, because they get so much of their money from maintenance and service and they are not experts at maintaining systems or even running or updating their own applications on such massive scales, the traditional ERP, CRM, and SCM software houses cannot so easily move into SaaS. If they do, they are toast because they will have to charge for what people actually use, and if they don’t, they’re toast, too, because they will lose revenues to new SaaS providers.

SaaS is not only real for traditional ISVs, it is a real pain in the—you get the idea. SaaS changes the way people consume software and hardware.