INSIGHTS
A Busy Week by the Bay

They may be still waiting for the first signs of the much advertised recession in the Bay Area. Everything I see here, especially this week, points to growth and all that goes with it. Multiple people have come up to me, phoned or e-mailed seeking introductions or support as they confess to having itchy feet or the promise of some capital to start a business. Some -- a few lucky ones -- also have some cash from their last initial public offering (IPO), and having tasted victory, they are eager to do it all again.

I came here for announcements from two of the most successful and recent companies to run the gauntlet from start-up to IPO, Salesforce.com (NYSE: CRM) and NetSuite. It is rare that two such companies have events so close together that I can consolidate a trip, and I am not complaining. While the two companies shared time on many analysts' and journalists' dockets, it continues to amaze me that they only infrequently find themselves in the same deal . Salesforce is squarely in the CRM camp with aspirations in the application development world, and NetSuite is all about providing a soup-to-nuts solution for small businesses' front and back offices.

This last might seem surprising in light of NetSuite's announcement that it was offering new enterprise capabilities for its target customer base. Specifically, the company said it now has fifty companies using its solution to run companies that operate in multiple countries with different currencies and accounting rules, so this was more than an announcement of intent.

NetSuite increasingly looks like the company that will compete head-to-head with SAP (NYSE: SAP), Microsoft (Nasdaq: MSFT) and Sage in the on-demand market. While I like Sage's diverse collection of front and back office products, and I respect SAP's market prowess, I think it's safe to say that NetSuite has room to stretch its wings. You also have to respect all three companies' money and marketing budgets, but since its IPO, NetSuite can play that game too -- come to think of it, with Larry Ellison's money, NetSuite could always compete.

Salesforce-Google Again

In a move designed in part to show the marketplace that Salesforce.com is sticking to its knitting, CEO Marc Benioff announced on Tuesday that his company's flagship CRM system is tightly incorporating Google's (Nasdaq: GOOG) on-demand office tools such as e-mail , calendar and instant messaging into its core capability. I found this announcement interesting not so much for the technology as for the chess game that is going on in enterprise computing.

Salesforce is making a bigger commitment to on-demand computing by so visibly incorporating additional on-demand office applications. More than that, the Force.com platform is intimately involved as well, which means that there will be development and customization involved. It's another clear sign that these two companies are not simply looking to automate what's already there; they are seeking to inspire new thinking and new applications as well.

You might be tempted to say that there's no news here, and you could be right, but what I see is the on-demand approach gaining more steam as Salesforce and Google make it possible to deliver new functionality from the cloud.

Window Dressing?

Salesforce.com is a superb marketing company, among many other things. They religiously adhere to the rule of three -- tell them what you what you are going to say, then tell them, then recap. All of the announcements I remember follow this pattern, and this week was no exception.

I forget precisely if this was the second or third time they announced an alliance with Google. There was a Google AdWords announcement when Salesforce bought Kieden, and there was an announcement about integration with Google applications last year. This week, CEO Marc Benioff told the world that Google Apps are tightly integrated with Salesforce CRM and that Salesforce will be delivering that functionality as part of its product set. That's three if you count AdWords as part of the same group.

I wonder, though, if this is all window dressing and that another announcement is in the offing. Lots of tongues have been wagging about an acquisition of Salesforce by some larger power. Last year, Oracle (Nasdaq: ORCL) was the designated suitor, but that never seemed like a real idea you could sink your teeth into. The rumor was for $75 per share, and it went nowhere. I said at the time that it was too low, that Force.com has too much potential to let it go for such a small fee. Also, mixing Oracle and Salesforce seemed like some medieval alchemy experiment -- let's see if this blows up!

The Biggest Loser: Microsoft

The new idea that has people looking closely is, of course, a marriage between Salesforce and Google. Without commenting on the utility or futility of such an arrangement, let me say that the two parties seemed rather chummy at the announcement. Google CEO Eric Schmidt and Benioff each made reference to the two companies "shared values," and there was even a slide on the topic. The reference involved each company's philanthropic foundation, which uses a model Benioff made popular -- 1:1:1, donating 1 percent of his company's time, equity and product (profit). Shared values make a good basis for a long-term relationship, I think.

Perhaps the big loser in the Google-Salesforce announcements is Microsoft. The company took its time to respond to the on-demand threat and only recently fielded a credible product in CRM. This announcement threatens Microsoft not in a peripheral application area, but where it lives. Microsoft is being buffeted by market reaction to Vista, and the increasing utility of on-demand office products will begin eating into an important franchise. The operating system miscue has caused a lot of people to look elsewhere at Linux and at Apple (Nasdaq: AAPL) -- all the demonstrations at Salesforce-Google announcement were performed on Macs, which I believe run Intel (Nasdaq: INTC) chips these days.

I know there is a Microsoft Live product set, so there's no need for panic, but it has to be said that Google has street cred in the office world now, and that's something Microsoft could do without -- as the OS business goes, so does the office automation business.