Planned Salesforce IPO Shows Upswing in Hosted Apps

Hosted CRM service provider and others are moving toward initial public offerings, demonstrating businesses' growing reliance on hosted application utilities.

While the Google Inc. initial public offering has captivated the tech world, a wave of other IPOs, led by hosted CRM service provider Inc., are in the pipeline that demonstrate businesses growing reliance on hosted application utilities.

The IPO, delayed by a number of issues after an expected March launch, will be a bellwether that several other companies will be watching closely—including hosted customer service software provider RightNow Technologies Inc., hosted business applications provider NetSuite Inc., hosted Web analytics service WebSideStory Inc. and hosted sales force automation service Salesnet Inc.

All but NetSuite and Salesnet have filed IPO registration statements, known as S-1s, with the Securities and Exchange Commission this year.

Hosted software providers are popular now because as "more companies are resource-constrained and have smaller budgets, the pay-as-you-go model has become more popular rather than large upfront license purchases," said Donovan Gow, an analyst at American Technology Research Inc., in Stamford, Conn.

Gow said he isnt yet convinced that any of the upcoming hosted services IPOs will make good investments, however, noting that most of the companies have only gained "significant traction" at smaller businesses and departments of larger organizations.

"I have some questions as to how big this market really is and [whether it can] move upscale to the enterprise segment," Gow said. "This was a hot space three or four years ago, too. The hype still seems to be ahead of the reality, though its not as big a gap today as it was then."

That first wave of hot ASPs (application service providers) was led by companies such as Corio Inc. and USinternetworking Inc., which hosted other companies applications.

The current movement features companies that deliver their own applications as a hosted service. CEO Marc Benioff has led the charge as chief evangelist and cheerleader for these application "utilities."

Benioff is widely and rightly credited with putting the hosted CRM (customer relationship management) service space on the map, even though his company wasnt the first to offer such services.

Benioff may have done his job too well, though. acknowledged in an SEC filing earlier this month that it is in a "cooling off" period after a possible violation of the SEC-mandated quiet period before the companys planned IPO.

Next Page: The story behind the delay.