While the Google Inc. initial public offering has captivated the tech world, a wave of other IPOs, led by hosted CRM service provider Salesforce.com Inc., are in the pipeline that demonstrate businesses growing reliance on hosted application utilities.
The Salesforce.com 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. Salesforce.com 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. Salesforce.com 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.
The San Francisco companys latest IPO troubles center on a May 9 New York Times article, which previewed its impending IPO. The article tracked the companys history and the current state of the hosted CRM market.
Benioff was interviewed for the article, though he did not comment on the pending IPO, which was then scheduled for May 23. The IPO had been previously delayed as the company reconciled accounting issues relating to expensing of sales commissions and the amount of company stock Benioff owns, according to published reports.
In this months SEC filing, Salesforce. com acknowledged that it stopped the IPO process May 13 and entered the cooling-off period so that any effects the Times article and other media reports would have on the IPO would “dissipate,” according to the filing. Salesforce.com has no comment on the IPO or the amended registration statement, said company officials.
Mike Doyle, CEO of Salesforce.com rival Salesnet, in Boston, was sympathetic to Benioff. Doyle took Standish Care Co., which he founded, public in 1992, the first assisted-living service provider company to go public, Doyle said. He also described a cooling-off period for the talkative Benioff as “almost an oxymoron.”
“You wont want to completely muzzle Marc, though,” said Doyle. “Hes done a good job of evangelizing for this industry.”
Salesforce.com indicated in its most recent filing that it expects to sell 10 million shares, priced at $7.50 to $8.50 per share. When that will happen now is anyones guess, though before the end of the summer seems likely. Doyle said he will watch closely.
“Their IPO will be a very important data point for us,” he said. “An IPO is something were considering. A lot of our decision will be based on the success of Salesforce.coms IPO.”
Gow said Salesforce.coms IPO stumbles likely wont have much of a chilling effect on the rest of the market. “Their problems have more to do with statements made by the CEO than with the companys fundamentals,” Gow said. “Its going to be one of the hot IPOs out there. Itll drive interest in the others.”
David Brooks, director of CRM at Salesforce.com customer Magma Design Automation Inc., said the companys IPO hiccups havent become a distraction yet. “As far as Im concerned, they can just stay private,” said Brooks in Santa Clara, Calif.