The platform in the cloud.

In the five years since he left database and applications heavyweight Oracle to set up his own software company, Salesforce.com's CEO Mark Benioff has been the champion of the application-as-a-service market. Salesforce's popular applications service has effectively reset the CRM agenda by offering a multi-tenant model that is flexible, low-cost and updated regularly and centrally - all without IT departments having to lift a finger.

In its early years, the company suggested that CRM was just the first of a series of business applications that it would be dishing up to users over the web. But the focus of Benioff's ambitions has moved elsewhere. Rather than establishing itself as an applications factory (after all, the company has little domain expertise outside of CRM) it has set its sites on creating 'the Windows of the on-demand era', an operating system on which its own and other software companies' applications will be built, assembled and run.

The centrepiece of Salesforce's annual user conference in San Francisco in September, the new Appforce operating system provides a common architecture for applications with a single data model, security model and user interface. Above the OS (which first came to light in June under the name Multiforce) will sit Appforce db and Appforce API (both previously part of the Sforce product) and Appforce Integration (also formerly part of Multiforce).

That stack is triggering some bold thinking. "We would love to become an ERP [enterprise resource planning] platform on the Internet, just like Microsoft is a platform on the desktop," says Parker Harris, a co-founder of Salesforce.com and executive VP of technology.

To add to this vision, Salesforce is creating an online applications marketplace, known as AppExchange, where customers and partners will be able to sell and share application components which can be deployed over the Internet. The exchange is due to go live by the end of 2005.

Salesforce has developed half of the applications currently available in the primitive exchange, the other half comes from partners. It also hopes its customers will contribute. Salesforce user Bennett's Business Systems, a provider of imaging technology, for instance, has already deployed eight new applications on Appforce including document management, software project management and inventory management modules, and says it will put many of those modules up for exchange with other subscribers. If the model works out, Benioff says he hopes Salesforce will eventually only play a minor role in the exchange as customers and partners develop "thousands" of applications catering to the user requirements that large software companies cannot satisfy. The exchange currently hosts 70 applications.

Those lofty ambitions raise some vital questions: most critically, should Salesforce - primarily a CRM vendor - be the foundry for an Internet operating system? Unsurprisingly, Zach Nelson, who like Benioff left Oracle to start his own hosted applications business, thinks the idea lacks credibility. "No sizable company will build their mission critical applications around a contact management or sales force automation application, they will build it around the ERP system, which is the system of record," says Nelson, whose rival company NetSuite provides on-demand applications for financials, purchasing, payroll and other 'classic' ERP areas, as well as CRM.

All this talk of the next-generation operating system will have certainly caught the interest of executives at technology giant Microsoft. It has its own set of CRM applications and has committed to moving parts of them to the on-demand model. But it still sees most of its future ERP suite tightly bound to the Windows desktop platform.

That leaves Salesforce as well placed as anyone to launch the Internet operating system, says Bruce Richardson, chief research officer at IT industry analyst AMR Research: "They're the largest and they're synonymous with on-demand and software as a service. [Appforce] is .Net plus Windows plus elements of Office and Great Plains all bundled into one - but the difference is Microsoft stresses the platform whether the user cares or not. Here it's all hidden."

Some users are even more bullish. Martin Bate, business director for decision support at Innovex, which does sales and marketing work for the pharmaceutical and biotechnology industries and is one of Salesforce's largest customers, is enthusiastic about the platform's potential. "AppExchange is a great concept for us," he says. Currently he has two part-time administrators who simply lack the time to develop their own applications. "Being able to look at what other people are doing to give us ideas of how and what we might do to expand the breadth of our system, or to be able to take the apps put up there and build them in really easily, is great," Bate adds.

Richardson says the AppExchange is a "brilliant play" for small and midsize businesses, where sales is a core activity and IT resources are thinly spread. But for large enterprises, sales may not be the logical department from which to build out every other business application.

Some IT analysts predict that very high-end but narrow vertical industries with more complex software requirements, such as valuable functions within financial services like payment and clearing, will outsource both the technical and the operational side of their applications to specialist providers who are intimately familiar with their customers' businesses.

This "selective application outsourcing", says Forrester Research analyst Jost Hoppermann, goes beyond the horizontal application service provider model of Salesforce, RightNow and Netsuite, falling only a few steps short of full-on business process outsourcing.

But other experts argue that even complex requirements can be satisfied by on-demand applications. Woody Driggs, managing partner at consultancy giant Accenture, finds the software-as-a-service model compelling, and says an Internet operating system could prove equally attractive. "Frankly, I was sceptical a couple of years back that our biggest enterprise customers would take up on demand model," said Driggs. "But our customers are not only asking us about it but asking us to deploy it. I can envision a time now where developers and customers are exchanging applications. We are going to build skills in this space."

This has a symbolic resonance: Accenture was a big investor in packaged CRM vendor Siebel. Salesforce no doubt hopes Accenture will go further and contribute to AppExchange either directly or through developing code for clients. This would help build momentum in areas where Salesforce struggles to reach.

But is the alignment of the birth of the Appforce and AppExchange with Oracle's purchase of Siebel really a sign that the end of software is nigh? Harris argues that if Salesforce's on-demand platform does not succeed, Amazon or Google are more likely to accomplish such a feat than Oracle or Microsoft. Whoever it is, he is confident that the old ways of client-server computing are dead.

Increasing numbers of businesses are being won over by the benefits of software as a service; whether they all reach the same moribund conclusion about enterprise software packages is another matter. But coupled with HP, IBM and Sun's provision of on-demand storage and data processing services, an enterprise stack living in 'the cloud' does not seem as far fetched as it did even a year ago.