As rivals join it in the cloud, Salesforce faces need to reinvent itself

When you have done as much as anyone to build a new technology market from the ground up, what do you do for an encore?

That is a question for Marc Benioff, Silicon Valley's pre-eminent salesman of the last decade and a half. Salesforce.com, the company he founded at the tail-end of the dotcom boom, was the first to convince Wall Street that software-as-a-service, or SaaS, was a business worth backing. Now he needs a second act.

A sign of Mr Benioff's success is the catalogue of tech giants that have been talked about as potential buyers of Salesforce since Bloomberg reported a week ago that the group had been approached about a deal.

Top of most Wall Street analysts' lists have been rival enterprise software companies Oracle and Microsoft, with IBM and SAP also featuring. But it does not stop there. Amazon and Google have also been mentioned.

After all, they have built cloud platforms for other companies to run their businesses on, so why not also sell cloud services that sit on top, like Salesforce's customer management and marketing products?

However, the sheer size of any deal - it would probably cost upwards of $60bn, based on the kind of revenue multiples seen in other SaaS deals - makes an acquisition unlikely. A person close to Oracle, the company that could achieve the biggest savings and revenue benefits from absorbing Salesforce, dismisses the idea, and the high price would make it financially challenging for others.

All of this has confirmed the enviable position that Mr Benioff has staked out in the cloud - at a time when the old IT order is racing to catch up. But it has also highlighted the challenge he now faces.

Salesforce's financial model has got it this far, but it is reaching the end of the road. To join the ranks of the software giants will require taking the next step: moving on from being a hyper-growth lossmaker to a profit machine with above-average growth prospects.

It was Mr Benioff who persuaded Wall Street to turn a blind eye to the losses of SaaS companies such as his. Salesforce keeps its spending on sales and marketing at slightly more than 50 per cent of revenues, fuelling growth but leaving plenty of red ink. True, it did squeeze out profits totalling $240m in the eight years to 2011, but that is dwarfed by the $780m of losses in the past four years.

Growth is expected to fall below 30 per cent for the first time this year. That is still enviable for a company with more than $5bn of revenues. But with Microsoft, Oracle and SAP finally getting serious about the cloud and starting to show results from their internal investments, Salesforce has begun to appear in a different light. It is no longer the biggest fish in a small pond. Cloud revenues at Amazon and Microsoft are larger - and growing much faster.

As growth moderates, Wall Street will want to see profits. To deliver steady gains in earnings per share, Salesforce will have to find a way to moderate its sky-high sales and marketing costs, while at the same time weaning itself off large stock grants to employees.

It will also have to find new things for its own sales force to sell as it reaches for its next annual revenue target of $10bn. Forrester Research warned last month that the pressures of growth are likely to add to strains on its relationship with customers: it said that Salesforce would have to lock them into more - and bigger - contracts to meet its financial targets.

Increasing sales efficiency in this way - by channelling more products through its existing sales organisation - will make the company look increasingly like Oracle, the company where Mr Benioff cut his teeth, and whose former top salesman, Keith Block, he recently hired.

In another sign of how different the next phase of growth will be, Mr Benioff forged a partnership last year with Microsoft, a company that he had previously never hesitated to ridicule as the symbol of a dying software industry. Like Satya Nadella, Microsoft's new CEO, he now seems ready to look past the industry's old battle lines.

It is still a stretch to see this as the prelude to full-scale consolidation as the software world realigns around the cloud. But it does show that, for one of the industry's most successful mavericks, the pressure to join the IT establishment is forcing an intriguing reinvention.

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