While much of the West Coast tech world is focused on Yahoo’s (YHOO) attempts to fend off Microsoft (MSFT), another notion currently being passed around Silicon Valley is that Oracle wants to buy Salesforce.com (CRM), a startup that’s like Google in certain respects but couldn’t be more different in one critical way: Salesforce.com makes its revenue selling software, not advertising. As I pointed out recently, while Microsoft obsessed over Google – which, in turn, obsesses over Microsoft – by beefing up its business that sells advertising, Oracle has been buying every enterprise software company it can, a list that includes Peoplesoft, Siebel and BEA. It has been a winning strategy and has accounted for Oracle’s stock trouncing Microsoft’s over the past two years.

So, would Oracle make Salesforce.com its next target? At a valuation of something over $6 billion, Salesforce.com certainly is an easier target than Yahoo is for Microsoft. It fits right into Oracle’s game plan, providing a platform for delivering pretty much any kind of enterprise software online. Salesforce.com CEO Marc Benioff loves to promote the idea that Salesforce.com doesn’t sell software. It does. Its software just doesn’t need to be installed on its user’s computers. If you think about it, Salesforce.com’s approach to enterprise software is exactly Google’s approach, at least in terms of how software is delivered. That’s why there’ve also been rumors that Google would buy Salesforce.com. (Spokespeople for each company declined to comment on the rumor; Salesforce.com hasn’t yet responded. Also worth noting, though Larry Ellison was an original investor in Salesforce.com, as of the younger company’s lastest proxy statement last spring, Ellison did not hold a stake worth disclosing.)

Having said all that, this appears to be one of those wishful-thinking rumors where there isn’t any smoke, let alone fire. (Wall Street puts credence in it, though. Salesforce.com’s stock is up about 9% Monday.) Salesforce.com is approaching the billion-dollar sales mark, but it’s just too expensive for Oracle. It trades for an astronomical 172 times Wall Street’s expectations for Wall Street’s fiscal 2009 earnings. Pat Walravens, an analyst with JMP Securities, pegs Salesforce.com’s enterprise value (market capitalization plus debt) at about six times its 2008 revenue, compared with a 3.6 multiple for its peers.

Part of the relative puniness of Salesforce.com’s earnings is that its financial performance is back-end loaded. It records sales over a long period of time, even when the business is locked up. It used to be that companies with that business model complained that Wall Street didn’t understand them. Given Salesforce.com’s valuation, it’s clear that investors understand it perfectly.

Still, it’s Oracle’s style to buy valuable software assets that for whatever reason are stuck and whose valuations are stalled. Salesforce.com doesn’t fit that bill.

I posted some insta-analysis on Oracle’s (ORCL) acquisition of BEA Systems (BEAS) this morning and distributed it among my network of friends and contacts. Their responses were interesting — and worth sharing.

One friend, a sharp-eyed historian, likened Larry Ellison’s role in enterprise software to J.P. Morgan’s consolidation of U.S. banks a century ago.

Morgan was a consolidator and rationalizer of maturing industries after a period of excess. He didn’t innovate, used his balance sheet as a competitive advantage and was a force for order. Also, he was way into big boats.

I didn’t know about the boats!

A keen small-business owner who toils far from Silicon Valley weighed in thusly:

I’m not exactly plugged in to the enterprise software market, but I didn’t realize that there were rumblings that it was dead. I think there is always going to be a market for an enterprise system that avoids the hassles, expense, and risk of integrating individual packages that are selected for each function (e.g., manufacturing, distribution, accounting, HR, etc.). Microsoft and perhaps SAP (SAP) have been smart to realize that they have a large middle-market opportunity because that market is traditionally underserved by the all-in-one concept. But I’m not aware of all of Oracle’s moves in the big company arena, and it sounds like they’ve done well to focus there. Also, I would agree with the statement that technology companies (and other high-growth industries) aren’t doing themselves a favor in terms of stock price or fueling growth if they just sit on cash (and sitting on the cash sends a signal that management isn’t good at identifying new growth projects, which depresses the stock further). As you know, this has been a criticism of Microsoft (MSFT) for many years, and I’m not sure if they’ve fully addressed it.

A correspondent of mine who is a true tech guy inside a really big diversified company had this guidance on the relative deadness of enterprise software:

Of course it isn’t dead, but it is simply a very mature business with not the extreme hyper-growth of 5-10 years ago. The dynamics of a mature industry are different than a nascent one, and the movement to a “gorilla game” is natural as a segment evolves.

A tech lawyer I know – but haven’t seen in ages! – quibbled with my praise of Ellison’s vision:

Not sure I agree with you. The spotting of trends can outpace reality by a couple decades or more. Wouldn’t you have thought that Toyota (TM) would have passed Ford (F) in the US twenty years ago, not this year? Same with Toyota passing GM globally. This dissonance is true even in faster moving tech. Why did it take AOL so long for its market share to erode? It held on for 6 or 7 years longer than the shorts (who got killed on AOL) thought they could, given the rise of broadband.

Another legal eagle who knows his bits and bytes had this to say:

Enterprise software may not be dead, but it is also pretty cyclical, right? Also, there’s a downside to tech companies overborrowing. If they get too aggressive they will stray from the ’stick with the business you know’ observation you make about Oracle overall. Finally, what is Oracle’s batting average in spending that $25 billion. In other words, how many dogs did it buy?

Good question! Thanks everyone.

A few weeks ago, when Oracle (ORCL) reported fine quarterly results, the company said it was no closer to persuading the board of BEA Systems (BEAS) to accept its earlier takeover offer. Clearly, Larry Ellison’s minions don’t quit easily. Instead, Oracle announced Wednesday it would acquire BEA for $8.5 billion, or about $7.2 billion when you subtract out the cash on BEA’s balance sheet.

A few lessons here. Pundits will say that business software increasingly is a game played only by the biggest of the big. That list that includes Oracle, Microsoft (MSFT), SAP (SAP) and three companies long known more for their hardware than software: IBM (IBM), Hewlett-Packard (HPQ) and Sun Microsystems (JAVA), which announced Wednesday a smaller acquisition of the Swedish database software maker MySQL. But, while the giants dominant the business software market, startups continue to flourish, especially of the Web variety. Salesforce.com (CRM) and NetSuite (N) are two good examples. (Though, what’s this? NetSuite’s IPO bubble appears to have sprung a bit of a leak.)

A second lesson: Silicon Valley companies that refuse to adhere to modern financial theory become takeover bait. BEA is a solid cash generator whose growth has slowed. That’s what attracted raider Carl Icahn, who saw value in BEA’s stalled shares. The fact that BEA had more than a billion dollars of cash and a mere $20 million in debt shows that it suffers from a common tech-company disease: a failure to use its balance sheet to reward shareholders. (BEA’s debt-to-equity ratio, according to Yahoo Finance, is a mere 1.4 percent; By comparison, Oracle’s is a far more aggressive 32 percent.)

Here’s the final lesson. Larry Ellison gets what he wants in the end. The seer of Silicon Valley has long been quickly dismissed for picking unneccessary fights with Microsoft earlier in his career and for his flamboyant lifestyle. While Microsoft has been battling Google (GOOG), Oracle trained its balance-sheet guns on the business it knows best, spending $25 billion in the process. The results have been impressive.

Let us all praise Larry Ellison. Everyone pays attention to the Oracle (ORCL) CEO because he’s a wonderful showman, a free-spending yachtsman, a home builder, a seeker of the fountain of youth, a bon vivant and a delightful conversationalist.

That long list makes it easy to forget the guy also is an astute businessman. It was Ellison, after all, who accurately predicted that enterprise software had become a mature industry, which is why his company embarked on an acquisitions binge that included PeopleSoft, Siebel, Hyperion and many smaller software companies. The results of the shopping expedition were evident on Wednesday, when Oracle reported earnings for the quarter that ended in November. Year-over year revenues grew 31%, correcting for currency effects. Earnings grew 24%. Most impressively, Oracle’s operating margins (non-GAAP) are 41%; Ellison wants them to be 50%.

For years Oracle was the king of databases but a peasant in software applications, things like accounting programs or HR-management tools that work with a database. Now that the company has bought many of the best applications makers, it’s got that base covered, too. Oracle executives say they’re able to “pull through” sales of so many additional applications because its existing database customers are willing to consider Oracle’s improved menu.

The upshot is that in a time of economic uncertainty Oracle has become a broad-based machine that can take the macroeconomic blows as well as, or better than, anyone. In Wednesday’s post-market conference call with investors, neither Ellison nor his two presidents – finance chief Safra Catz and sales honcho Charles Phillips – did anything to dissuade investors that economic times are tough. Instead they crowed about their product line and geographic diversity. Ellison noted that while customers can ponder an implementation of database and other bulky enterprise software for years, certain applications are far more urgent, especially programs that help industrial and financial companies comply with regulatory requirements. “It’s a more resilient strategy during a downturn,” he said.

In his youth, Ellison seemed to relish his bad-boy image. He’s more mature now too, and he sure seems to be enjoying the role of an industry titan at the helm of a really big ship in turbulent waters.

A smallish software company called NetSuite filed papers Monday with the SEC to go public. If it weren’t for the fact that Larry Ellison controls 74% of the company and that the online software provider for businesses is a relentless press hound you’d probably never have heard of this company.

As NetSuite prepares to public it will be making a lot of comparisons between itself and other companies. For instance, because it will go public using the auction method, NetSuite will point out that it’s the first big tech IPO to do since Google (GOOG). Because the company delivers its services online, it will compare itself frequently to Salesforce.com (CRM), another company Ellison, the CEO of Oracle (ORCL), helped fund.

In the spirit of comparisons, here are some NetSuite probably won’t make. NetSuite, you see, was founded the year before Salesforce.com, 1998, the same year Google was founded. When Salesforce.com filed to go public in 2004, its last full year of revenues weighed in at $96 million. It made $3.5 million that year. Google, which also went public in 2004, had revenues the previous year of $1.5 billion and profits of $106 million. As for NetSuite, which started hyping its IPO last December, its last full year of revenues were $67 million, on which it managed to lose $23 million.

There’s also the comparison of spending. NetSuite spent $44 million on sales and marketing last year, 65% of its revenues. Even the hilariously freespending Salesforce.com spent “only” 57% of its revenues on sales and marketing in its last full year before going public — and it made a profit that year.

One wonders with numbers like this why NetSuite is rushing to go public at all. Valuing IPOs is all about what Wall Street types refer to as comps. Limelight Networks (LLNW), for example, went public largely by using competitor Akamai (AKAM) as a comp. In NetSuite’s case, however, the comps don’t look that great.