As apps migrate to the Net, the software giant’s old model looks older every day.

By Marc Benioff, Chairman and CEO salesforce.com

I have been waiting for something spectacular to happen any day. And it’s not the explosion of another volcano in Iceland, but it will be a global event with far reaching ramifications that will be as well known. Apple’s market capitalization is about to be worth more than Microsoft’s. That is quite a change from a decade ago.

This became clear to me after I recently invited Mary Meeker, Morgan Stanley’s renowned prophet (note that’s prophet with a “ph” and not an “f”), to speak to my management team about her most recent manifesto, “The Mobile Internet Report.” Mary did a brilliant job reviewing the most important developments in the technology market place from 400 million users on Facebook to 75 million iPhones to 4 billion apps downloaded on the Appstore. What struck me as more significant than what was included was what was conspicuously absent. When she opened the discussion for questions I made one observation: “Mary in your entire hour-long presentation on the future you didn’t mention Microsoft even once.” (You can see this same presentation on YouTube from the Google Atmosphere conference.) I had spent my career with Microsoft (MSFT) as the ever looming Goliath: from my days at Oracle (ORCL) wondering how Bill Gates and Co. would steal away our database business to starting salesforce.com (CRM) and waiting (and waiting) for Microsoft to turn to the cloud and offer a product that our customers would want (Neither happened).

After Mary’s presentation I joked with my team about one of Microsoft’s new commercials. “I’m a PC, and Windows 7 is my idea,” says the woman in French sitting in Paris outside of a busy cafe. “My PC used to crash all the time, and I told Microsoft I wanted it to stop.” I don’t

really get the campaign, but what I find most baffling is that she didn’t ask for any other innovation. How is that possible? How can’t someone want more? How can Microsoft think this is what customers demand most?

Marc Benioff, CEO salesforce.com

Today’s customers do want far more. In contrast to the innovation stagnation at Microsoft, Apple is delivering in a profound way. And, having taken a music player and transforming it to change the way we all use the Net, Apple (AAPL) dominates the current mobile paradigm. Facebook, as the single most popular app on the net today, is also training the future users of computing. In many ways it is becoming the new connector of everything on the Internet with universal like. And as it nears half a billion users and is growing faster than ever before, it’s only a matter of time before a billion people use this new way to communicate. Everything about Facebook, the app, the entire ecosystem around it, and all of the user’s data and metadata is in the cloud. It’s a 100% pure Internet app. Most importantly, none of it is written with any Microsoft software. (That’s universal unlike.)

Facebook’s success, as well as the rise of other new technologies like YouTube, devices like the iPhone and the iPad and models like Cloud Computing are evidence of a huge shift happening in computing — and it’s bigger than anything we have seen before. And although Microsoft is a casualty, it certainly is not the cause. This is the fundamental nature of our industry in which every 10 years or so a radical new paradigm of computing emerges. From mainframes (70s) to minicomputers (80s) to PCs and LANs (90s) to Cloud 1-the desktop Internet (2000s) to Cloud 2-the mobile Internet (2010+), we can safely say that the only constant in the last 50 years of computing is change. And no company or individual can escape the velocity of change of our industry.

As we try to keep pace with these changes to a new computing industry, we are left with only two choices: innovate or die. Microsoft like DEC before it, and IBM (IBM) before it, tried too long to hold on to its Windows model believing it was permanent in an industry of impermanence. But it didn’t work out that way. Google outsmarted Microsoft into the Internet, and it dominated the next Internet paradigm. Now Apple is the clear winner in the new mobile paradigm.

We are fully entrenched in the world of Cloud 2. Smart phones that run apps have replaced PCs. We are mobile. We touch, not click. We are social, not siloed. Our location is known, not anonymous. We know more about what our friends are doing than our own employees, and sometimes our own families. Facebook, Apple, and a new generation of technologies are defining our daily experiences. The old model looks older every day as it tries to hold on in a last gasp of updates based on stability instead of innovation.

The way we run our lives has forever changed. The employees we are hiring right out of school are appalled by the technology we use to run our companies. They are more productive at home than they are in the office. They call for a change that is difficult to hear in companies that rank seniority over insight. The new paradigm is amplified as entire industries like communications, music, and education are transformed forever.

As a CEO I am restless as I think how I will transform our company, customer base, and ecosystem to the modern era. It’s not easy. Will some remain in Cloud 1 peering backward gleefully while our last generation competitors stagnate in the PC paradigm? Or, can we do better? Can we step forward with new technology and new products — and advance the new paradigm? This is the reason that I am putting our best teams on our best chance — a new service called Chatter, which offers a brand new way to collaborate with people at work. You have to make big bets in business to get big returns. Steve Jobs has once again reminded us of that lesson and has shared with us the rewards.