High profile private equity shop appears to be chatting up a new fund despite string of struggling investments.

Word is that Elevation Partners, the high-profile if poorly timed private-equity firm headlined by rock star Bono and star investor Roger McNamee, is considering raising a new fund.

Elevation's investment partners (from left): Bret Pearlman, Fred Anderson, Bono, Marc Bodnick and Roger McNamee. Photo: Elevation Partners.

As surely as dogs chase rabbits or night follows day, PE shops raise more money when the existing fund is mostly used up. (Elevation's is about 70% invested.) Yet when all you have to show for your first effort are embarrassing misses — no rabbits caught, mostly grim darkness, metaphorically speaking — it's got to be tough to collect fresh cash.

This is the tough position in which Elevation finds itself. Despite having raised $1.9 billion in 2004, the ballyhooed firm is far from a successful experiment. It's got all of one exit, a gaming-company sale to Electronic Arts (ERTS), headed by an Elevation co-founder.

Two of its investments are seriously sick. One is the online real estate dog Move.com (MOVE), better known by its scandal-ridden former name, Homestore.com. The other is Forbes Media, the parent for FORTUNE competitor Forbes Magazine, in which Elevation invested at perhaps the worst time in decades for media enterprises.

The snafus sting, of course. But the fate of Elevation's first fund rests almost solely on one investment, its $460-million stake in beleaguered smartphone maker Palm (PALM). That investment is barely in the money for Elevation. It's worth about $500 million currently.

Elevation is demonstrably in for the long term: It chose not to sell late last year when the stock peaked around $18, compared to Tuesday's close of $11.65. Palm recently raised $500 million in a stock offering, so its near term is secure.

Still haven't found what they're looking for?

But the company is a long way from a home run, unless Elevation forces a sale to a bigger player like Dell (DELL) or Microsoft (MSFT). Remaining independent is an expensive proposition, however, as Barclays analyst Amir Rozwadowski notes to clients.

"We believe that its improved cash position should enable the company to be very aggressive in its marketing efforts over the next few quarters, particularly as the company looks to improve brand recognition, carrier distribution, and overall awareness of its products," he writes. "We do however expect the company to continue to burn cash at a healthy clip in the near term, as expanding scale is at the top of management’s agenda."

Elevation declined to comment on its fundraising agenda. It needs to raise a new fund, though, in part because it recently added longtime eBay CFO Rajiv Dutta to its ranks as managing director. New bigshots typically don't get to participate in the "economics" of five-year-old funds, so if Dutta, a skilled operations and financial executive, is to make some serious money at Elevation, he'll need a fund from which to invest.

Elevation doesn't have trouble getting meetings. Endowment heads are likely to agree to a sit down if Bono shows up. Once in the room, there are few better talkers in Silicon Valley than McNamee. (A wonkish fantasy: a "talk-off" featuring McNamee, venture capitalist John Doerr and Apple's Steve Jobs. Imagine the possibilities.) McNamee and his partners will have their work cut out for them, though. One win, two disasters, a couple fresh investments and one still risky possibility. Not the strongest lineup to bring into a pitch meeting.

Tech's top vendors see small companies as a big opportunity.

Software giant Microsoft (MSFT) tops a new ranking of technology companies effectively serving small businesses online by providing a rich, educational web experience for small companies.

Compass Intelligence, a Scottsdale, Ariz.-based consulting firm, analyzes the websites of dozens of tech companies – and interviews small business owners and executives – to come up with its rankings, which it publishes twice each year.

Microsoft leaped to the No. 1 ranking from No. 6 in the first quarter of 2009, essentially switching places with computer maker Dell (DELL) which slipped to No. 6 from the top spot in the first quarter. (Remember, the Compass rankings look at just one part of the tech company's small-business strategy: online reach. All these companies also work through resellers, local affiliates and even have direct sales folks marketing to and servicing small entities.)

That said, the top ten, in order, are:

1. Microsoft
2. AT&T
3. Cisco
4. HP
5. IBM
6. Dell
7. Verizon
8. Sprint Nextel
9. Nortel
10. Symantec

"All these companies are commited and focused on the [small-to-medium sized business market](in different ways)," Kneko Burney, chief strategist for Compass, writes in an e-mail. " They all 'get' small business."

And that may prove to be smart business. Compass estimates that U.S. small businesses – companies with 20 to 100 employees – will spend more than $230 billion on technology in 2009. And a separate new report suggests smaller companies are loosening their purse strings on tech spending even as large enterprises remain cautious.

The Global Technology Distribution Council, a consortium of technology distributors such as Arrow Electronics (ARW) and Avnet (AVT), last week said its members' U.S. sales in the third quarter rose 10.7% over the second quarter.

Large companies "have cut back tech spending, and they're still hunkered down," observes consortium CEO Tim Curran. "SMB (small to medium business) in this instance seems to be a leading indicator of companies starting to invest."

Curran said his members, which serve value-added resellers and other "channels" that, in turn, directly sell to smaller firms, have been seeing particular interest in investing in security solutions and cloud computing services that deliver business software and other applications over the Internet.

Even tech executives who deal primarily with the very largest global companies are talking about their companies' ability to serve small-business clients.

"We have a porfolio that fully meets what small businesses need," says Ann Livermore, executive vice president of HP (HP) Enterprise, a $54 billion-a-year unit that includes consulting, hardware and software sales to businewsses of all sizes. Adds Livermore: "You'll see us being very focused" on the segment.

Entrepreneurs also rely heavily on mobile technology to run their companies. Today there are hundreds of mobile applications that enabling small biz executives to operate while on the go (everything from an application for sending and tracking FedEx (FDX) packages to an app that turns an Apple (AAPL)  iPhone into a voice recorder).

No wonder a Yankee Group study released in September found 28% of small businesses said "smartphone implementation" — the deployment and upgrade of Internet-enabled mobile devices – was their top tech priority in the next 12 months.

Small businesses reliance on mobile means wireless operators have an opportunity to expand their relationship with small businesses, perhaps acting as a distributor for other tech companies' hardware and software or even offering integration and other services in competition with companies such as HP and Dell.

In many ways, the telcos are already seizing the small-business opportunity. AT&T (T) is the No. 2 company on the Compass Intelligence report. "What I love about AT&T is that they are very aggressive in rolling out new "cloud" services tailored just for this market," Burney writes.  "They are focused on providing a suite of services to enable these customers using the power of the network. That's definitely the future."

Will tomorrow’s PC be a nimble netbook or a high-def laptop? Google and AMD recently offered opposing views.

If Google has its way, the mainstream PC of the future will be a lot simpler than the one you’re using right now.

Like a TV, it will turn on almost instantly instead of taking nearly a minute to boot up. It will do everything through a web browser, pulling down most programs and data from the Internet. It’ll make do with a low-cost processor and will carry a cheap price tag – kind of like today’s stripped down netbooks, only with even fewer frills.

That’s just Google’s (GOOG) vision. A few miles down the road from the search giant’s Silicon Valley headquarters, the folks at chipmaker Advanced Micro Devices have a very different idea.

AMD is wagering that the majority of tomorrow’s shoppers will want more performance from their PCs. It is putting the finishing touches on a new chip that combines a microprocessor and a graphics core in one – a trick it hopes will attract consumers who want smooth high-def video and rich 3D gaming in a slim, low-cost package.

Who’s closer to the mark?

Of course, it’s too soon to tell. But before long shoppers will get to vote with their wallets.

Last week Google engineers showed off an early version of their browser-based Chrome operating system, what they call “a better model for personal computing.” (When it’s broadly available, Chrome will come pre-installed on netbooks that are specifically designed to run it.) A few days earlier, AMD announced that its Fusion processors would arrive in 2011. If all goes as planned, the two technologies will be duking it out on retail shelves in a little more than a year.

The contrasting ideas from Google and AMD come at a turbulent time for the computer industry.

Sales have slowed in the global recession, pressuring the PC revenues of stalwarts like Hewlett-Packard (HPQ) and Dell (DELL). Hardware profit margins have also suffered as bargain shoppers shun higher-priced machines in favor of netbooks with small screens, modest horsepower and low price tags. (The exception is Apple, which has somehow managed to keep selling premium PCs in a historic recession. Go figure.)

The big question is where the industry’s next stage of growth will come from. Will consumers shift their dollars toward wireless computing devices that resemble Amazon (AMZN) Kindles, Apple (AAPL) iPhones and Google Chrome-powered netbooks? Or will they find reasons to keep buying full-blown computers?

Google argues the former. While Windows PCs won’t go away, Google’s thinkers believe a lot of folks would be happy with a simpler, more affordable computer that just gets them online. Considering how netbooks have become the hot ticket in the PC business lately, Google may have a point.

But there’s also evidence that consumers aren’t ready to give up our software-packed PCs anytime soon. As we continue to accumulate gadgets like Flip video cameras and iPhones, we’ll need more powerful computers to manage the digital content – something a basic Chrome OS device won’t be able to do.

Brisk sales of Windows 7 and Apple’s (AAPL) Snow Leopard operating system also prove that the PC-buying public can still get excited about slick-looking operating systems that use 3D effects and animation to help users get things done. That’s a welcome sign for a company like AMD, which has bet its future on the notion that the world will keep its healthy appetite for computers with some horsepower.

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A few years ago rivals mocked Jonney Shih, chairman of Asustek, and his purse-size laptop computers. Millions of netbooks later, Shih is having the last laugh.

Jonney Shih, CEO of Asus, in Taipei.

On a hillside above the Hsing Tian Kong temple in the northern reaches of Taipei, Jonney Shih sits on a wobbly stool next to an ornate low wooden table. Dressed in a taupe suit, white shirt, and silver tie emblazoned with jaguars, Shih, 57, cheerfully waves off three umbrella-wielding employees who try in vain to shield their boss from the hot sun and a swirl of menacing bees.

But Shih, who is waiting to be photographed for this magazine, sits serenely, perspiration-free in the sun, intent on a game of Chinese chess. "In Buddhism you learn to accept everything, to let it flow through you," Shih says. "Then you can slow down and think clearly."

It turns out the ferociously driven Shih is a less-than-model Buddhist. (Buddhists aren't supposed to be thinking about technology while they're meditating — something Shih is known to do.) But his ambition, combined with engineering skills and spot-on business instincts, also makes him the most brilliant technology executive you've never heard of.

He is the largest shareholder and chairman of Asustek (pronounced a-soos-tech), the $21-billion-a-year tech conglomerate that introduced the first netbook three years ago, ushering in a revolution in the stagnant PC industry. When it hit stores in the fall of 2007, Shih's $399 EeePC was derided by rivals as a low-power plaything. But Asustek, or Asus for short, went on to sell millions of the mini-notebooks and soon vaulted to No. 5 in worldwide PC market share.

Today virtually every PC manufacturer on the planet, including Dell (DELL), Hewlett- Packard (HPQ), and Toshiba, offers its own version of netbook. (The exception is Apple (AAPL).) But the biggest netbook maker, with 38% of the market, is another Taiwanese tech company, Acer, which also happens to be Shih's former employer. Asus, which had the market all to itself for about eight months, is now in second place, with a 30% share.

So Shih, after creating what has grown into a $10 billion category in two years, needs to come up with another breakthrough, and he'll apply his own flavor of Buddhism to the challenge. "Most people think Buddhism is passive or about escape," he says. "It's not. It's about confronting what's in front of you with a clear and flexible mind. That might be a hot day or your competition, but you accept it and do everything the best at that moment."

That sounds fairly magnanimous, but whether it's in Chinese chess or the PC world, Shih's best effort has a way of crushing the life out of whoever gets in the way. Shih's "not that well known in the West because he doesn't put himself first," says Jen-Hsun Huang, CEO of chipmaker Nvidia. "He's humble, but he always has a mental model for exactly what he wants his company to do."

The Giant Lion
Asus was started in 1989 by four former Acer engineers. (The name "Asus" comes from the mythical Greek horse, Pegasus.) At the time Acer, one of the original companies to transform the island of Taiwan into the center of computer manufacturing in the world, had already gone public on the Taipei exchange.

Many Acer employees took their stock gains and launched their own businesses. At a café in Taipei, four subordinates tried to persuade Shih, who was running R&D at Acer at the time, to join them in starting a company to design and manufacture motherboards — the central circuit boards in PCs that connect crucial components, including the processor and memory.

Shih demurred out of loyalty to his mentor Stan Shih (no relation), co-founder and chairman of Acer. But he did encourage his former reports to start Asus and took a stake in their new company. In 1994, after three years as president of Acer's business unit — selling Acer technology rather than designing it — Shih joined Asus as CEO.

When a chip company comes out with a new processor, it's up to the motherboard designers to integrate that chip into a standard circuit board that can run the computer. Whichever company can get its motherboard out first and squeeze the highest performance out of a chip set wins the business of the PC makers.

Back when Shih was at Acer, he made his reputation by building killer motherboards. When Intel (INTC) was rolling out its 386 processor in 1985, Shih and a group of engineers showed up at the Computer Electronics Show in Las Vegas ready to do battle. "We didn't sleep much that voyage," Shih recalls.

In the competition among motherboards, Dell's offering was the highest performing, but it wasn't a technology suitable for mass production. Shih's was, and it beat out the best from IBM (IBM), Compaq, and everyone else. (At the time, many PC makers produced their own motherboards, which they sold to other manufacturers as well.) The orders came pouring in, and Shih's reputation around Intel and the rest of the PC industry was made.

After moving to Asus, Shih continued his success with Intel's 486 processor, and computer makers such as Hewlett-Packard, Sony (SNE), and Dell found that if they used Asus motherboards, their computers performed better. By the mid-'90s, Asus sold more motherboards than anyone, and its revenue and profits climbed steadily throughout the decade.

But in 2001 other companies, ECS and Foxconn, started undercutting Asus's prices in the motherboard business. Asus's share in unit volume fell to No. 2, and annual profit dropped dramatically to $300 million in 2002, from $500 million the prior year. In response Shih launched what he called the "giant lion" strategy.

"You need to be a lion. A lion has position in the jungle," Shih says. "So we kept driving the performance, quality, and innovation of our motherboards — we kept our leading position in the jungle. But I realized that at the same time you have to have big market share. You need to be a giant lion." Shih founded a subsidiary, ASRock, to compete at the low end, leveraging Asus engineering and manufacturing.

The giant lion mauled the competition: Within two years Asus was back as the No. 1 revenue producer in the motherboard business, and its volume exceeded the output of the second, third, and fourth companies combined.

Meanwhile the company started making "white label" consumer electronics for the likes of Dell, HP, and Sony. Named Pegatron after the first part of "Pegasus" (the wholly owned subsidiary was spun out in 2008), it manufactured notebooks as well as routers, MP3 players, gaming consoles, and whatever else big brands wanted made. But Shih wasn't satisfied to be a mere contract manufacturer, and in 1997, Asus started making laptop computers under its own brand.

A computer for the masses
Asus is Taiwan's HP and Apple rolled into one. It is the No. 1 seller of notebooks there, but its laptops win for their performance, reliability, and style, not their discount prices. Asus has notebooks covered in leather, hand-polished steel, even bamboo.

But Shih's ambitions extend beyond what clearly is a maturing market. He wanted to build a machine for the next billion PC customers. His breakthrough notion was to provide a device that offered good enough performance to surf the web and do simple computing tasks in a very easy-to-use, affordable package.

Fortuitously, Intel at the time was working on a chip that would help Shih accomplish his goal. "Behind the scenes we had been working on Atom, our low-cost, lowpower chip," says Sean Maloney, Intel's executive vice president. "Jonney immediately wanted it." The question was how to package a machine around it.

For three months Shih and the head of Asus's motherboard business, Jerry Shen (now the Asus CEO), personally worked out the basic concepts: what features to include (Wi-Fi, a touchpad, and a solid-state drive) and what to throw out (Microsoft Windows, initially, and a full-size keyboard). Then they brought in a team of engineers to make their ideas real. At one point, as they struggled over the machine's software interface, Shen locked the team in a Taipei hot-springs hotel for two days. They finally emerged with their answers. When the first few thousand EeePC netbooks went on sale in Taiwan in October 2007, they sold out in 30 minutes.

Like other tech companies, Asus was hit by the global recession, and last winter it posted its first quarterly loss in the company's 20-year history. The company has cut costs through layoffs and salary cuts, and has scaled back its inventory. More recently, however, Asus has rebounded, blasting through analyst estimates for its third quarter, and its stock is trading at a 52-week high on the Taipei Exchange. (Asus has made Shih rich, but his only concession to his wealth is a chauffeur-driven Volkswagen Phaeton. "It's 80% of a Bentley and half the price," he jokes.)

Asus, which gets 40% of revenue from Asus-branded technologies, is forecasting a 30% increase year over year in netbook and notebook sales in 2010. Of course, rival Acer also forecasts growth, and the maker of the Aspire One model isn't likely to cede its No. 1 position in netbooks anytime soon. And so Shih is spending his time meditating about Asus's next industry-changing hit.

The next netbook
At Asus headquarters in a bright corner room filled with fabric swatches and beanbag chairs, the next phase of Shih's clear thinking is being prototyped. This is the company's top-secret design lab. Lying on counters are notebooks that look as if they are folded, origami-style, from sheets of aluminum. Others have keyboards that slide back and slightly up when the case is opened for a more ergonomic position. An international team of designers swap ideas on couches.

Shih's instinct tells him that the "next netbook" won't come from an engineering specification but from understanding how people use devices to communicate, get work done, and play. More than ever he is pouring company resources into design.

He pulls out a prototype of the forthcoming Eee Keyboard, an aluminum-clad keyboard with a touchscreen on one side. Via a wireless connection, it turns a flat-screen television into a websurfing, Facebook-friendly device. From his pocket emerges a smartphone that Asus developed with navigation company Garmin (GRMN).

The Asus-Garmin phone has been a dud, and the keyboard isn't out yet, but those items suggest that Shih is thinking about more easy-to-use, affordable products that are integrated as part of a digital lifestyle. "My competitors are doing their own version of the EeePC," Shih says, "but I don't know if they have the vision of how everything can work together."

Is Shih's insight about integrated technology the "giant lion" that will help Asus regain its leadership position in netbooks? It hardly sounds revolutionary, but by now rivals know better than to underestimate Shih, especially when this "bad Buddhist" is thinking clearly.

Microsoft moved a lot of install disks, but hardware makers got a bigger bump two years ago

Photo: Philip Elmer-DeWitt

When Microsoft (MSFT) launches a new operating system, as it did two weeks ago, PC manufacturers like Hewlett Packard (HPQ), Dell (DELL) and Acer are supposed to reap the benefits. And everything seemed to be in place on Thursday Oct. 22 for that to happen.

"Never before has the industry launched such a variety of new form factors, price points, technology upgrades, and design innovations at one time," wrote NPD's Stephen Baker just before Windows 7's release. "This past weekend I happened by a Best Buy store and there was not one single PC for sale with Vista on it. Lots of Windows 7 machines, however, all of which were marked 'not for sale until October 22.' Someone did a great job in the supply chain making this happen. This will give Win 7 a tremendous boost out of the gate." (link)

Two weeks later, Baker is singing a different tune. Microsoft got a big boost according to NPD's weekly tracking data, racking up sales of Windows 7 that were 234% higher than Vista's during its first few days of sales. (More on that below the fold.)

But PC makers didn't make out quite as well. Although they had a relatively strong week, with unit sales up 49% year over year and 95% from the week before, it was nothing like Vista's launch in Feb. 2007. Then, sales soared 68% year over year and 170% from the week before.

In a press release issued Thursday, Baker explained what happened:

“A combination of factors impacted Windows 7 PC sales at the outset,” Baker wrote.  “Vista had a slight advantage at launch, as January traditionally has a bigger sales footprint than October.  The other hurdle Windows 7 faced was sales of PCs with older operating systems (XP and Vista) were high, making up 20 percent of sales during the Windows 7 launch, compared to just 6 percent of older operating sales during Vista’s launch week.”

Another thing to remember about that Vista launch week is that it set a relatively low bar. Retail Vista sales were considerably below Microsoft's forecast — almost 60% lower than sales of Windows XP during its first week in 2001.

Ironically, it was the computer manufacturers who did best in Feb. 2007. Sales of new PCs with Vista pre-installed were up 67% the week that Vista launched compared with the same week in 2006.

Apple (AAPL), of course, sells both OS X and the Macs that run it, so when it launched Snow Leopard in August, it made money on both sides of the deal.

See also:

• PC sales spike with Windows 7 debut
• Apple pays Google for Windows 7 hits
• Mac share grew after Windows 7 launch

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Those Get-a-Mac spots aren't cheap, but they deliver a lot of bang for the buck

Photo: Apple Inc..

Apple (AAPL) shells out a ton of money for advertising. In fiscal 2009 it spent $501 million, according to the 10-K form filed Tuesday. That's up from $486 million in 2008 and $467 million in 2007.

But half a billion doesn't seem like so much when it's compared with the $1.4 billion Microsoft (MSFT) spent in fiscal 2009, or the $811 million Dell (DELL) spent on ads I can't remember ever seeing.

In fact, as a percentage of revenue, Apple has actually been decreasing its ad spending every year for the past eight, from nearly 5% in 2001 to 1.37%  today (1.17% if you use non-GAAP revenue). That's less than half the 3.6% of revenue Research in Motion (RIMM) spends advertising BlackBerries. (See chart below.)

Most recent fiscal year. Source: Company reports

Yet even if you despise Apple and never use their products, you tend to remember their ads. How does Apple get so much bang from its marketing buck?

I can think of five reasons:

1. The ads are memorable. Apple spends its money on creative, producing a few clever ads rather than a lot of forgettable ones. Those Get-a-Mac ads are marketing events in their own right, picked up on YouTube and re-played again and again at no extra cost to Apple.
2. The ads are well-placed. Apple pays a steep premium to be seen during the World Series or on the back of glossy magazines, but it stays away from the low-cost media where its competitors pour so many of their ad dollars, either directly or through co-op ads. You don't see AT&T (T) advertising the iPhone in newspaper fliers, for example. "Apple doesn't want anyone else promoting its products," says Financial Alchemist's Turley Muller, "just because it is so meticulous and Martha Stewart about marketing and positioning."
3. The Apple brand speaks for itself. In Interbrand's 2009 report, Apple was the 20th most recognizable brand name in the world, up there with Coca Cola, IBM and McDonalds. "The Apple brand is the most supported within its industry," according to Interbrand, "and among the most iconic of relatively young brands in the world."
4. Apple Stores are their own best advertisement. Sales per store at those 273 retail outlets was down this year ($25.9 million per store vs. $29.9 million in 2008), but traffic was up — to 45.9 million visitors in the fourth quarter alone. How many of those shoppers — bathed in hip music, surrounded by slick Apple products, coddled by preternaturally helpful staffers — left with their reality permanently distorted?
5. Word of mouth. While Apple's rating on the American Consumer Satisfaction Index was down 1.2 points this year, that was still 9 to 10 points above its nearest competitors. Apple users tend to be intensely, zealously loyal, and they do the company's evangelical work for free.

Apple spends a ton on advertising. But it seems to be money well spent.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

(AAPL) (HPQ) (MSFT) (DELL)

Remember how cloud computing was supposed to kill client/server? Turns out it’s more of a wedding than a funeral.

First, some background: The hype surrounding cloud computing in recent years has been nothing short of wild. If you believed the popular wisdom, the traditional computing model was toast. Businesses were going to stop loading specialized programs onto workers’ PCs and buying expensive software and servers for data centers.

Instead, we’d have the cloud. Service providers like Salesforce.com (CRM) and Amazon (AMZN) would own the hardware and software, and let companies plug in over the Internet and use it on demand.

Things aren’t working out that way. A survey commissioned by Avanade, a joint venture between Microsoft (MSFT) and Accenture (ACN), shows that enterprises are taking a more cautious approach to cloud computing. While 62% of the 500-plus executives surveyed said they plan to increase their use of cloud-based software over the next year, they had no intention of simply shipping their proprietary data out to some third-party service provider n the process. Some 80% of U.S. enterprises will instead embrace what’s being called a “hybrid” cloud model – they’ll let third parties handle basic stuff in external clouds, but keep vital information on company-owned servers inside the firewall.

Meanwhile, tech titans are also taking aim at the “everything in the cloud” crowd. According to a CNET report, Hewlett-Packard CEO Mark Hurd this week said that security is a major issue that doesn’t get enough attention in the cloud debate; if HP CIO Randy Mott told him he wanted to put the company’s financial records in the cloud, “I’d say, ‘Go back to work, we’re not doing that.’” Oracle (ORCL) CEO Larry Ellison has also taken shots at cloud boosters.

It might be tempting to dismiss all this as self-serving resistance from the old-school techs – but even the biggest cloud cheerleaders are now embracing the hybrid concept. On a stage near the Oracle Openworld conference last week, Salesforce CEO Mark Benioff embraced Dell (DELL) CEO Michael Dell to announce a partnership to sell customers on the hybrid cloud idea – an initiative called “The Best of Both Worlds.”

For Benioff, who until now has marketed Salesforce with a “Software is Dead” slogan, that’s quite a shift. But since enterprises aren’t about to ditch their client/server IT investments and put all their secrets on the Internet, it’s also a wise one.