(Reuters) – Salesforce (NYSE:CRM) is betting big on healthcare, hiring key personnel and ramping up investment in hopes of replacing outmoded medical industry infrastructure and carving out a $1 billion annual business.
Its push into healthcare follows years of attempts by rival software providers, including Microsoft (NSDQ:MSFT), to break into healthcare with everything from personal health records to hospital information systems. They have had mixed results.
Now Salesforce aims to bring in $1 billion in yearly revenues in coming years – about ⅕ of its current annual sales – from health contracts, 2 people briefed on its plans told Reuters. The company expects to make such inroads despite entrenched competition and its own false starts in the sector, these sources said.
Salesforce declined to comment on revenue targets or its planned investment in the business.
The company also would not say how many employees are in its health and life sciences unit, but a LinkedIn search shows it has recruited over a dozen people from the health and medical device sectors. Its healthcare head, Todd Pierce, was formerly chief information officer at biotech giant Genentech, a Roche (PINK:RHHBY) subsidiary.
Salesforce is trying to sustain the red-hot growth that’s given it among the highest valuations in software with a price/earnings ratio of more than 100 times for its current fiscal year.
Salesforce executives and sources briefed on its plans say the company is already selling new software to the U.S. Health & Human Services Dept. and insurers including Blue Shield of California. In April, it announced an alliance with Philips (NYSE:PHG) to develop medical applications.
Salesforce now wants to help customers pull data into one place and determine how it can be used to serve and talk to patients. This sales push has already begun.
The University of California at San Francisco, for instance, rolled out CareWeb Messenger, built on top of Salesforce’s technology, through which doctors, nurses and patients talk online and on mobile devices. UCSF and Salesforce have close ties: in April, CEO Marc Benioff donated $100 million to its children’s hospital.
Salesforce will reveal more about its plans in November, Pierce said.
He told Reuters the company sees a growth opportunity developing tools for professionals to care for patients once they leave the doctor’s office. The company is also developing analytics to crunch data about patients.
The healthcare industry has been resistant in the past to approaches from Silicon Valley. But federal legislation such as the Health Information Technology for Economic and Clinical Health – which sets aside billions of dollars in incentives to spur the adoption of electronic health systems – may turn the tide.
"Salesforce could really have some success in this area," said Missy Krasner, managing director of healthcare and life sciences at online storage provider Box, which is exploring similar opportunities. Krasner said health systems are realizing that current systems are "ridiculously bad."
Others voice skepticism that Salesforce can make a dent in health, a sector overflowing with vendors such as Dell Inc and IBM. Microsoft may pose the most direct threat to Salesforce’s prospects.
"Salesforce versus Microsoft: It’s the battle to watch," said Ray Wang, CEO of Constellation Research.
Microsoft has been building its healthcare business for over a decade. It claims 168,000 customers in the industry in some capacity.
It bought a hospital information system company 7 years ago, hoping to create a commoditized product, but found clients demanded too much customization.
"We didn’t make it work," said Neil Jordan, who runs Microsoft’s health business. "HealthVault," a health data repository, has been its recent focus but that has not taken the market by storm.
"Just creating extra efficiencies … is not going to cut it any longer," Jordan said. "We have to think about wholesale use of technology to transform the system."
In recent years, Salesforce toyed with but dropped the idea of setting up a medical record service, the sources said. It later considered developing infrastructure to help hospitals share data, but decided a few years ago to rethink its approach, the people said.
With its new approach, Salesforce may have a tricky time convincing dominant health record vendors like Epic Systems and Cerner (NSDQ:CERN) to share information. Their cooperation would be vital in serving some major customers.
Such systems often don’t talk to each other, critics say.
"It’s fashionable to have a health initiative but it will hard for them to do something," said Kevin Spain, an investor at Emergence Capital, which has invested in Salesforce and health startups. "You need to have a thriving ecosystem of applications."