SAP is the world's largest business application vendor, with annual revenue of about $13 billion and a massive worldwide developer ecosystem, so the 14,000-strong attendance wasn't surprising. But Salesforce? Its annual revenue is about $1 billion, and most of that comes from on-demand CRM software.

Even if a good number of Dreamforce attendees are other software sales reps hoping to drink from Salesforce's success, this much is true: software as a service is barreling forward as a popular alternative to purchasing and deploying software.

Salesforce is working hard to expand beyond its CRM roots, this week introducing Force.com, a platform that lets developers build on-demand (also known as SaaS) apps using Salesforce's own Apex language plus a development environment it calls Visualforce for creating user interfaces using HTML, Ajax, and Adobe Flex. But Force.com appears to be just a formal name to market what Salesforce customers have already been doing, since the company also announced that 44,000 custom apps have been built on the "new" Force.com platform. Salesforce also announced a new app, Salesforce Ideas, for managing knowledge and ideas within a company.

Despite Salesforce's rapid growth and marketplace recognition, it's under pressure to hurry its expansion beyond CRM as bigger software vendors face mounting pressure, too. In their case, it's to find a way to embrace SaaS, typically sold via a monthly subscription, without damaging revenue by turning away big, up-front software license fees.

The gutsiest, and riskiest, effort in this area comes from SAP. At an event in New York on Wednesday, SAP plans to show demos, trot out early users, and explain more details of it A1S on-demand ERP software, slated for availability next year (including software that competes with Salesforce, of course). In a candid interview earlier this year, SAP CEO Henning Kagermann acknowledged the company was grappling with a way to deliver A1S without cannibalizing revenue, and develop the on-demand software in a way that it wouldn't get tripped up by any technical issues caused by software originally developed for on-premises deployment. The confidence with which SAP is hosting the event suggests it may be on the path to figuring out these problems.

Also, Business Objects on Monday took the big gulp and announced that all of its business-intelligence software is now available in a SaaS delivery model.

Oracle and Microsoft, meanwhile, continue to drag their heels on SaaS. Oracle has simply said it will offer SaaS apps if that's how people want them, which it calls Oracle On Demand, but it hasn't done any formal product announcements that rival the klieg-lights approach SAP appears to be preparing for A1S. Microsoft is still dabbling with SaaS as an alternative for a few products, including its Dynamics CRM and Microsoft Office Live.

But something has got to give. An InformationWeek survey in April found that two out of three businesses are either planning or are already deploying at least some apps in a SaaS model. That's because on-demand software will increasingly make sense for certain types of applications, for all types of businesses. In the case of SaaS, the mounting vendor product hype seems consistent with the level of mounting demand.