Every large enterprise would like the hybrid cloud salesforce.com (NYSE:CRM) has built for itself. CRM stock is off 3% since the start of September.

Salesforce has its own network of data centers but it’s far from being a Cloud Czar. Over the last 12 months Salesforce’ capital spending has been just $657 million. True Cloud Czars like Amazon (NASDAQ:AMZN) spend billions in cash flow each quarter on data centers.

But by combining public clouds with its own resources, Salesforce gives its customers the impression that it, too, is a Cloud Czar. That’s what every company now wants. They want the flexibility of the cloud, but the surety of their own hardware.

They want what Salesforce has.

Pandemic Stokes CRM Stock Market Cap

Despite this month’s decline, Salesforce’s market capitalization has nearly doubled since the start of the pandemic, to $217 billion as CRM stock gained 59.4% in the last 18 months.

For the quarter ending in July, it had net income of $535 million, or 56 cents a share fully diluted, on revenue of $6.34 billion. It’s projecting growth of nearly 25% this year, total revenue of about $26.2 billion after the acquisition of Slack.

Reporters call it a “pandemic fueled demand for cloud services,” but it’s just an acceleration of trends that were evident before the health crisis started.

Salesforce has built partnerships with Microsoft (NASDAQ:MSFT), with Alphabet (NASDAQ:GOOGL), and with Amazon, building its own capacity where it can assure profitable traffic.

Salesforce owns some cloud, rents some cloud, but manages its cloud, so this is all transparent to customers. It’s also turning the old model of infrastructure, platforms and services upside-down, delivering full application suites.

By operating on this hybrid model, Salesforce can assure that customers abide by local privacy laws and data localization laws.

Software Is King in the Cloud

The success of this hybrid cloud approach is transforming the cloud market.

Salesforce is now considered the leading industrial cloud, ahead of Alphabet and Microsoft.

You no longer need to invest $1 billion per quarter of cash flow to become a cloud player. Just use public clouds to fill in capacity and build your own as-needed. This means software companies like Adobe (NASDAQ:ADBE) and even consumer companies like Walmart (NYSE:WMT) can develop their own clouds at their own pace, and gain independence from the Cloud Czars — the same independence Salesforce now enjoys.

Customers don’t see data centers. They see services like a Sales Cloud or a Health Cloud. Software is now driving what had been a hardware cloud market.

That’s why Salesforce bought Slack. It paid $27 billion for what amounts to a corporate user interface, making it a direct competitor to Google and Microsoft. As CEO Marc Benioff said on his latest earnings call, “If you’re starting a new company, you’re not planning physical office place — you’re planning digital office space.”

After spending the last decade building or renting huge skyscrapers, including its own San Francisco headquarters, Salesforce is now tearing it all down. Instead of going to offices, its workers will remain largely virtual. Instead of going to trade shows, Salesforce is building its own streaming service.

The Bottom Line

Despite becoming a cloudless Cloud Czar, Salesforce is only growing as fast as its market. Seen over the last year or even the last two, CRM stock’s performance trails that of the S&P 500 index. Smaller companies, like ServiceNow (NYSE:NOW), are outpacing it.

The benefits of hybrid cloud Salesforce pioneered are now flowing toward companies with a smaller revenue base. That’s the way open source and cloud work. Everyone wins.

Analysts still love Salesforce. None of the 35 tracked by TipRanks says sell. But Salesforce is now a conservative investment, a consistent winner but no longer delivering that much-beloved “alpha,” return exceeding the market average.

That might change with Slack in the fold, but right now average returns look like a big win.

On the date of publication, Dana Blankenhorn held long positions in MSFT, AMZN, and NOW. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.