Jive Software's initial public offering this week sparked a debate over the meaning and merits of "cloud software."

As a decade-old company that got started when business software was delivered in packages, Jive didn't start selling Web-based subscriptions until 2007. About 60 percent of its business is now in the cloud. Clients use their software to collaborate with each other and customers.

The cloud model is cheaper to operate, allows for faster product updates and is better at collecting large amounts of data. Companies like Salesforce.com and SuccessFactors, which SAP agreed to acquire this month, are completely Web-based and valued more highly by the public markets on a price-to-sales basis than Oracle and Microsoft.

At the close of trading today, Jive had a stock market valuation of $859.5 million, or 12 times revenue over the past year. SAP paid 11.7 times sales for SuccessFactors, while Oracle has a ratio of 4.1 and Microsoft's is 3.

"There's just one problem with Jive trying to ride the coattails of SuccessFactors and other cloud company valuations: Jive is not cloud," says David Sacks, founder of Yammer, which also provides social-networking software to businesses.

If you believe Jive's pitch, it gets the best of both worlds. The company competes for customers that are pure cloud and comfortable having all their data hosted off-site. Yet, it can also sell to more highly-regulated companies in health care and financial services that need dedicated servers and aren't ready to make the move.

"We're not religious about it," Jive CEO Tony Zingale said in an interview yesterday, after ringing the opening bell on the Nasdaq Stock Market. "We let customers choose."

Taleo, like Yammer, prefers not to offer the choice. Its software, which competes with SuccessFactors in delivering talent management software, is for companies that are in the cloud or quickly migrating. Trying to deliver products the old way would just slow it down, says Jason Blessing, an executive vice president at Taleo.

What about security and privacy concerns? Those are overblown, he says. Taleo sells to the U.S. Department of Justice, and it doesn't get much more sensitive than that.

"Security issues have almost faded completely into oblivion," he says.

GE has been testing Google’s email and productivity software for a couple of years as a possible replacement for Microsoft’s Office suite. But the conglomerate is hedging its bet now by testing online applications from upstart Zoho, which lets GE store data on its own servers. Google Apps store data on Google's servers. “That's probably our biggest stumbling block to going bigger with Google," says GE Chief Technology Officer Greg Simpson.

GE still isn’t comfortable with the legal and computer security implications of storing email attachments and data from business applications that users pull into spreadsheets on another company’s servers, Simpson says.

Google and other companies proffering software in the cloud will need to make CIOs more comfortable with that proposition, and GE’s skittishness isn’t a hopeful sign. GE was an early marquee account for Google Apps, and potential customers pay attention to big, brand-name early adopters to assure themselves it’s safe to follow suit. “That’s something we need to prove” to CIOs, says Dave Girouard, president of Google’s enterprise business.

It's one reason Google has struck a partnership with online customer management software vendor Salesforce.com, whose CEO, Marc Benioff, has been an evangelist for moving software out of companies' data centers and into Salesforce's cloud. "A PR challenge of cloud computing is trust, and Marc helps with that," says Google engineering director Sam Schillace.

What’s your company’s comfort level with cloud computing software? And what have your executives and IT department done to address security and compliance concerns? Drop me a line, or post a comment here and let us know.