Fervent Salesforce.com Partners Hoping for Big Profits

Salesforce.com partners—and there are a lot of them—talk about the company with a near religious fervor.

And for good reason. Salesforce.com has grown in the past decade to become the preeminent SAAS (software as a service) provider in the business applications sector. It has expanded its core CRM [Customer Relationship Management] technology to include an on-demand development platform, on-demand development language, an applications marketplace and a store that will, eventually, act as a one-stop-shop for partners by providing marketing, sales and back office support as their applications are sold to AppExchange customers.

Entire companies have sprung up around Salesforce.com, both its AppExchange marketplace and Apex platform, that base their business model on building and selling add on applications to the Salesforce.com customer base.

Other companies build integrations between Salesforce.com and customers systems so that customers can transfer data from one system to another. Those partners, like ForceAmp.com, are growing 100 percent year over year. At the end of the day there is not another company that comes close to providing Salesforce.coms offerings for partners to build, deploy and sell their on demand applications and services.

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Theres only one problem: the actual money making end of the equation is still murky.

"The next step for Salesforce is not sophisticated. The next step is AppStore. Its important because it creates a business environment for people to build on [Salesforce.coms] development environment," said Ryan Martens, CTO and founder of Rally Software Development, an application lifecycle management software company that partners with Salesforce.

"They have to build a community next. Get ISVs coming to you to cross-sell and up-sell to 35,000 customers and you get a juggernaut. But the overall ability to build on a platform that has no ISVs, and makes no money, all you do is kill the ISV. And kill the platform."

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Salesforce does not break out revenues for AppExchange so its hard to tell where, and if, partners are making money selling applications on the marketplace. Theres no question that AppExchange drives customers to partners—for some, thats where all of their customers come from. Its also clear that partners are making some cash. Whats less clear is if there is a revenue stream large enough to support startups looking to draft on Salesforces success.

At the same time, absent the AppStore back office capability that allows customers to purchase applications on AppExchange—and in turn remunerates partners for those purchases—there is little in the way of full procure-to-pay support. AppExchange, at this point, is more a marketing than selling tool.

"For the AppExchange partner, nothings changed there," said Joshua Greenbaum, principal of Enterprise Applications Consulting. "Its really not happening in terms of generating serious revenue."

Salesforce is expected to announce a lot of the deliverables around AppStore—particularly pricing—at its annual Dreamforce user conference in San Francisco Sept. 16-19. The actual capabilities and services will be available later this year.

Martens, who said he cant wait for AppStore, will announce at Dreamforce next week a suite of applications to bind Salesforce.coms CRM environment to Rallys application lifecycle management software. What hes interested in with AppStore is Salesforces ability to create what CEO Marc Benioff refers to as the business Web.

"If theyre successful at selling lots of platform seats and packaging it with applications like ours, theyll create an operating system and a workflow environment for business in the cloud," said Martens.

With 350 AppExchange partners and over 625 applications on the marketplace, Salesforce is off to a good start creating business in the cloud. But of the top ten applications on AppExchange now, four were developed by Salesforce.com labs.

Eric Rubin, president of DreamFactory Software, whose DreamTeam for Project Management is the most widely used single application on AppExchange, is slated to announce at Dreamforce upgrades to its suite of software that includes a new Dox application that allows users to bring their desktops inside the Salesforce.com environment. Rubin said that almost all of his customers come from AppExchange.

"If you look at the SAAS model, the way you build revenue is by building annuity—thats directly related to how quickly you can add a company," said Rubin. "Our customer traction is faster because of AppExchange. It eliminates a lot of the impediments for customers want to part with money."

But, said Rubin, diversification is key. As a Salesforce.com partner there are two associated risks, he said. The first is that Salesforce.com builds the product that DreamFactory sells. The second—and much bigger risk—is that Salesforce.com buys a competitor.

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