Fervent Salesforce.com Partners Hoping for Big Profits

By Renee Boucher Ferguson  |  Posted 2007-09-13

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.

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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"The first [risk] is mitigated by a pretty extensive roadmap that they tell us about," said Rubin. "Whether they buy a project management [vendor] is a bigger risk; to mitigate this is to make sure we are diversified."

Options for diversification are opening up.

Google and Oracle are rumored to be working on an on demand platform similar to Apex. SAP will officially launch its A1S suite of software Sept. 19 that could have a platform component given SAPs tremendous investment in its NetWeaver integration platform.

On Sept. 12 BEA Systems announced new development, code named Project Genesis, which will enable companies to build SAAS-based applications. And Microsoft announced in July at its annual partner conference that it is in development with a platform that will be, in all likelihood, designed to compete specifically with Salesforce.coms Apex platform.

"We are in the process today of building out a services platform in the cloud," that includes new models for management, storage and networking, said Microsoft CEO Ballmer, during his keynote address at he conference.

"The programming model remains .Net and Windows, which is great, but we designed these things from the get-go to take advantage of modern technologies that allow for virtualization, scale-out, management and the like. Were going to have a lot more to talk to you about in this arena in the next 12 months."

At the same time, Microsoft announced its World Wide Partner Conference the planned launch, in 2008, of a new on-demand marketplace in which Microsoft partners can showcase their company, applications and templates to customers. Customers can, in turn, download functionality and rate partner efforts.

Very much like AppExchange, Microsofts marketplace will include partner "content" that will be directly integrated with Microsofts CRM Live, the companys on-demand, multi-tenant CRM software due later this year.

Rubin said that while his company has had discussions with the Microsoft Dynamics [business applications] teams, he is more focused on those companies with their roots in on demand. "Microsoft is something well do, but down the road."

To read more about about Microsofts new online application marketplace. click here.

Other partners, like Blue Wolf Chief Architect Lou Fox, are banking on Salesforce.com and the on demand movement. "BlueWolf made their beat on on demand," said Fox.

"I am not saying if Microsoft comes out with a great on demand solution we wouldnt look at them and partner, but for now Salesforce is the leader. And there are many other companies that dont have the baggage of on premise that are doing great."

The looming competition means Salesforce has to ensure its partner community stays happy and profitable.

On its IdeaExchange Web page, created to help Salesforce.com sort out customer and partner requests for development, there are a number of partner requests listed from an April 3 AppExchange Partner Brainstorming Session. The number one suggestion: More information on OEM licensing.

"There was a lot of confusion about whether this exists and how it is priced," reads the list. "AppExchange partners need a better understanding of OEM licenses and how they work."

The reason for the request is that partners want the ability to sell their wares not only to Salesforce.com customers, but as stand alone products as well.

"Development now is specific to use within a company. There is a strong need for project management within a company, but also a strong need between companies," said DreamFactorys Rubin. "There are tricks we can do to get around it."

Rubin said that while Salesforce.coms delivery against partner requests is pretty strong there is always something on his wish list. "I am looking for things that help me lower my sale costs," he said.

The AppStore helps with issues that kill small companies such as deferred revenue models and expensive acquisition costs, he said. "The demand engine helps [as do] quality leads. But from the platform perspective the area that we could see a step improvement in is opportunity—if [Salesforce] does more for the extra business." The idea is to open the platform more to Salesforce.coms partners partners, suppliers and customers to develop applications, said Rubin.

When asked how he would define success with the AppExchange platform Rallys Martens was succinct. "I need to open the channel," he said. "I need to be effective at selling what is a vertical solution to Salesforce CRM customers. Salesforce needs to be good at helping me do that. Were in the [Salesforce] incubator in San Mateo. We get an amazing level of support—go to market, engage with Salesforce executives, be successful at Dreamforce. Thats back to making me a successful ISV."

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