Dreams On About eBay-Scale Success

By John Pallatto  |  Posted 2005-09-14 Dreams On About eBay-Scale Success

With the introduction of its AppExchange application-sharing platform, contends it has a chance to become the eBay of hosted software, supporting a community of thousands of software developers. has already built the software-sharing platform. The question now is will the developers come by the hundreds and thousands? says they are already starting to show up.

The company claims that it already is working with as many as 150 announced application partners, including several that were exhibiting their products at the companys Dreamforce user conference.

While this is an encouraging start, has a lot more work to do to prove that it can develop a long-term self-sustaining community that might even make some money producing third-party applications that run on its CRM (customer relationship management) platform.

CEO Marc Benioff contends that his companys CRM platform is no different from Microsoft PC DOS and Windows: It is a platform for building, customizing and deploying applications. Only this time users dont have to buy shrink-wrapped software with floppy disks or CD-ROMs containing software that they have to put on desktops or servers.

Now the software exists totally on the Internet, and and its partners are only trading access to that software. But how can AppExchange become the launching pad for a wide range of applications that goes far beyond its original purpose as a CRM platform?

Click here to read the details about Salesforce.coms new AppExchange service.

Tien Tzuo, Salesforce.coms senior vice president of product management, said it will work simply because all the components are in place: the application platform, customization capabilities, application integration, an on-demand database system and the data centers necessary to give subscribers Internet access to the applications.

"We have got all the ingredients that you really need to make this happen. AppExchange is really the match, the catalyst" that will set the process in motion, he said.

"We couldnt do this six years ago," Tzuo said, because the Internet and application development technology werent mature enough to support hosted applications or application sharing. Its 308,000 subscribers and 150 application partners are the key assets that will allow to nurture a vibrant developer "ecosystem" that can grow and evolve over the long term.

AppExchange isnt just a platform for small-scale applets and add-on components for Salesforce.coms CRM applications, according to Tzuo. There is no reason why AppExchange couldnt be the launch pad for large and successful application companies just like MS-DOS became the launch pad for scores of major software companies, such as Lotus, Borland and WordPerfect.

Next Page: The longest tail.

Music and Software

On the other hand, is also counting on the low cost of Internet distribution to make it practical for partners to sell access to small, low-cost applications on the Web.

To support this view, invited Chris Anderson, Wired Magazines editor in chief, to speak at the Dreamforce user conference about why the Internet can do for application sales what it already has done for music sales.

Anderson is completing a book, "The Long Tail," that shares its title with his Wired Magazine online blog and examines how the efficiency of Internet downloads made it possible for garage bands and independent musicians of all kinds to have a market for their music.

Click here to read about Oracles $5.85 billion buyout of CRM software producers Siebel Systems.

The Web eliminated the expense of CD releases and for that matter most other distribution, marketing and promotional expenses. Musicians didnt have to produce a hit recording to find a niche as long as fans could find their music on the Internet. There is always room for another music niche on the Web, according to Anderson.

Hosted application services like are about do for software what the Internet has already done for music, drastically cutting the cost of distributing applications to a vast array of potential market niches.

Anderson quoted founder Joe Kraus in explaining why markets for small niche software products have been so slow to develop. Its because the software industry is much like the music industry, where "the focus has been on dozens of markets of millions instead of millions of markets of dozens," according to Kraus.

It was simply too hard to write, integrate, customize, support and distribute applications that serve narrow niche markets, noted Anderson.

Those rules no longer apply on the Internet because its no longer a matter of manufacturing, storing, shipping and installing software on CD-ROMs that costs hundreds or thousands of dollars.

Click here to read about what one industry analyst thinks about Oracles prospects for integrating the multiple CRM products it has acquired over the past years through corporate buyouts.

Furthermore software buyers no longer have to buy and assemble an expensive infrastructure of servers, storage devices and databases to support these applications. That cost and risk is borne by the hosting service.

The prospects for on-demand applications services and the prospects of Salesforce.coms AppExchange sound suspiciously like the promises that were made for e-commerce in the heady days before the dot-com crash. There were fervent claims made about the efficiency of the Internet, and "frictionless commerce" was going to turn classic economics on its head.

But another law of economics states that "there is no free lunch." And and all its application partners are going to have to show that AppExchange can support a far larger developer community and that there is a generous revenue upside to prove the long-term value of this new venture.

John Pallatto is a veteran journalist in the field of enterprise software and Internet technology. He can be reached at

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