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December 12, 2006

Salesforce.com opens up AppExchange revenue stream

Salesforce.com Inc is adding a business infrastructure and services layer to its AppExchange program, as part of a new strategy to generate revenue from the application marketplace, and will also be taking on a bigger role in approving AppExchange applications and providers.

By CBR Staff Writer

The SaaS company is preparing to launch AppStore in February 2007, which will provide third-party application providers with a range of business services around the applications they offer over the AppExchange, with Salesforce.com charging a percentage of completed transactions as a fee.

AppStore will offer a marketing program to application providers including a referral service whereby their applications would have preferential placement on AppExchange search categories, in the same way Yahoo and Google sponsored inks have prominent placements. Under the program participants would also be eligible to take part in Salesforce.com events. Salesforce.com would charge a 10% referral fee for all AppExchange transactions completed as a result of the program.

The service is scheduled for launch in February 2007, to be joined in August 2007 by a custom marketing service. This will add additional marketing services on top of the standard offerings including premium placement on AppExchange searches and content lists, access to training seminars and eligibility to join the incubator program. Salesforce.com would charge 25% of completed transactions. Participants may be expected to meet certain criteria such as a certain number of successful deployments, Salesforce.com certification and good user ratings.

A third component, AppStore Checkout, is scheduled for August 2007, which will provide third-party application providers with back-office functions whereby Salesforce.com would handle online ordering, billing, invoicing and collection services on behalf of the vendor, charging 20% commission on transactions.

For small and start up ISV’s the new services provide access to pay-on-results marketing, which in true on-demand style eliminates the need for upfront marketing spend, which will should be attractive to resource strapped players. For Salesforce.com it is a way of generating revenue from the AppExchange by adding a business and commercial layer to what has been a developer-centric operation. It will open up a new revenue stream which will be critical if the company is to achieve its goal of generating $1bn in annual revenue, now that the rate of new subscriptions to its core service has slowed down.

Although revenue generation is the main driver for the new services, there may be a hint either of quality control or a desire to push the non-CRM application boundary outwards.

While AppExchange has pulled in some big vendors like Business Objects, many of the AppExchange players are offering simple add ons for the Salesforce CRM application, rather than generating complete or new types of applications. The site also contains many applications that are written and supplied by Salesforce.com.

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The result is that AppExchange is not fostering a rounded set of business applications, particularly back-office business applications. This is a significant stumbling block as on-demand back-office applications are the next major functionality proof point for on-demand services. By providing marketing and business services to increase their chances of success Salesforce.com may be hoping to edge developers into these areas.

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