Management Toolkit

Salesforce.com cashes in on application market

Tags:
Marc Benioff,
Marketplace,
Appexchange

Dawn Kawamoto CNET News

Published: 12 Dec 2006 09:15 GMT

Salesforce.com on Tuesday is expected to unveil its long-awaited plan for generating revenue from its on-demand applications marketplace AppExchange.

Salesforce, a pioneer in on-demand applications, plans to introduce its AppStore, which is designed to work in conjunction with its AppExchange platform. AppStore aims to bring marketing and back-office tasks, such as billing and collection services, to small third-party applications vendors for a fee.

"From the moment we started talking about our vision of a marketplace of on-demand applications, the market has been asking: 'What is Salesforce.com's strategy to monetise the AppExchange?' AppStore is the answer," Marc Benioff, Salesforce.com chief executive, said in a statement.

Third-party vendors, however, will find the AppStore offering does not come cheap.

Under AppStore, developers will have their choice between a fee-based standard, or customised referral marketing service. The AppStore referral programme, in essence, will work much like the sponsored links on Google or Yahoo — participating vendors will receive premium placement on AppExchange search categories.

The standard service, which includes a marketing programme and eligibility to participate in Salesforce events, carries a 10 percent referral fee paid to Salesforce on all transactions that the third-party vendor closes on AppExchange.

But with the AppStore premium referral service, Salesforce will receive a 25 percent cut of the action for providing a customised marketing service.

And if a third-party developer wants to have Salesforce handle its online ordering, billing, invoicing and collection services, that will cost them an on-going 20 percent commission to use AppStore Checkout.

As a result, a third-party vendor could end up paying Salesforce.com 45 percent of all of its AppStore-related revenues the first year they use the service. After the first year, however, only the on-going 20 percent AppStore Checkout commission would apply.

AppStore standard referral is set to launch in February, while the premium marketing referral service is slated for August. The AppStore Checkout is expected to debut in December 2007.

Despite vendors facing the potential of paying upwards of 45 percent of all their AppStore-related revenues to Salesforce in the first year of use, the company notes it still leaves vendors in a better situation than having to pay upfront for such services.

"Our services are targeted toward companies on a shoestring budget," said George Hu, chief marketing officer for Salesforce. "A lot of small companies have cash-flow constraints and don't want to pay for marketing before they sell anything. With AppStore, they don't have to pay until they make money."

Analysts agree that despite the 45 percent cut that Salesforce could potentially capture off a customer, there will likely be takers for the service.

Young, emerging companies that are focused on building up their portfolio of customer references may be more apt to try AppStore than established applications vendors, said Rebecca Wetteman, vice president of research for Nucleus Research.