An iTunes Store For Business Apps?

Salesforce.com  is announcing AppStore, a new set of
services it will use to squeeze more revenue from its AppExchange platform.

AppExchange, launched in January 2006, is a marketplace of on-demand application
vendors which Salesforce.com has used to create an ecosystem around its own
core offering, a customer relationship management application.


The company says AppStore is a way for vendors to further leverage the
AppExchange infrastructure by giving them a way to market their services and
collect payments from customers more cheaply and efficiently than if they
did it on their own.

It will also cost them considerably more than simply offering their wares on
the exchange.

Until now, Salesforce.com charged vendors for each seat they were able to
sell off the AppExchange. Now, they will be able to charge for a range of
new ancillary services.

The company will offer AppExchange partners access to marketing services
such as premium placement on searches and AppExchange categories in exchange
for a share of the revenues they generate through the program, starting in
February 2007.

In addition, Salesforce said it will offer its partners a complete ordering, billing,
invoicing and collection service to help them process payments from their
customers, also for a cut of the action. This service won’t be available
until December 2007, but the company said it’s announcing it now in order to
generate discussion among its partners.

Ariel Kelman, director of Apex product marketing at Salesforce.com, told
internetnews.com that AppStore, “offers our partners a broad set of
services to be successful selling to our customer base, give them ideas, a
platform, a place to list their services. It also gives customers a single
source for testing and buying applications.”

It’s “an iTunes music store for business,” he said.

Salesforce.com has created two tiers of the AppStore Referral Program: the
Standard version, to be released in February, will cost vendors 10 percent
of any new business generated through AppExchange. The Premium version, to
be rolled out in August, will offer more marketing perks, like seminars for
customer-facing employees of Salesforce.com, and premium listing on
AppExchange, for which vendors will be charged a 25 percent referral fee.

Vendors will only have to pay the referral fee for the first year following
the initial sale.

AppStore Checkout will be a separate service, and will cost vendors a 20
percent commission on all amounts invoiced on an ongoing basis.

Kelman said that Checkout will give vendors an inexpensive way to collect
payment while also providing customers with the convenience of a single
quarterly invoice for all the SaaS applications they use on the AppExchange.

Customers will also be able to pay by credit card if they chose to do so.

By offering these services, however, Salesforce.com may open itself up to
criticism that it is creating a hierarchy of partners — those who are
willing to pay for the convenience of the checkout application, and those
for take a pass on paying 20 percent of their sales income ad infinitum.

But the announcements serve the purpose of explaining how AppExchange will
remain an integral part of the company’s business model.

Jeff Kaplan, managing director of THINKstrategies, said that, overall,
AppStore will provide an important service to AppExchange vendors.

“It provides a mechanism whereby SaaS providers can offer their solutions
more easily,” he told internetnews.com.

But he conceded that the 20 percent commission is “not necessarily the best
approach for each partner.”

“They’ll have to consider whether or not it’s cutting into their cost of
doing business, and that’s an important consideration.”

Denis Pombriant, managing principal at Beagle Research, predicted that
Salesforce.com will have to contend with competitors to AppExchange in the
near future, reining in its prices.

He added that Salesforce.com is still tinkering with the financial details
of AppStore, but made the announcement today in order to convince Wall
Street analysts that it has a plan for expanding on its business model.

“First they announced Apex,
that was the first shoe, the technical shoe. This is the other shoe,” he
said.

Kelman said that vendors had been asking Salesforce.com to provide these
services, and that it would continue to work with its partners to refine the
details of the idea.

“We decided to get this out early and iterate several times to make sure we
get it right,” he said.

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