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Salesforce loads up 'iTunes for business apps'

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4th Jan 2007
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Salesforce.com is opening AppStore, which it formally describes as "a single source for trying, buying and deploying on-demand applications" and informally as an iTunes for business software.

Marc Benioff, chairman and CEO, said "For customers, AppStore will make purchasing on-demand applications as easy as buying music on iTunes, and for partners, AppStore will remove the burden and expense of building out a sales and distribution channel."

The program, to be phased in during 2007, will provide small and start-up developers with a relatively easy way of marketing their products. The basic referral program should start early next year, while the premium service is expected in the third quarter.

"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."

Salesforce.com will charge a 20 percent commission on sales processed though its Checkout ordering and billing system, scheduled for introduction in the fourth quarter of 2007.

Two levels of referral services will be offered. The standard level provides premium placement in searches and catalogues plus "eligibility" for other services, and attracts a 10 percent commission.

Premium referrals - for which Salesforce.com claims 25 percent commission - also allow participation in demand generation programs and the opportunity to education Salesforce.com's customer-facing employees about the benefits of the product.

If a third-party developer wants to have Salesforce handle its online ordering, billing, invoicing and collection services, that will cost them an ongoing 20 percent commission to use AppStore Checkout. In total, a third-party vendor could end up paying Salesforce.com 45 percent of all of its AppStore-related revenue the first year it uses the service. But after the first year, only the ongoing 20 percent AppStore Checkout commission would apply.

Underpinning the announcement is the need for Salesforce.com to show the market how it plans to make money out of the AppExchange. "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 monetize the AppExchange?' AppStore is the answer,” said Benioff.

From a customer point of view, the main advantage of the AppStore model, especially compared to its earlier incarnation as AppExchange, should be the reduction of the number of partners they need to deal with and the creation of a single invoice once the Checkout integrated payment system for AppStore applications is rolled out at the end of the year.

"AppStore will give customers a one-stop shop for on-demand applications," said Bruce Richardson, Chief Research Officer, AMR Research. "The AppStore will offer all the application choices that customers want, delivered with the simplicity of a single vendor."

More than 430 applications from over 230 partners are available today on the AppExchange. Global AppExchange incubators will help companies develop new products on the Apex platform, and will also help accelerate the success of existing AppExchange partners. Ten companies have already signed up for the AppExchange incubator program, including: Appirio, Avankia, Centive, Convenos, DomoDomain, InsideView, InvisibleCRM, Right90, VerticalResponse and Xactly.

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