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A Winning Combination: Software-as-Services Plus Business Consulting and Process Services
By Laurie McCabe
January 30, 2004

In 1980, Bill Gates had a brilliant idea: make a fortune providing the operating system platform for the first PCs and let others build applications on top of it. In 2006, Marc Benioff has the same idea.

On Tuesday, salesforce.com officially launched AppExchange, an online marketplace for applications certified to run as add-ons to salesforce.com’s hosted customer relationship management and sales force automation applications.

(Just don’t call it software, please. Since the company’s launch in 1999, it’s proclaimed “the end of software.” Salesforce.com says it provides applications on demand.)

While salesforce.com CEO Benioff often disses competitors such as Microsoft and SAP by name, an odd thing happened during the festivities announcing the opening of AppExchange: The company began comparing itself to Microsoft.

Introducing AppExchange, Benioff said, “We’ll take a killer app on the Internet — salesforce.com — and transform it into a platform, just as our predecessors did in the PC marketplace.”

Like Microsoft, salesforce.com hopes that by allowing independent software developers to build on top of its basic software, it can keep customers happy.

Lew Tucker, a salesforce.com vice president in charge of the AppExchange, told journalists at its event that the goal of the software marketplace was to increase basic subscriptions to salesforce.com. He said, “It’s almost like if you go back 10 or 15 years to Microsoft and Windows. You bought Windows, and then you bought applications to run on top of it.”

But Kendall Collins, vice president of product management for the company, denied that it’s building a Microsoft-style ecosystem of proprietary applications that only work together.

“We do allow applications to make a call to salesforce,” he told internetnews.com. “Our API is bi-directional, so you can pass information into and out of salesforce.”

For example, Steve Lucas, vice president for data integration for Business Objects, said that his company’s Crystal Reports product can pull in salesforce.com data. “If you’re a Crystal Reports user, you now have the ability to call salesforce.com and use it as another data source.” (Business Objects also created a separate Crystal Reports application to run on AppExchange.)

Analysts loved the idea.

Rebecca Wettemann, vice president of Nucleus Research, said, “They’re expanding what they’ve done with CRM to provide people with more functionality. There’s a lot to CRM and business process applications. This is a great way to provide users with an on-demand platform to access them.”

She said AppExchange would give ISVs a new distribution channel, while giving salesforce.com subscribers more reason to stick around. “What they want is for their basic system to be much more sticky than just the basic CRM application,” she said, “much like Microsoft has done with Office.”

Wettemann added that salesforce.com customers are free to go. They can easily move their data to another service.

Sheryl Kingstone, a Yankee Group analyst, said she wouldn’t endorse salesforce.com as a platform-only play. “Number one priority should be an application and not a platform,” she said. But she thought AppExchange was very important to the company as a way to help ISVs empower customers. “What’s more important is the ability for their customers to make unique business process and custom changes to their own applications or [to build any application they want themselves.] So, it’s a platform play, but it’s all about empowering the application itself.”

Said Bruce Guptill, managing director of Saugatuck Research, “Having an entity like Salesforce.com act as an aggregator/software/services provider is key to making SaaS really work for most user firms.” He said that enterprises typically have hundreds of applications from dozens of vendors. “Managing just the combination of licenses, usage, rates/costs, and services levels can add tremendously to the IT management burden of any user firm. Add in support and maintenance, and there’s a potential nightmare.”

Guptill said that if Salesforce.com can simplify the management, it would make software-as-a-service (SaaS) more economically attractive.

He said the future of enterprise computing is a hybrid environment in which software is accessed in a variety of ways, including over the Internet. “Salesforce.com has moved another step ahead in the direction that all ISVs will eventually be headed,” he said.

Whether or not it works in the short term, Guptill said, is still to be determined. Benioff admitted that launching the AppExchange, originally announced in September 2005, was much harder than anticipated.

Said Guptill, “A SaaS business model is tremendously different and potentially much more complex than the traditional model — for both users and vendors.”


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