Salesforce.com makes platform move with AppExchange

Salesforce.com plans to accelerate its push to become a hosted applications platform by launching AppExchange, a Web site intended as a bazaar of on-demand software. The unveiling is expected on Monday at Salesforce.com's Dreamforce user conference in San Francisco.

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AppExchange is essentially a rebranding of Multiforce, the hosted applications environment Salesforce.com launched in June to encourage third-party development around its software platform.

The name change was so sudden that several partners participating in the launch were caught unaware, according to a spokesman for a Salesforce.com partner, who asked not to be identified for fear of reprisals from Salesforce.com. He learned of AppExchange when Salesforce.com sent back his client's draft press releases this week with all references to Multiforce replaced with the name AppExchange.

Six-year-old Salesforce.com has become a dominant player in the hosted or "on demand" applications market, with more than 300,000 subscribers now using its CRM (customer relationship management) system. Sales software is Salesforce.com's focus; to extend its functionality, the company has an extensive partner network of ISVs (independent software vendors) offering add-ons and complementary applications.

Salesforce.com entered the platform market two years ago with Sforce, which it touted as a platform that outside developers could use to build any kind of hosted application. In reality, it's being used by partners to tailor their applications to Salesforce.com and to attract Salesforce.com customers looking for extended functionality.

One long-time Salesforce.com partner participating in Monday's AppExchange launch, Got Chief Executive Officer Eric Melka, said AppExchange will offer partners a new level of integration. Previously, Got's marketing management software was a separate module that could integrate with Salesforce.com; now, it will appear to users as seamless extension of Salesforce.com's software. Customers can essentially "activate" the software and treat it as they would any other built-in functionality.

"Something that's part of the software is always better," Melka said. "Would you use additional fonts that came with [Microsoft] Word, or would you use fonts you have to buy and load?"

Salesforce.com isn't the only company that sees opportunity in becoming the backbone for "software as a service" deployments. IBM announced plans three years ago to develop a network of ISVs offering hosted applications through IBM's infrastructure. It has since amassed more than 40 partners, whose wares it advertises in a "Software as Services Showcase" on its Web site.

Actually pulling together those components together into a unified offering has proved tricky. "IBM has yet to deliver a replicable platform or tools for SaaS [software as a service] developers to leverage," Summit Strategies analyst Tom Kucharvy wrote in a July research report. "Nor has it yet launched an integrated SaaS solutions marketing program needed to create customer proof points, market awareness or a proven, leveragable 'hook' around which third-party applications and add-on vendors can position their own offerings."

One ISV partner working with both IBM and Salesforce.com said his company sees IBM and Salesforce.com serving separate segments of the market, with IBM reaching enterprises and Salesforce.com more broadly serving the midmarket. His company remains committed to working with IBM, although he acknowledged that its program is moving at a glacial pace. He also asked not to be identified because Salesforce.com has asked partners not to discuss AppExchange before its scheduled launch.

"The IBM version of AppExchange is definitely moving forward, but at IBM speed," the partner said. "It's finally starting to come to fruition."

Another early IBM SaaS partner, HRSmart, dropped out of IBM's program after deciding a co-location arrangement better fit its needs than a hosted-software model. With co-location, the company manages and controls its own hardware and data.

When asked for comment, an IBM spokeswoman sent several press releases over e-mail but did not respond to follow-up questions on the status of IBM's hosted software efforts.

Salesforce.com declined to discuss AppExchange before its official launch. The big question facing the company is whether it is willing to separate itself from its CRM focus and stake its future on becoming a broader platform vendor. So far, selling Salesforce.com subscriptions has been essentially its only revenue stream -- and it's been a profitable one.

The company has no business model in place for selling platform technology, and competitors are quick to point to that as Salesforce.com's Achilles' heel.

NetSuite, for example, notes that its hosted ERP (enterprise resource planning) applications suite already includes much of the functionality that Salesforce.com derives from partners. NetSuite Chief Technology Officer Evan Goldberg sees a parallel to the trajectory of the traditional "tier one" applications vendors that made their fortunes in the '90s by offering on-premise software.

"SAP built an entire business applications suite that was cross-departmental and served the back office and the front office. Siebel concentrated on the front office. The battle is not completely over yet, but it appears SAP's approach has won," Goldberg said. "Salesforce.com, in creating their company, took on a new delivery mechanism for business applications with on demand, but took the same approach as Siebel in building an application that's targeted at one department, the sales department. Now, several years down the road, they're in a similar position to Siebel."