SFdC coming at you, through the back door

by admin on December 12, 2006

in Cloud Computing/SaaS

Poster child for SaaS Salesforce.com is bringing commerce to its AppExchange site with AppStore Checkout. This is the place where SFdC users can find lots of widgets and plug-ins for their SFdC.com CRM services. I got quite excited. Then deflated. In equal measure.

Dan Farber questions whether this prefaces an attempt to get into markets where transactions are involved. You know what that means folks? Tie up the transaction and you’re only a handful of steps away from AR and then on to – who knows what. SFdC says it has no plans to productise but “no plans” quickly turns into ‘here’s the pricing’ if there is an opportunity. This is what’s on offer:

AppStore Checkout, a commerce engine for the company’s AppExchange marketplace, which will include ordering, billing, invoicing, collection and renewal services through a single salesforce.com interface and across multiple currencies and languages.

Dan isn’t holding his breath as it won’t be available for another 12 months. Given the possibilities, SFdC is holding out a tantalising, if cloudy vision of what’s up next. Don’t bet on them not ending up offering SMB business application service all the way ‘from the outside in.’

If SFdC can convince enough customers to remain loyal over the next two years, and they develop the kind of service suite I can foresee, they’ll blow away a lot of the SaaS competition in the typical Sage customer demographic. This will be because they’ve understood the bottom up technology adoption model. It is far easier to persuade a finance department of 10 to use a suite of services if you’ve already got the 100 strong sales force on the same service. That is why SFdC has the potential to be creational, and not just disruptive.

Just down the hall from Dan’s office, (trust me, I’ve seen it :) Dawn Kawamoto is concerned about pricing. She talks about the cost to AppExchange developers:

…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.

OK – it reverts to 20% after that but WTF? Are these people crazy? Sure, today’s start-ups want as much marketing help as they can get. Sure, SFdC has the brand – why not hitch a ride? But why skim so much off the top? If you’re trying to deliver real value, SFdC could show the rest of the industry a clean pair of heels.

One of the big complaints among buyers is the amount by which software revenues are inflated by inefficient sales, marketing and administration costs. That can run at 60% of sales price to you. SFdC is taking out a good part of the pain of selling and marketing for startups, but for the first year at least, it’s a stitch. I’d bet any vendor worth their salt will jump all over this as a pricing gaff. Onwards.

SFdC will create competition within the AppExhange market and that might be a good thing. But if you already know you only pay the commissions when you sell, then how the heck do you gain a real advantage? This is what George Hu, chief marketing officer for SFdC said:

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

Doesn’t make sense. If they’re going to make a market then fine, but presumably to secure ‘premium referral’ you’ve got to pony something up front. Otherwise how do you select those going into the referral programme? That’s not what George said. George – know what a pink slip is? I think you just qualified.

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Susan Kuchinksas December 13, 2006 at 12:30 am

That 45 percent will only kick in if customers use the automated checkout feature. Benioff doubted that many customers would use checkout. He said most companies want to talk to someone before they buy. So ISVs really can get featured placement for 10 percent of their sales.

Dennis Howlett December 13, 2006 at 12:44 am

Thanks for the clarification Susan – I wasn't entirely clear. It still doesn't solve the selection problem for premium services. So I guess the 'talk to us' bit might require a check at the door? Whatever

The other problem is the inflexibility. If there is any way to negotiate a price then people will do that. This could add complications in terms of any deal that ISVs do. The terms will need to be studied very carefully.

BTW – don't think I'm being sniffy on this. There's a real opportunity in my eyes to do something special. As it stands, I'm not seeing that. They've got a year to think about it which is good. Especially if they take comment under advisement.

Susan Kuchinksas December 13, 2006 at 12:46 am

I did think they were beginning to sound like Microsoft with all these levels of partnerships and fees.

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