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An eBay For Business Software


On first glance, Marc Benioff doesn't seem like a man in a hurry. The bearlike 40-year-old chief executive of software pioneer Salesforce.com Inc. () favors Hawaiian shirts and rarely shows up in the office before noon. He eases into the day with yoga workouts and barefoot walks on the beach. Yet, since he co-founded San Francisco-based Salesforce.com six years ago, he has been dreaming up big ideas at a dizzying clip.

The most recent one came in June. That's when Benioff introduced a technology, named Multiforce, that he calls an operating system for the Internet. Customers and software makers can create applications for Multiforce that can be used over the Web like Salesforce's own software. In essence, he turned Salesforce.com into a platform for others to build upon -- much like Microsoft Corp.'s () Windows.

Now, Benioff is planning an even more sweeping initiative. On Sept. 12, he's scheduled to unveil something called AppExchange, which he envisions as nothing less than the eBay () of corporate software. It's an online marketplace where software makers and customers can swap and sell applications they develop. Companies interested in new software capabilities can search through a menu of applications. When they find something they're interested in, they can read reviews by others, try it out for free, and buy it with a few clicks.

Salesforce.com's products fall into a broad category of software called customer relationship management, or CRM in industry-speak. They help companies manage all sorts of customer relations, such as letting salespeople keep track of leads or helping execs judge the success of marketing campaigns. The applications on AppExchange, however, can be any kind of business software. And just like Salesforce's products, they'll be accessible to any subscriber with a Web browser and Internet access.

Benioff contends that this approach will eventually change the entire structure of his industry. Software over the Web -- commonly called on-demand -- accounted for less than 10% of the $46 billion in corporate software sold last year. But he says creating an open marketplace for on-demand software will help cause the decline of the big, complex, and expensive corporate applications sold by the likes of SAP () and Oracle Corp. (). "It's a big leap for us," Benioff says. "We think it will show the world the next step for on-demand computing, just as we showed the world the first step."

Salesforce.com is under pressure to take the next step because the market it pioneered is getting mighty crowded. Siebel Inc., the longtime leader in selling traditional CRM software packages, sells an on-demand version, as do a handful of startups. Microsoft, which offers customers its CRM software online, is about to issue a major upgrade. Most worrisome, giant SAP is expected to offer an on-demand version by yearend. They're all vying for pieces of a broad on-demand software market expected to grow to $10.7 billion in 2009, from $4.2 billion last year, according to researcher IDC.

LOYALTY GAMBIT

AppExchange strengthens Benioff's hand. The marketplace makes it possible for the company to offer a large array of software that it could never afford to build by itself. At the same time, if customers adopt other applications running on its computers, they will be less likely to leave it for a competitor. While Salesforce.com won't receive any fees when companies buy applications on AppExchange, it expects the marketplace to help expand its customer roster and revenues.

The risk for Benioff is that he might be trying to do too much, too fast. Can he keep all of these balls in the air at once? Possibly, but it will be a lot harder than swimming with dolphins -- one of his hobbies. While more than 80% of Salesforce.com's customers are small and medium-size businesses, the company has recently been trying hard to attract larger enterprises lately. It's not clear if Salesforce will be able to serve both masters. At the same time, to seed AppExchange, the company is writing more than two dozen applications itself, potentially putting a strain on its staff. "They're trying to be both an applications company and a platform company," says analyst Rebecca Wettemann of researcher Nucleus Research Inc. "It's a lot for a small company to do."

Salesforce.com is showing signs of strain. The company delivered strong quarterly results on Aug. 17, reporting revenues up 77%, to $71.9 million, and net income up 331%, to $5 million. It landed a handful of major contracts, including a 5,000-person deal with Merrill Lynch & Co. (). Still, the company forecast revenues of $78 million to $80 million for the next quarter, while analysts had been looking for as much as $84 million. Its stock slid 8.5% the next day, to $20.32.

AppExchange could help spark a rebound. Benioff did not pre-brief Wall Street on his plans, but industry analysts who got briefings are intrigued. "I think a lot of small software companies will sign up. They'll want to be on the magic bus with Marc," says Bruce M. Richardson of market researcher AMR Research.

Benioff had software's small-fry in mind when he dreamed up AppExchange. He saw that Multiforce would make it possible for software developers to market their programs to all comers via a vast directory. Already, 35 software makers have 70 applications under construction. Among the software makers: Intacct Corp. of San Jose, Calif., which plans on making its entire suite of on-demand accounting and planning software available via the marketplace.

But the appeal of AppExchange isn't limited to the tech industry's pint-sized players. Consulting giant Accenture Ltd. (), which just started building a systems integration practice around Salesforce's offerings, is considering writing programs to run on AppExchange. "I was a skeptic two years ago that Salesforce.com would make its way in the enterprise, but we're now seeing our customers deploy it," says Woodruff Driggs, head of Accenture's CRM system-integration business.

Merrill Lynch, for one, is avidly interested in Benioff's marketplace. It's thinking about asking some of its own tech suppliers to sign up for AppExchange. That way, their applications will run more dependably and will be better integrated with other programs running on the Multiforce platform, says Andy Brown, Merrill Lynch's chief technology architect.

For Salesforce.com's smaller customers, AppExchange holds some of the attraction of Linux and other open-source software. Once they write a Salesforce.com add-on for their own use, they can simply press a button to make it available to others -- with their data removed. Amit Saxena, customer management leader for credit report distributor First American CREDCO in Poway, Calif., expects to buy, sell, and share applications.

Benioff's competitors make light of his grand vision. "It looks great on PowerPoint, but on planet Earth, it won't fly," predicts Zachary A. Nelson, CEO of NetSuite Inc., a small software-on-demand specialist. Nelson and other rivals claim that Salesforce.com's own applications don't meld well with traditional corporate software. Shai Agassi, a member of SAP's executive board, says there's no way an aggregation of small applications like AppExchange could replace SAP's packages, which he says provide about 80% of what's needed to run a company. "Salesforce.com is a CRM company. Marc is trying to make noise and buzz about something bigger, but that's all it is," he says.

Analysts agree that AppExchange won't replace SAP's armada of programs -- at least, not anytime soon. But they see it as a smart idea that would play very well in small and medium-size businesses. "I think this ecosystem will grow, and it will grow fast," says analyst Robert P. Desisto of market researcher Gartner Inc. (). If that happens, and Salesforce.com's momentum keeps up, you can expect Benioff to keep firing off his big ideas.

By Steve Hamm in New York


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