Salesforce.com's Pitch to Startups

CEO Marc Benioff is opening an incubator to encourage software companies to develop complementary applications for AppExchange

by Robert Hof

Workers stand on ladders carefully positioning a company sign above a row of cubicles. A woman walks by carrying a lava lamp destined for the office game room, already littered with beanbag chairs and big blue exercise balls. No, it's not the latest Silicon Valley startup. It's more than two dozen of them, crammed under one roof at the Valley's northern edge in San Mateo, Calif.

They're all taking part in yet another grand experiment by Marc Benioff, the high-profile chief executive of online customer management software provider Salesforce.com (CRM). Benioff aims to catapult his company beyond customer management to make it the hub of what he calls on-demand business services—essentially, a bid to help customers run their businesses entirely online.

But he knows he can't do that all by himself. So he's encouraging outside startups to develop online software that complements his company's own. To do that, he's going well beyond the arm's-length practices—such as offering limited access to programming interfaces and holding software developer conferences—of most software companies.

Shaking Off a Bad Rep

On Apr. 24, Benioff will officially open Salesforce's first company incubator, welcoming 32 mostly startup companies, plus a few established partners that want satellite offices. They're all creating applications for Salesforce's AppExchange, a directory of online business services that work with Salesforce software, such as programs to run e-mail campaign programs and customer surveys. "We need to be a little closer to these companies," says Benioff. "We need to remove as much of the risk from their businesses as we can."

It's a rather bold move to call the facility, a nondescript red-brick building that formerly housed Salesforce archrival Siebel Systems, an incubator. Incubators, which sought to turn ideas into companies more quickly by sharing facilities, management, and expertise under one roof, got a bad name after the first dot-com boom turned bust in 2001. The likes of Idealab and CMGI Ventures ran into trouble when many of their fledgling companies died.

But Benioff hopes to succeed by avoiding some of the pitfalls of those incubators. For one thing, Salesforce is not investing in these companies, only encouraging them to develop software for the AppExchange. It's also charging them $20,000 a year for a small space, on which Benioff figures he will break even. Despite the checkered past of incubators, Salesforce, which also maintains offices for some employees in the same building, may have little to lose with its effort.

Exchanging Water-Cooler Dialogue

Salesforce is offering more than office space and related services: It's holding biweekly colloquia on product management, on-demand technology, and the like. And startups can tap the knowledge of Salesforce folks who have offices in the same building.

It's early, but so far some startups that moved into the Salesforce incubator earlier this year seem happy with the arrangement. "I don't want to manage infrastructure," says Narinder Singh, co-founder of Appirio, a 12-person operation that helps companies adopt on-demand services such as Salesforce's and potentially Google's (GOOG) online office software. "We have a business to build, and I want 100% focus on that."

That said, adds Singh, whose company may move completely out of its San Francisco office into the incubator, "it's not so much for the physical space. It's all the other things." They include getting water-cooler dialogue with Salesforce people, learning from what other startups are doing, and even getting leads on potential recruits.