Salesforce.com's Pitch to Startups

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Pricey Real Estate

Others hope the incubator will help them move faster into new markets. "We're using the incubator as a bridge into the U.S. market," says Andrew Walker, founder and marketing director of Clicktools, a three-year-old British company whose services help companies do Web surveys. The company had a San Francisco office, but there, he says, "you never really had a place to bounce ideas off people."

Salesforce's San Mateo incubator is intended to be the first of many, from Silicon Valley to Tokyo, London, India, and possibly Singapore. Caryn Marooney of OutCast Communications, Salesforce's PR agency, notes that the first incubator is so popular that a second phase with more startups is scheduled to open in the same building in June. "I feel like we're building condos," she mutters.

Her aside, in fact, raises one concern about the incubator. Although the downside for Salesforce seems low, the company is incurring significant real estate costs. "At this scale, it could become a real estate business," notes Jeff Clavier, founder and managing partner of SoftTech VC, an angel investor in 20 companies. And in Silicon Valley and other hot high-tech areas, those costs have been rising considerably.

Meet Incubator 2.0

It's also possible that some companies attracted to the incubator will turn out to be those with weak products that couldn't cut it on their own. David Hornik, a general partner with the venture capital firm August Capital, thinks startups that don't develop the ability to manage all parts of their business often fail once they enter the real world. "Incubators can produce incomplete companies," he says.

With what might be called Incubator 2.0, Benioff is trying to pluck the best of not only incubators but also so-called co-working facilities, where independent companies can share office facilities, Internet access, and tips on how to run their businesses better (see BusinessWeek.com, 2/26/07, "Where the Coffee Shop Meets the Cubicle"). Indeed, co-working is an emerging trend among tech startups, some of which are offering up space in their own offices to potential partners. And that model is more appealing to VCs as well. "It's like a Lamaze class," says Hornik.

The corporate wiki firm Socialtext, for instance, just took on more office space in Palo Alto, but isn't using it all yet. So it's offering some of it to software developers who will write open-source wiki software that supports Socialtext's and other companies' wiki software.

"Real estate is the leading cause of death for startups," notes Socialtext CEO Ross Mayfield. "This is sort of a commune for nerds." That's the vibe Salesforce will need to create if it wants to hatch its vision of a new software industry.

Hof is BusinessWeek's Silicon Valley bureau chief .