AppStore fills IT’s grocery list

Posted: December 14, 2006 in CRM

Salesforce.com is having a good year this quarter.  That’s not a typo, the company seems to be announcing a year’s worth of new products in a very short time, though delivery for some of the announcements might stretch out to this time next year.  This week, Salesforce announced what I think of as the other shoe or the business side of the AppExchange and associated infrastructure.

So far, the focus has been primarily on Salesforce’s novel approach to building and deploying business applications and, while it is important, that discussion does not lead directly to revenues.  As a result, Salesforce has pulled together the business implications of its new technology into a package that will appeal to Wall Street.

Concept-to-cash

The AppStore, the focus of the announcement, is both an acknowledgement that the original focus of the AppExchange—build it and they will come—is just a tad ambitious, and a segmentation of the business process into very traditional parts like sales, delivery, invoicing and collection.  Taken together they have fully automated and made on-demand, the concept-to-cash business process, something every company needs and few have integrated to such an extent.

The first impression I had when briefed on the AppStore was how conventional it all is; nevertheless, it’s this conventional piece that emerging companies frequently get wrong.  The AppStore and everything it connects is not very ground breaking as a business proposition, in fact it is conservative—it’s called vertical integration. 

Consider the pieces

Idea Exchange captures customer wish list ideas for new applications.

Apex has been designated as the development language though as a language it is insufficient to stand on its own.  For full application development, extension, integration and all the rest you need the rest of the tools, but this is quibbling.  Suffice it to say that the development box has been checked off.

In a slight change, the company now positions the AppExchange as a marketing tool and separates other important parts of the application sales process to the AppStore coming soon, they said this week. 

Partners

The business process is not the only thing conforming to traditional business norms, so is the partner program.  There are three levels to the new program which offers partners marketing assistance, lead sharing, and direct contact with Salesforce’s field sales force—for a price.  The price ranges from free to 10% or 25% of the price partners charge for their applications and that is on top of the additional seat licenses that Salesforce will automatically sell to make those seats viable for presumably new users.  Coming next December Salesforce will offer to take over the billing and collection from any partner that effectively develops a solution, drops it on Salesforce’s door step and heads for the beach.

There were two channel models that could have been employed here: either sell the OEM product at a discount to the reseller who marks it up or charge a markup back.  Since Salesforce is doing the marketing, selling, hosting, and everything else it makes more sense to construct the model as it has. With Salesforce handling the receivables the partners will simply receive a check net of Salesforce’s part.

Still there will be challenges and adjustments for the new model.  For one thing, there is no runtime license which will probably be addressed in the new year.  Without a run time license, a company would need to pay for a full seat subscription for any new user brought on to use one specific, non-Salesforce, application. 

That situation represents a challenge for Salesforce.  Certainly customers running applications other than the core CRM suite deserve some price relief, but the vendor has a right and a need to charge for the infrastructure being used as well.  Sometime early in 2007 look for Salesforce to come out with some way of segmenting users into different classes for the purpose of assigning a value to the runtime subscription.

Some of what Salesforce has announced—specifically the AppStore Checkout Partnership—will not hit the market until December of 2007, a long time in this business, but one suspects the announcement of everything at once was required by the scope of the undertaking.  The analogy I see is with the announcement of FedEx more than 20 years ago.  Like a prime number, the system can not really be factored into smaller units.

My analysis

Finally, let’s consider what this means in the big scheme of things.  There is now the capability to, at least in theory, build any business application and deliver it on-demand such that the new application is fully integrated out of the box (or off the wire) with anything else in a rapidly growing suite.  Also, there is now, or will be about the time we get back to real work in 2007, a more or less complete facility to identify, test, install, purchase, pay for, and receive support and maintenance, on line. 

Salesforce has developed a full function business software utility and with it an economy or ecosystem of builders, buyers, and sellers that spans the planet.  Good for them, but now the hard part starts.

So far, the market and Salesforce have been focused on replacing the tired infrastructure that supported building and buying software licenses.  With that out of the way, much more attention will need to be focused on leveraging software to do better business. 

There has never been a time when the old IT adage and acronym, GIGO, had greater potential resonance.  If we can keep ourselves from building every bad application possible simply because it is easy to do so, it will be because vendors develop and market practical or subject matter expertise regarding business processes. 

The next big challenge that I see involves business process management.  Software had been a limiting factor for many business processes in part because the process and practices were inextricably tied together.  In the future process and practice will be separate and a door will open for a different kind of IT or business consulting.  It is now time for software companies to change focus to take advantage of the new opportunities.

So, what did you think?

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