Salesforce.com Plans New Referral Fees For Driving Partner Business

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Salesforce.com is initiating a new partner referral program to boost ISV partner sales in its user base of 556,000 subscribers. In return, the software-as-a-service (SaaS) provider wants a cut of those sales.

The new program, a voluntary plan that will launch in phases throughout 2007, calls for Salesforce.com to receive fees of 10 percent to 25 percent on sales it helps drive through its AppExchange network and its direct sales force.

Salesforce.com is calling the new strategy AppStore to emphasize its focus on monetizing AppExchange. And a long-promised commerce engine for AppExchange is finally on Salesforce.com's road map: In December 2007, the company will release AppStore Checkout to offer billing, invoicing and collection services for software sold through AppExchange. Salesforce.com's Checkout services will carry a 20 percent commission fee.

Salesforce.com cast its new referral fees as a way to better serve partners with increased sales and marketing support.

"We've gotten pretty consistent feedback that our partners are pretty interested in sharing revenue with us in exchange for being more deeply integrated in the marketing and business operations of our company," said Ariel Kelman, senior director of platform product marketing at San Francisco-based Salesforce.com.

In the 15 months since Salesforce.com created AppExchange, the company has toyed with various strategies for profiting from partner participation. A basic listing on the site is free -- voluntary "certification" for an application costs $10,000 -- although some early partners had contracts that called for them to pay commissions. VerticalResponse, an e-mail marketing services firm whose application is consistently among the most popular downloads on AppExchange, recently renegotiated its contract to eliminate commissions.

"We decided it was in the best interests of the partnership for us not to be the only ones paying that," said VerticalResponse CEO Janine Popick.

AppExchange early adopters like Intacct, QuestionPro and DreamFactory said they haven't paid for AppExchange but always assumed that Salesforce.com would eventually introduce participation fees. Partners have mixed views, though, on whether Salesforce.com's marketing support is a worthwhile investment.

"Like many other Salesforce.com marketing 'ideas,' we'd like to see the proof before eating the pudding," one AppExchange partner said about the new referral fees. About half of his company's sales involve Salesforce.com, but only a small fraction are driven by AppExchange. After spending tens of thousands of dollars with Salesforce.com for presence in marketing campaigns and customer events, his company is reluctant to spend any more without more impressive returns.

Financial analyst Pat Walravens of JMP Securities highlighted partner concerns in recent research notes on Salesforce.com. "Key partners [suggest] AppExchange is not delivering an ROI on their investments," Walravens wrote. "While the company continues to dedicate significant marketing effort to its AppExchange platform, our due diligence suggests it needs significant technology upgrades to catch up to the marketing promises."

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