Salesforce.com Plans New Referral Fees For Driving Partner Business
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." The belated fulfillment functionality, due out at the end of next year, is an example of AppExchange's technology gap. Although Salesforce.com CEO Marc Benioff has referred to AppExchange as an iTunes- or eBay-like market, it has been an eBay without a checkout -- more like a billboard than a transactional sales site. Customers can click "Get It Now" and download partner applications, but partners must set up their own systems for charging customers. Several partners said they found that surprising and had expected AppExchange to already have those functions.
Still, with more than 230 partners selling a diverse assortment of applications on AppExchange, opinions run the gamut. VerticalResponse's Popick loves the service and said her company saw an instant boost in sales volume when AppExchange launched.
"It used to be that we were at the mercy of a Salesforce.com employee knowing about us so they could pitch us as a solution," Popick said, adding that she's eager to investigate the new referral programs and is likely to sign up.
QuestionPro COO Kevin Battey said his company will consider joining the referral program. "We think AppExchange is excellent," he said. "The leads we get are very solid leads."
While the new referral program will be voluntary, participation in Salesforce.com's marketing events will be limited to those who enroll. The program's first tier, Standard Referral, will launch Feb. 1. In exchange for a 10 percent cut of first-year revenue from partner application sales driven by Salesforce.com, the company will offer premium AppExchange placement and eligibility for its incubator program and marketing campaigns.
A second tier, Premium, is slated to go live in August. For a 25 percent referral fee, Salesforce.com will offer partners seminars with its direct sales staff to pitch their wares, along with other demand-generation programs. Even though Salesforce.com's referral programs are linked to AppExchange and carry the AppStore brand, Kelman said the fees will apply to all Salesforce.com-driven partner sales, including those generated outside AppExchange.
Until Salesforce.com launches AppStore Checkout and begins actually processing sales for partners that opt in, it will rely on partners to report their sales, Kelman said.
While Salesforce.com readies its mid-January Winter '07 release, it's scheduling a temporary hiatus on listing new products in AppExchange. The site will freeze from Jan. 5 to Jan. 12. It will function normally for customers, who will still be able to download applications already listed.
As Salesforce.com shapes its new referral programs, its challenge will be convincing partners that the steep prices are worth paying. One AppExchange vendor who's happy with the partnership overall said the proposed referral and checkout fees are unseemingly high. Still, he said his company might have little choice but to fork over the cash.
"They're the largest of the SFA [sales force automation] players," he said. "We have to play along."