Rights and wrongs of Salesforce's 'eBay' play

Every time some new press coverage appears saying how wonderful Salesforce.com's AppExchange marketplace is, an email pops up in my inbox from Siebel (or NetSuite or RightNow or whoever) to say how awful it is. As anyone who knows me will tell you, I may be opinionated, but I always listen to both sides of the argument. So here are the opposing viewpoints, and then I'll give you the balanced view, straight down the middle, of what's right and what's wrong with AppExchange.

According to the latest glowing coverage, "the eBay-style software exchange ... lets customers build and share software with other Salesforce users ... [and] could spur more companies to turn to Salesforce in the growing CRM market." This is a remarkably favorable write-up, considering it comes from reputable newswire Reuters. There's a half-hearted attempt at balance tagged on at the end, quoting Oracle president Charles Phillips' wish to "crush" Salesforce, but nothing to contradict the Salesforce.com PR spin that makes up the bulk of the story. (Maybe Reuters should give me a call next time it's covering the topic if it wants some really trenchant analysis.)

The opposite view turned up in my inbox late yesterday, from Bruce Cleveland, SVP of products at Siebel Systems, one of Salesforce.com's bitterest competitors. Here are his key points (it was a long email):

"Ideas of creating a new software platform or a new distribution market for software applications are not new. And doing it online isn't new either. So, lauding this concept as something wonderfully different is a stretch, to say the least.

"... businesses are not going to use those applications simply because they are available in a convenient location. Every one of the software companies in the App Exchange still has the herculean challenge of attracting and retaining customers.

"... if any of these App Exchange companies are fortunate enough to grow to a point where they are large enough to survive on their own, what's the purpose of staying there? It's the Web after all ..."

OK, so where does the truth lie in all these claims and counter-claims? Is AppExchange really going to end up, as Cleveland suggests later on in his email, as "the leper's island of application software"? Or is that just sour grapes from an executive whose company is about to be swallowed whole by Oracle, described recently by Salesforce.com CEO Marc Benioff as "Oracle - the rest home for old software programs"?

The quote comes from a BusinessWeek blog posting that sheds some interesting light on Benioff's real strategy for AppExchange. It reports that Salesforce.com has just hired 26-year Accenture veteran John Freeland, currently the head of Accenture's CRM practice, "to run professional services, support, and partner relations when he starts in a couple of weeks."

"... Freeland is betting his career that Salesforce.com's software-as-service model will turn the computing world upside down. The way he sees things, Salesforce.com's new App Exchange — a marketplace for building and sharing Web services — has a shot at being one of the powerful platforms in computing's next era. Consulting companies such as Accenture don't want to build technology platforms, he says. They want to build intellectual property to run on top of them ... In his new role, he has much of the responsibility for building a healthy ecosystem of companies around App Exchange. For the exchange to work, it will need to be stocked with hundreds of high-quality programs in relatively shortorder."

Pulling together all the evidence, here's my considered verdict on the various propositions being put forward about AppExchange:

The eBay of enterprise applications
WRONG.This is pure marketing puff, and nobody should take it any more seriously than the claims made by hundreds of eBay wannabees that have come and gone in the past. In any case, it's a false analogy. There are more differences than similarities between AppExchange and eBay. The main similarities are reputation building and categorization. The differences include fixed pricing instead of auction bids, exclusively business customer base, free trial functionality, strict product verification rules, and a choice of products narrowly restricted to those that run on Salesforce.com's own platform.

Lets customers build and share software
RIGHT.Whatever else AppExchange might become in the future, its primary role from the outset is to allow existing Salesforce.com customers to extend and customize the on-demand application with add-ons, either from third parties or self-developed. You can't use AppExchange unless you buy into Salesforce.com's database, access management, forms workflow and user interface, so by definition AppExchange is primarily aimed at people who have already committed to Salesforce.com's core product.

Will attract new customers to Salesforce
MAYBE.Siebel's Bruce Cleveland is absolutely right to highlight this as the main challenge facing AppExchange vendors. Sure, it provides a captive audience of Salesforce.com's existing customer base, but anyone else is going to have to be sold to as proactively as any enterprise software prospect. (Does it help, by the way, when selling into that market, for the platform to be widely regarded as "eBay-like"? Probably not, unless the prospect is already in the habit of buying IT equipment from eBay.) On the other hand, I did speak yesterday to a user of Above All Software's AppExchange-based composite application software, who told me that their Salesforce.com project was stalled until they had got the Above All integration in place. To the extent that AppExchange adds must-have features to Salesforce for certain prospects, it must expand the potential customer base.

Needs more momentum before it will work
RIGHT.This is why Freeland's new role is so essential. Salesforce.com needs to turn AppExchange from a proof-of-concept into a thriving ecosystem. Yes, that means hundreds rather than dozens of applications, but at the same time the ecosystem has to overcome Cleveland's "herculean challenge" of making sure there are enough customers for developers to earn a return on creating those applications. Once that momentum is established, then you enter a virtuous cycle in which success breeds success, more developers get on board, the range of applications expands still further, and more customers join in because AppExchange begins to earn a reputation as a mainstream choice.

Destined to be the dominant on-demand platform
WRONG.The problem with the picture I painted in the previous paragraph is that AppExchange is too tightly tied in to Salesforce.com's database, access management, forms workflow and user interface. That's good if you're already committed to Salesforce.com, as I said earlier, but it's hardly the stuff of universal appeal, and it's certainly not the kind of platform that the likes of Accenture prefers to work with. With so many other potential platforms to choose from, the best upside that AppExchange can hope for is to be one of many competing platforms, but it's not enough to make Salesforce.com the Microsoft of the on-demand computing era — not unless Marc Benioff has some more surprises tucked up his sleeve.