Appexchange a bust?

Just as Salesforce.com girds itself for Dreamforce, the Enterprise Irregulars - or rather Jeff Nolan - posed the question: "Is Appexchange a bust?
Written by Dennis Howlett, Contributor

Just as Salesforce.com girds itself for Dreamforce, the Enterprise Irregulars - or rather Jeff Nolan - posed the question: "Is Appexchange a bust?" 116 messages later including a belated showing by our resident SFdC'er John Taschek and the conclusion is...probably. Here's how the conversation started:

I'm not being sarcastic but I can't think of a better way to phrase this question. Appexchange came out of the gate with a lot of fanfare and enthusiasm for the possibility of a low cost sales channel for ISV's to take advantage of, yet the capabilities have been inched forward and Salesforce.com has revealed itself to be just another enterprise software company with complex pricing for customers and partners alike. What's the consensus on Appexchange? Am I missing something I should be seeing as a positive development?

It's important to understand the Irregulars is made up of people from many backgrounds and include those employed by SAP, Oracle, Salesforce.com, Satyam, Yahoo! and Atlassian, independent spend management consultants alongside ex- and current analysts from the likes of Gartner and Redmonk. Five ZDNet'ers are part of the team. It's natural that our conversations stir up partisan opinion. Charles Zedlewski was first up with:

Relative to the overinflated expectations that Marc [Benioff, SFdC's CEO] set for Appexchange (a "platform," a "marketplace"), it's a flop. You can look at the list of the top 10 selling app exchange apps and an even higher percentage than last year are Salesforce built add-ons.

Trying to parse success for Appexchange is difficult because SFdC doesn't reveal much useful information on the topic. This has not gone un-noticed by the likes of Gareth at Where's the Upside? In a post entitled Questioning authority, he said of the latest earnings call:

Question by: Laura Lederman - William Blair

...... Finally, can you give us a quick update on monetizing the AppExchange, in terms of new thoughts or ideas of how to do that, and how the partners are reacting?

What do you think she meant? My guess is that she thinks no-one is making real money from the AppExchange and it's not a source of revenue for SFDC, and may never be. My views are well known on this, but it's a public commitment bind - it's all been announced as a money spinner, and it's not yet.


Finally, on AppExchange, we're very excited about the progress of AppExchange over the last several years. Of course, the technology in the last release got really significantly enhanced with the addition of Apex, which allows customers and ISVs to run code on our servers. You're going to see us make more exciting announcements coming up at Dreamforce, so I will encourage you to come to that event.

Not really an answer - just stand by for the AppStore announcement. I doubt that will fix the issue - because there is not an issue, the issue is trying to squeeze money out of an industry that's not yet making money!

Phil Wainewright disagreed saying:

I do see small vendors being successful (in their terms) via AppExchange - in that sense it fulfils the promise of being a low-cost sales channel. But these are mosquito bite sized. An example quoted to me was an application that took 30 man days to create and will break even after selling 1000 seats for a year. And the addressable market is Salesforce.com's customer base - not a huge universe by any stretch of the imagination. Add to that the fact that few of these partners understand how to market to the AppExchange customer base and you can understand why it's not showing up as a big revenue generator just yet.

Whether it will ever live up to "the overinflated expectations that Marc set for Appexchange" - well what did you expect?

A year ago, people I speak with in the SMB market considered SFdC as a potential moneypit but in recent times I've seen a sea change in attitude. Those same SMBs now believe they can derive value from add-in services found on Appexchange and are willing to make the investments. But that still doesn't answer the central question. At which point we took an extended detour debating the SFdC hype machine. Josh Greenbaum growled at Benioff's hype while others reflected upon the value SFdC has delivered compared to other enterprise application vendors. Vinnie Mirchandani for instance said:

One man being bombastic versus promises of hundreds of sales people and demonstrated poor payback of incumbents. I know where I stand. Marc has cost his customers a little over $ 1 billion in the last few years. MISO [Microsoft, IBM, SAP, Oracle] at same time has cost at least $ 200 billion and 2x3 in partner costs. I am willing to tolerate Marc

We eventually got back on track but it took some coaxing to get John Taschek meaningfully engaged in the conversation at which point Jeff Nolan challenged John:

Why not take the lead in transparency on platform metrics and put up a dashboard with stats... real stats generated by the system, not generated by marketing. - number of appexchange apps in the network - number of subscribers of appx services - time spent in apps - number of developers Sunshine is the best disinfectant, if the issue is one of "well sfdc said this so take it with a grain of salt" then put out the raw data for everyone to see.

We're still waiting for an answer and I for one am not holding my breath. Where does this leave us?

I checked the Appexchange and the number 3 ranked service comes from VerticalResponse. According to its website it has 1,400 SFdC users. Compare that to SFdC's 35,300 customers, 625+ applications and how many users? It's hard to conclude the number 3 (after two SFdC freebies) represents more than a fleabite in the overall SFdC universe. I reckon the numbers fall off rapidly after that in the long tail of apps 4>625. My guess is that SFdC is doing a poor job of managing this environment but then it is easy to be wowed by headline numbers.

Dreamforce attendees need not worry. I reckon Chris Selland, who is a CRM specialist got it right when he said:

Maybe I'm wrong - and maybe I'm cynical (probably both) but I suspect Marc will throw a really nice party and the majority of the media will lap up whatever he's selling 'next time'. Just not Josh ;)

Chris - nor a number of others we both know. The next few days should be 'interesting.'

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