The long tail of applications will launch a new on-demand applications marketplace called AppExchange on Monday ... "an eBay for enterprise applications"

The new issue of BusinessWeek reports today that will launch a new on-demand applications marketplace called AppExchange on Monday.'s CEO Marc Benioff explains the concept in an interview published on BusinessWeek's website:

"We have built an eBay for enterprise applications ... We want to make it as easy as buying music on iTunes and playing it on your iPod. We can have customers download these applications using the same type of technology. That was the breakthrough for what we call the AppExchange. You can share apps, try apps, buy apps, test apps, you can search for apps, and publish reviews of them. You can even sell apps. You can look at the applications by company, industry, size of company, language, by price.

"The power of that is you can reach this long tail of applications. SAP and Oracle may deliver 10% of the applications you need to run your business, but there's this large percentage of your business that won't be managed by Oracle or SAP. This is the long tail of applications."

This is a new evolution of the ecosystem that is already thriving around Salesforce, and it has fascinating potential. "We think it will show the world the next step for on-demand computing, just as we showed the world the first step," Benioff tells BusinessWeek. But although Salesforce has stolen a march in being first to get its marketplace off the ground, it's not going to be only one on the block. last year filed a patent for a similar marketplace, and I would be very surprised if eBay didn't itself aspire to be the eBay of on-demand applications, along with Google. (Who knows, even Microsoft may eventually decide to play catch-up on this idea, too).

The reason I give the concept a great deal more chance of success than the analysts quoted in BusinessWeek's story give it credit for is this 'long tail' aspect. That's the big difference about the componentized, modular, service-oriented nature of the on-demand model — like everything about Web 2.0, it opens up 'long tail' opportunities that simply weren't possible before the Web and XML came along. Even without AppExchange, the ecosystem (and indeed on demand as a whole) is allowing a new breed of specialized application vendors to prosper — companies like Nsite, who I mentioned a few days ago, Five9, a pioneer of hosted VOIP call centers, and Xactly, a sales incentive specialist that just raised a $4 milliion funding round. 

Adding a mechanism for buying and selling on-demand services removes a significant extra barrier to entry and could open up the floodgates for a huge blossoming in hosted applications and services becoming available —  even more so if other players besides set up marketplaces, as I believe they will.