AppExchange-ing Ideas with the Irregulars...

Last week, I took part in a discussion with some fellow Irregulars regarding salesforce.com's AppExchange. One of the great things about our motley band of enterprise-focused bloggers is that we bring many different lenses to the conversation, and this 90-minute chat proved no different.

Irregulars Roll Call:

Erik Keller [Moderator] -- Information technology pundit and consultant
Jason Wood -- Investor and software enthusiast
Mark Crofton -- SAP (Strategy)
Tom Foydel -- NetSuite implementation consulting
Ismael Ghalimi -- Intalio CEO, Salesforce.com user
Dennis Howlett -- Accounting guru, technology writer
David Terrar -- Accountant, consultant, technologist
Charlie Wood -- CEO, Spanning Partners, Salesforce.com partner and ISV
Charles Zedlewski -- SAP (Business Development)

Note: Several other Irregulars, most notably Niel Robertson, Jeff Nolan and Vinnie Mirchandani, were hoping to attend but got sidelined at the last minute.

What is AppExchange?

In simple terms, AppExchange is a platform to creating and delivering 3rd party applications and add-ons in an on-demand environment. Salesforce.com provides ISVs a "ready made" environment so that they can go-to-market rapidly without incurring the significant costs and time it would take to build out an entire infrastructure and technology stack on their own. In theory, SfDC leverages its own investments in building out the SaaS model and extends those benefits to ISVs. In exchange, SfDC becomes more than a sales force automation tool for customers, creating a tighter lock-in (i.e., keiretsu) for both customers and partners.

According to the company's definition:

The AppExchange is the first online service for sharing business applications. It makes finding and installing new on-demand apps as easy as downloading a song or buying a book online. Many of the applications are free and all of them are pre-integrated with Salesforce.

Much as music lovers browse iTunes to sample and download songs, companies can visit the AppExchange to choose from hundreds of on-demand applications. With just a few clicks, these apps can be installed into a company's salesforce.com environment and begin delivering added functionality immediately.

Hands on experiences from partners and users

Charlie Wood spent some time talking about his experience with SfDC and, more recently, AppExchange. He has been building extensions to the SfDC API for a little more than a year; leveraging RSS extensions of SfDC data. From his perspective as an ISV, it's been a decidedly positive experience although not without its trials and tribulations.

Charlie praised the API, noting that SfDC exposes most of the plumbing
- "It's a clean, subservient service oriented architecture"
He couldn't have enough good things to say about SfDC's proactive partner management efforts. He noted that a partner rep contacted him and offered to help build out Spanning Salesforce. They now have quarterly meetings to discuss ways to further leverage the partnership.

Ismael Ghalimi is both a user (he claims to run his life on SfDC) and an ISV (his company, Intalio, is working on some apps for AE). In his view, AppExchange is a promising start to what could someday be a game-changing platform.

He sees AE as "a way to re-sell or re-distribute customizations or limited extensions"
It's very easy to create new objects and data sets; especially because there is NO CODE NEEDED
But this is also where the limitations are, as new logic can't be done on AE currently
You can't write your own business logic on AE; rather you would need to deploy your own app server and then connect to the SfDC API
He noted that you can currently build customer business logic on the CLIENT side by using the AJAX tool-kit

Is AppExchange a platform?..and do they want to be?

Much of our chat revolved around this very question. Is AppExchange a platform and, if so, how does it fit with the platform-centric push we're seeing at the high end a la SAP NetWeaver, Oracle Fusion middleware and Microsoft? There was some division among the Irregulars regarding this point:

Ismael thinks AE isn't an enterprise platform yet, but very well could be with some strategic M&A (a BPM engine, some EAI adapters, etc...) and believes that SfDC IS seeding the market by creating a loyal ISV following in the interim
Dennis Howlett believes that SfDC is content to be a spoke in the integration hub, rather than trying to be the center point
Charles Zedlewski doesn't believe SfDC is trying to turn AE into a hub; he takes what they say at face value. When he's talked to SfDC partners who use AE, they're very much using it as a way to buy or customize functionality on the core SfDC app. He thinks the eBay or iTunes analogy is "spot on."
Charlie [Wood] thinks SfDC's message is close to what they're delivering

I wondered whether comparing AppExchange to NetWeaver or Fusion was really comparing apples to oranges (something my investor brethren are often fond of doing)...and seemingly everyone agreed.

Charles had an interesting take
- He pointed out that customers who buy Websphere, WebLogic, etc...those who care deeply about tight integration, process management across departments, etc...it's a very different buying pool than those who buy SfDC and AE extensions.
- That said, he doesn't see "anyone within a country mile" of them for this target group of ISVs
Ismael points out how little overlap there is between the Oracle and SAP ISV communities, and suggests that SfDC is building a substantial competitive differentiator in the SaaS world thanks to AE and their partnership efforts
Mark Crofton doesn't see the ISVs building on AE as those SAP would target as NetWeaver partners, necessarily
Charlie doesn't even think it makes sense to talk about SAP, Oracle and SfDC's ecosystems together. Different customers, different ISVs, different mindsets
Ismael disagreed, he thinks SfDC and SAP/ORCL have the same customers ultimately. But, for now, SfDC is winning departmental deals, small subsets within larger enterprises.

What's the difference between AppExchange and OEM Edition?

In this department, most of the Irregulars agreed that OEM Edition, the recently announced AppExchange program to lure ISVs that don't want/need to leverage the SfDC core SFA application, leaves much to be desired.

It remains unclear what the value proposition is for ISVs (OEM edition is $25 per user per month)
- There is no workflow engine, no built-in EAI functionality
The OEM edition only allows 50 custom objects and 5 custom tabs; anything more requires the purchase of a standard SfDC subscription
- For example, if you want to purchase the Remend product, it has five tabs. So if you also want to use Expense Tracker, you would have to abandon OEM edition (at $25/month) and buy an SfDC seat
According to several Irregulars, the OEM edition isn't tightly integrated (unlike AE)
- E.g., there is no single sign on

Fostering the AppExchange Ecosystem

I noted that, of the 280+ applications listed on the public AppExchange site currently, more than 70 of them were created by SfDC itself. I questioned whether this invited potential channel conflict with the ISVs. If you're a customer looking to add an analytics add-on tab, and you have two choices...one from SfDC and one from an ISV, how is that serving the best interests of the ISV?

But several of the Irregulars told me to take my Wall Street conspiracy hat off and remember that the 70 or so extensions SfDC has authored was about seeding AppExchange at launch.

I then asked if SfDC was using AE as a way to outsource R&D efforts; and whether they would use their considerable currency (i.e., their stock) to make acquisitions of the "best and brightest" developers and products on AE.

Ismael wholeheartedly agreed and iterated that SfDC should be doing this; it's good business and a great way to build up an ecosystem in a cost-effective manner
Charlie suggested that SfDC is doing a "fantastic" job of cultivating even the smallest ISVs
Dennis noted that SfDC has already bought two ISV partners, and agreed its likely a continuing strategy

Is AppExchange appealing to ISVs as a marketing tool more than a technology platform?

As the conversation progressed, Erik Keller, our moderator, astutely noted that AppExchange appears to be valuable as much, if not more, because of its value as a marketing platform than as a technology platform.

Charlie pointed out that SfDC has proven the SaaS model and, because of its success, gets a disproportionate amount of press coverage
Several Irregulars mentioned ISVs that were building versions of their software on AE just for marketing purposes; to be able to "stand onstage with Benioff."
Dennis noted that SfDC has been much more friendly than Microsoft from a marketing perspective

Closing Remarks

Erik gave each of us a chance to summarize our thoughts on AppExchange and SfDC. While the comments were far too extensive to chronicle in their entirety, here are a few tidbits from each person that resonated with me.

Mark Crofton -- AE isn't quite fully baked as an enterprise platform, but he's impressed by what they've accomplished so far and wonders how long it will be before SAP and SfDC start competing for the same ISVs, partners and customers as SAP and its enterprise brethren move downmarket while SfDC tries to leverage early departmental successes into broader deployments
Charlie Wood -- Fundamentally he believes SfDC is doing "amazing things" with AppExchange. They've set a very ambitious goal and are executing on it so far. Believes AE could be the 2nd killer app that Marc Benioff evangelizes. He noted how nimble SfDC (unlike it's more mature competitors) but doesn't discount that SfDC is still a small company and will face increasing competitive pressures.
Dennis Howlett -- Dennis echoed Charlie's views from the "other side of the pond." He said their responsiveness to partners and customers is noteworthy, but cautioned that SfDC must be careful about what they talk about delivering and how they deliver it.
Ismael Ghalimi -- Ismael believes AE's technology platform needs to be extended further, but also suggested that technology infrastructure can be purchased, but a loyal ecosystem cannot. He noted some of SfDC's recent hires (new CTO, from Siebel) as evidence of the company's commitment to building out the platform.
David Terrar -- As a representative of Twinfield (SaaS Accounting product), he has been doing diligence on whether to partner as an ISV with SfDC and is now more seriously considering the move thanks to the call.
Charles Zedlewski -- Thinks AppExchange is a relatively cheap experiment with good marketing value; that at worst pushes upgrades and provides a low cost option for partners, too. Is less enthusiastic on OEM Edition, particularly at the current price point.

I hope you enjoyed this take on our latest Irregulars Chat. We are trying to release the chat as a podcast, stay tuned. At the very least, the experience was robust enough that we plan on having more frequent chats that WILL be podcast.

Blogging this conversation is hopefully just the first step in a long, collaborative discussion on AppExchange, SfDC, SaaS and the upcoming platform wars. I look forward to your comments and follow-up posts.

Related Posts:

Note: At the time of this writing I, and/or funds I maintain discretionary control over, maintained long equity positions in CRM, MSFT, ORCL and SAP but did not maintain a short position in any company mentioned. We also may, at times, carry derivative options on underlying positions as a hedge.

crm sfdc salesforce.com saas benioff appexchange software sap oracle irregulars enterprise2.0 ondemand isv charleszedlewski davidterrar erikkeller markcrofton dennishowlett charliewood ismaelghalimi woodrow

Comments

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Thanks for this summary chaps.

In terms of the overlap, or not, between the platforms (and markets for components) that SAP and Oracle are seeking to create, and SF.com's efforts, I think you'll find that SAP and Oracle have every intention of targeting ISVs of every size and shape, including those targeting the SME world. Therefore, they compete (or will do) directly against SF.com (as well as MBS, Sage, etc). Surely, that's one of the key benefits of them building compartmentalized and flexible software architectures.

Listen to Shai Agassi describe the SAP vision at the Sandhill conference (http://www.sandhill.com/conferences/sw2006_videos.php) and tell me he doesn't have the world's SMEs in mind as well.

Cheers,
Andrew

Posted by: Andrew | July 25, 2006 at 10:49 AM