Boston-area Software Firms Hitch Their Wagons to Salesforce; Say Ride Can Be Rough But Profitable

“Platform” is such an overused buzzword in the software world that my ears start oozing cerebrospinal fluid every time I hear it. But my reaction notwithstanding, history does include a few genuine examples of devices or programs developed by one company that became critical platforms for new products from a host of others. The Windows operating system is the archetypal case—and in more recent years there are examples like Facebook, which has become a playground for hundreds of third-party developers, and the Apple iPhone and iPod Touch, the home environments for what is now probably history’s largest collection of mobile applications. Both Facebook and the iPhone boast substantial communities of third-party developers right here in Boston.

Now there’s a new platform in town. It’s in its early stages, and it’s much less familiar to average software users, but may eventually have the same sort of impact on the business world that Facebook and the iPhone are having on consumers. It’s Salesforce’s AppExchange—an online marketplace where users of the San Francisco company’s popular online customer relationship management (CRM) package can buy and download add-on applications that greatly extend Salesforce’s capabilities.

In some cases, these programs add features that would fit perfectly as built-in parts of the platform itself. In other cases, AppExchange applications add features that have little or nothing to do with CRM or the sales process, but simply become more powerful when delivered on-demand using Salesforce’s existing software-as-a-service (SaaS) infrastructure. AppExchangeJust as in the Facebook and Apple cases, software companies around Boston have been quick to take advantage of this new platform—either by building new “native” versions of their products that run entirely on Salesforce’s cloud-computing infrastructure, or by creating connectors that allow existing Salesforce users to tap into their applications without having to leave the Salesforce (NYSE: CRM) environment. For the last few weeks I’ve been canvassing local firms with apps in the AppExchange, and from what I can gather, it’s becoming an important adjunct to many organizations’ main product lines and sales channels. This being the business world, the new platform isn’t taking off in the red-hot way that iPhone apps did after the launch of the iTunes App Store last summer—but the AppExchange already offers more than 800 programs, from an application built by Lexington, MA-based Makana that helps companies track incentive-based compensation for salespeople to one from Cambridge, MA-based Hubspot that helps marketers track the success of their campaigns.

Salesforce, according to a recent observation by Saul Hansell of the New York Times‘ Bits Blog, is on a path that “mirrors that of Facebook (and in some ways that of Yahoo and Google)…Both Salesforce and Facebook started out as rather handy Web-based services for keeping track of contacts. And both have realized that these lists of people, and the underlying technology to manage them, can be central to a lot of different problems that their customers may want to solve. So both are now turning into ‘platforms’ on which other companies can create and run a wide range of applications.”

That transformation hasn’t been totally hiccup-free: last week the Salesforce platform suffered an hour-long outage affecting more than half a million users. And several of companies I spoke with complained about a lack of technical support from AppExchange administrators, as well as alleged favoritism by Salesforce (there’s a perception that the company showers more attention on outside developers who direct larger numbers of users to the core Salesforce application). But in general, contributors to the AppExchange say creating Salesforce-compatible applications has widened their markets and solidified the appeal of their other products.

If you aren’t up to speed on CRM or Salesforce, a quick primer: CRM is the industry jargon for the category of software that most businesses today use to track their sales prospects; “a very fancy Rolodex” is Hansell’s apt thumbnail description. Companies like Siebel Systems, SAP, Oracle, and Peoplesoft have been selling PC- and server-based CRM packages since the 1980s. But beginning in 1999, and accelerating greatly since 2005 or so (when I first covered the company), Salesforce, led by ex-Oracle exec Marc Benioff, has been gleefully disrupting the CRM business with its subscription-based SaaS product, which stores clients’ sales database on “multi-tenant” servers. That means everyone’s data lives side-by-side on the same machines and is accessed by individual users via their Web browsers.

The Web is, by its nature, open, and a big part of the Web 2.0 revolution has been about building interfaces that allow applications to request data from one another and repackage it at will. So Benioff’s early decision to go the SaaS route meant that Salesforce could invite other companies to build software that talked with its database. That became especially useful when the company started to sign up large enterprises as customers. “Our bigger accounts have all sorts of feature requests, for things they want to do that we can’t necessarily build ourselves,” says Clara Shih, Salesforce’s product line director for the AppExchange, whom I reached at the company’s headquarters earlier this week. “Starting four or five years ago, we began gradually exposing more and more of the platform we had used to build the CRM products, so that they could build their own features. And the amazing thing was that we started seeing customers not only using platform tools to customize CRM, but to build completely new non-CRM on-demand applications, in areas like recruiting, enterprise resource planning, supply chain management, and clinical trials management.”

That trend resulted in the creation of the AppExchange, where today Salesforce users can browse, test-drive, and install over 800 apps that have been certified by Salesforce to work seamlessly with the flagship CRM product. There have been some 300,000 test drives since the AppExchange opened in early 2006, and 65,000 installs, says Shih. Some of the AppExchange apps—like many Facebook or iPhone apps—are incredibly simple: for example, one AppExchange app adds a button to the Firefox browser that allows Salesforce users to copy information from a Google Gmail message directly into the relevant customer record in Salesforce. Others are little more than bridges to outside applications: Cisco’s WebEx conferencing division, for example, has published an AppExchange app that lets users schedule WebEx presentations for prospective customers from within Salesforce.

But many of the New England-area companies I contacted offer subtler and more interesting apps, providing functions that build upon, and add obvious value to, Salesforce’s core capabilities. AppExchange LogoCuriously, for example, Salesforce doesn’t provide a built-in way for a sales representative to schedule an appointment with a prospect—say, for a meeting, phone call, or (as in the WebEx case) an online presentation. TimeTrade, in Bedford, MA, is working on a solution for that. The company has long been selling a Web-based system that allows subscribers to send out self-service meeting invitations via e-mail; the recipients of TimeTrade invitations can decide for themselves whether and when they’d like to meet with the sender, by following a link to a website and choosing from the times that the sender has set aside for appointments.

Early this year, TimeTrade will roll out software that lets sales reps send such invitations to their Salesforce contacts from within the Salesforce application. “The whole point of Salesforce is closing sales, but there is nothing in Salesforce to encourage an actual contact, appointment, or meeting with a customer,” says Ed Mallen, TimeTrade’s CEO. “We look at what we’re doing in Salesforce as ‘the last mile,’ where you funnel the interaction down and close a sale. We want to fold appointment invitations into a sales person’s bag of tricks without having to change the way they do things; we just add one extra button.”

Another company focused on helping sales reps close deals is Kadient. The Nashua, NH, startup specializes in “playbook” software that helps sales managers package up the information that sales reps need to cinch deals when they’re talking with prospects. The playbooks “profile what reps have done in winning sales situations in the past, what tools they called on, what objections they overcame, what things they did that really helped move the sale along,” explains Jeff Ernst, Kadient’s vice president of marketing. Kadient’s Salesforce app is a mashup that shows a Salesforce user’s “opportunity” screen (the fancy Rolodex card with a prospect’s contact details) at the top of the page, and the appropriate playbook for that opportunity at the bottom.

“The playbook allows you to align your coaching tips, sales collateral, and other content with the steps of the sales process in the context of Salesforce,” says Ernst. “There’s a familiar look and feel, so reps don’t feel like they’re jumping back and forth between two applications.” (In fact, they are, but that’s all hidden.) “We also track everything a rep does and push that data every hour into the Salesforce database, so sales execs get a lot of visibility into what’s happening in the field.”

For non-Salesforce users, Kadient also sells access to its own online repository for sales playbooks, but the playbooks “are meant to enhance a CRM system, and they deliver ten times more value in that context,” says Ernst—which is why the Salesforce app is, for now, one of its main products. “We don’t want to be totally dependent on Salesforce,” he says, so Kadient is working on software that will connect its playbooks to Oracle’s CRM on Demand product. Still, “it was a good decision for us to start with Salesforce, because that’s the most commonly used online CRM app.”

Brainshark is another area company that joined the AppExchange as a way to reach out to CRM users. The company (which I profiled last March) allows users to upload PowerPoint slides, record audio tracks via telephone, then send out the finished presentations as sales or training tools. “Our product can be used for marketing and sales force leadership, so there is this synergy between users of Salesforce and users of Brainshark,” says Andy Zimmerman, the company’s vice president of business development. “Brainshark lets you create and share presentations; Salesforce lets you track people and your communications with them. Our connector makes it a seamless process to send presentations to your Salesforce contacts, and get tracking data about who watched them.”

At Hubspot, in Cambridge, MA, developers have come up with a Salesforce app designed to help companies coordinate their sales and marketing efforts more successfully. “One of the classic challenges in marketing is understanding which of the leads you’re producing are the best leads—which ones are going to become customers—but typically, marketing sends leads over to sales and they never hear from them again,” says Mike Volpe, Hubspot’s vice president of marketing. Hubspot’s Salesforce app is a “closed loop marketing” system that aggregates data gathered by Hubspot’s lead tracking software—the last time a given prospect visited the company website, for instance—with data from the sales side, like whether that prospect has become a customer. “Taking that information back out of Salesforce allows you to compare different campaigns and get a sense of which are generating the most leads,” Volpe explains.

Volpe says Hubspot (profiled in this August 2007 story) wouldn’t have considered building a big chunk of its business around Salesforce, the way Kadient has. But integrating its own services with Salesforce did make sense, especially since 20 percent of Hubspot’s existing customers were also Salesforce subscribers. “We don’t believe you can build a large, independent company based purely on building an AppExchange product,” Volpe says. “That being said, one of the things you can do to provide value for your user base is connecting with Salesforce.”

Liz Cobb, the founder and CEO of Makana in Lexington, seconds Volpe’s point. Makana sells software that helps companies keep track of the incentive-based payments (i.e., commissions) earned by their sales reps. “About 28 million people in the U.S. work on some kind of incentive-based compensation, and when you think about it, the 500,000 subscribers who log into Salesforce every day are probably all on some kind of incentive plan,” Cobb says. So it was a no-brainer for Makana to adapt its sales compensation planning software for the Salesforce AppExchange—even though it was “a little time consuming,” in Cobb’s words. “They want to make sure that if you put something in their system, it’s not going to break something else. That certification is a bit of a hurdle, and there is a cost to it. But they’re the big gorilla in the sales world, and you have to pay to play.”

As positive as most of my interviewees were about their companies’ decisions to join the AppExchange, most also echoed Cobb’s point, that Salesforce is in some sense the lumbering giant of the online sales application world. At this relatively early point in the evolution of the AppExchange, outside developers who want to contribute their applications to the marketplace shouldn’t expect a lot of hand-holding or personal attention.

“I would like it better if we had a technical partner or resource where we could just call them up,” says Ernst at Kadient. “But we’re so small that we just have to submit a support request to the queue, and somebody in their call center will eventually respond to it.”

Adds Hubspot’s Volpe, “There aren’t people at Salesforce who worry about the vast majority of companies on the AppExchange. That may be because they aren’t driving the volume of business that they care about yet.”

This, in fact, was another theme. The common perception among the folks I interviewed was that while the AppExchange platform has attracted new business and a lot of great publicity for Salesforce, the company hasn’t done much yet to spread the wealth—except to the developers of applications that become big sales vehicles for Salesforce itself. “They talk about doing things like joint webinars and joint marketing events [with third-party developers], but in order to get that type of attention, you have to be one of the companies driving a lot of seats for Salesforce,” says Ernst.

Clara Shih denies that Salesforce plays favorites, but she says that the company has to focus, for obvious reasons, on the third-party apps that have the most potential to build Saleforce’s customer base. “I spend a lot of my time on the phone with partners,” she says. “We don’t have time to do that with every single partner, but certainly for those that have demonstrated a commitment to us and where there is really potential for demand, we are really open.”

In the end, is it worth a software company’s time to join the AppExchange ecosystem? The verdict is still out.

Some companies say the exposure they get simply by having their app in the AppExchange directory makes all the trouble worthwhile. “It’s a valuable lead generation tool for us, and it helps make for stickier customers as well,” says Zimmerman at Brainshark.

Other companies say they haven’t yet seen a big return on their AppExchange development work, beyond the benefit of being able to say that their software is compatible with Salesforce. “We have not really seen any important increase in business from us being included in the AppExchange,” says Volpe. “It hasn’t really helped to grow our business, except that when we’re doing our own marketing and talking to a customer, being able to connect with Salesforce is a positive in their mind.”

Says Ernst: “Every once in a while we’ll get an inquiry from somebody who finds us on the AppExchange, but we haven’t really cracked the nut yet to figure out how to use the AppExchange to drive demand. Most of the people I talk to within the Salesforce ecosystem say the same thing.”

But it’s a nut that will undoubtedly get cracked eventually, at least in the cases where third-party developers (and Salesforce itself, which keeps a cut of every sale on the AppExchange) stand to make real money. Business apps like appointment-makers and commission-trackers may never be as sexy, or as high-volume, as the apps being downloaded by all those millions of 20-something iPhone-toting Facebook users. But that doesn’t mean Web-based platforms like won’t end up transforming the daily workings of business—it’ll just be a slower change, with less attendant hype.

“A year from now, I would like to see even greater depth and breadth [in the AppExchange] than what we have today, and I’d like to see as many Salesforce subscribers as possible adopting partner applications,” says Shih. “eBay democratized who could buy and sell things. We want to be the platform and the marketplace to connect businesses and customers.”

Addendum, January 15, 9:45 a.m.: Speaking of platforms, today Salesforce rolled out a new product called the Service Cloud. Built on the platform, it’s designed to help customer service agents and corporate contact centers by aggregating customer-feedback data from other cloud-based, Web 2.0-style sources such as Facebook, Amazon, and Google.

Wade Roush is a freelance science and technology journalist and the producer and host of the podcast Soonish. Follow @soonishpodcast

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2 responses to “Boston-area Software Firms Hitch Their Wagons to Salesforce; Say Ride Can Be Rough But Profitable”

  1. I’ve spoken with many App Exchange developers who say being listed there has been meaningful from a marketing credibility perspective but, few actual sales opportunities have come via

    The user is often left in the middle trying to make and the App Exchange provided software work and both sides pointing at the other when problems arise.