The Salesforce.com platform is powering ISV growth

Salesforce.com's Force.com PaaS solution is being used by ISVs to very quickly build out products and grow their business. Also the switch from flat rate pricing to a revenue share model enables ISVs to build enterprise offerings that they can...

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Salesforce.com's Force.com PaaS solution is being used by ISVs to very quickly build out products and grow their business. Also the switch from flat rate pricing to a revenue share model enables ISVs to build enterprise offerings that they can sell on a consumer scale.

Two examples of the ISVs chosing to build on Force.com are Veeva Systems, which went from a 2007 start-up to an estimated $100M revenue in 2012 and Kenandy, which went from company launch in August 2011 to its first 7-figure deal just 18 months later.

Yesterday, my colleague Stephen Hendrick and I had the opportunity to talk with Mike Rosenbaum, newly promoted EVP of Platform at salesforce.com. If you don't know about the salesforce.com platform Force.com, you should. Force.com is a Platform-as-a-Service (PaaS). A number of vendors offer a PaaS solution that enables independent software vendors (ISV) to build applications. Many of these PaaS offerings are more of a do-it-yourself option where the ISV makes their own decisions and chooses the infrastructure options they need to build their application and may pay separately for each option.

The ISV is somewhat on their own when it comes to building their application, getting it launched in the marketplace, and later continuing to upgrade. Salesforce.com's Force.com is pre-packaged, with many decisions already made, plus offering a number of support services to help the ISV get to market as quickly as possible. I'm not suggesting that what salesforce.com is offering is better than what other vendors are providing. There are many different platforms and routes to market, with different choices of cost, support, and more. Each ISV needs to choose which of these is the right model for their business.

One of the big choices an ISV needs to make is the cost of the platform. Many vendors charge by the "piece", which generally means you only pay for what you actually use. This can be a very cost effective model for an ISV. Salesforce.com uses the revenue share model. Originally, salesforce.com priced Force.com as a flat rate (i.e., per user per month), but switched to the revenue share model about three years ago. This was a smart move on the part of salesforce.com as it opened up the opportunity for ISVs to build and sell additional products.
Today at the IDC Directions conference in Boston, Frank Gens, IDC SVP and Chief Research Analyst, talked about building enterprise offerings on a consumer scale during his opening keynote. For example, per user pricing can be viewed as a type of enterprise pricing, whereas the revenue share is more of a consumer pricing model (think Apple's AppStore model).

With the per user model, an ISV can get locked into charging a high per user price for their own application in part to cover the user fee charged by salesforce.com. If a customer is paying $100 per user per month for the ISV's application, they will quickly decide to limit the number of seats they purchase.

A good example for this is a Human Capital Management (HCM) application where changing the pricing model can greatly increase the sales opportunity. For example, HCM applications may be used every day by a group of Human Resources (HR) managers. These users need a sophisticated and complex system for performance and talent management and are typically willing to pay a higher price for it.

But the value of an HCM application comes when it is opened up to all employees at the company and not just the HR department. This creates a very different sales opportunity as the employees only need to use some of the HCM functionality and generally only access it 2-3 times a year. The value of the HCM system to the HR department may be $XXX per user per month (e.g., the enterprise), while the value of the employee level access may be $X per year (e.g., the consumer). But the volume of employees who would be signed up as "users", even at a much reduced price, create a sales opportunity that did not really exist in the enterprise-only model where the cost of the underlying platform was more than the ISV could potentially charge for their application.

We asked Mike about some success stories among the ISVs who have selected to build on Force.com. I think this is where it gets interesting as these ISVs get to market very quickly and grow rapidly. Two interesting ISVs that are good examples of the enablement potential are: Veeva Systems and Kenanady.

Veeva Systems (www.veevasystems.com) builds CRM applications for the life sciences industry. Founded in 2007, Veeva has been rapidly building a variety of products and building an impressive list of customer wins and successes. In a report published in the San Francisco Business Times in July 2012, Veeva co-founder Matt Wallach said that Veeva was on track to do well over $100M in 2012 and that's up from $55M in 2011. On Monday, March 11, 2015 Bloomberg reported that Veeva is rumoured to be meeting with a number of banks to discuss an IPO.

Kenandy (www.kenandy.com) builds Enterprise Resource Planning (ERP) applications. Historically is has taken years to build out an ERP system, which typically includes accounting, inventory, production planning, and more.

Kenandy chose to build on Force.com. As a stealth vendor they spend time with a very small crew working out of the founder's home designing the data model and building the initial applications and then launched the company at salesforce.com's DreamForce event in August 2011. Fast forward 18 months and they have more than 10 clients and very recently signed their first seven-figure deal. The pipeline reportedly includes more such opportunities.

There are just two examples of successful ISVs who are building on Force.com. There are many others that can be found on the AppExchange Marketplace (www.appexchange.salesforce.com). We'd appreciate hearing your comments about ISVs building on Force.com, as well as other platforms.

Posted by Christine Dover, Research Manager, Software Channels

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