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12/12/2006
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Salesforce Sees Higher Revenues On New ISV Program

In an effort to spur sales of its products, Salesforce is launching a program to give third-party software vendors marketing help in exchange for a cut of sales.

Salesforce.com on Tuesday said it expects to book an additional $10 million in revenue next year as a result of fees and sales of its software, generated by a new program for independent software developers. Whether the company can wring more revenue out of its online software marketplace will be closely watched by investors looking for the rapidly expanding company to return to even higher rates of growth.

Even as Salesforce adds new customers at a fast clip—revenues grew by 57% during its third quarter ended Oct. 31—growth has slowed from earlier in the year. To remedy that, Salesforce CEO Marc Benioff on Tuesday unveiled a new sales and marketing program at a press conference in San Francisco, under which companies that sell add-on software for Salesforce.com could pay the company a percentage of their sales for help generating leads and closing deals.

In an e-mail interview, Benioff said he was unsure how much revenue Salesforce would book directly from the new fees, vs. from selling more seats of its app in conjunction with its partners' software. "It will take a year to see the model," he said. "No one has ever done this before so there are no precedents to go off of."

Salesforce, which makes sales management software that it delivers to more than 556,000 subscribers over the Web, has seen its business grow rapidly—analysts expect the company to report $495.4 million in revenue for the fiscal year that ends Jan. 31. That's up from $309.9 million last year. The company now says it expects revenues of $710 million to $720 million for its 2008 fiscal year that starts Feb. 1—$10 million more than it initially forecast. Shares of Salesforce.com (NYSE—CRM) rose $1.50 Tuesday to close at $40.05.

Salesforce sells more than 400 software programs on its AppExchange site from some 230 independent software vendors. Each time a customer wants to run one of those apps, including accounting, human resources, and marketing apps, it has to buy another end-user license from Salesforce. Now, Salesforce is trying to convert more of its partnerships into direct revenue.

Starting in February, the company plans to roll out the first phase of a program called AppStore, in which software vendors selling products through the AppExchange will have the option to pay Salesforce 10% of their first year's sales on software sold through the site, in exchange for access to marketing help from Salesforce. In August, a second phase of the program will offer ISVs help generating sales leads and closing deals in exchange for 25% of their first year's sales through the AppExchange.

Morris Panner, CEO of OpenAir, an $8 million-a-year maker of online accounting software, says participating in the program would explicate the benefits OpenAir gets by selling its software through Salesforce.com's site. "One of the things that's interesting about partnerships is, at what point is the partner incented to help us?" says Panner. "If we pay them, they will."

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