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Salesforce.com Seeds Its Future

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Posted April 24, 2007 By Andy Patrizio     Feedback

Software maker has a unique way to encourage what it hopes is the next killer app for AppExchange.

Just a few miles north of the official geographic territory known as the Silicon Valley in San Mateo, Calif., one of the hottest companies in the high-tech sector is launching a hatchery of sorts for software-as-a-service (SaaS) providers.

Salesforce.com  took over what had been the offices for Siebel Systems after Oracle bought the company and moved the staff to its Redwood Shores headquarters.

After a brief exorcism (a common joke by Salesforce.com executives, given the previous resident of the building), the office has been turned into an incubator for startups looking to build the next killer SaaS  app.

The next killer app for Salesforce.com's AppExchange on-demand application marketplace, of course.

There are currently 32 companies based in the San Mateo complex. Each company has one representative on site, acting as the interface with Salesforce.com.

Where it stashes the rest of its employees is up to the company. They can lease office space or work from home, but the whole staff is not on-site in the San Mateo office, though they do come in for training classes and meetings.

The companies have access to Salesforce.com's engineers for development help, and its sales and marketing department, which will promote the product. About the only thing Salesforce.com doesn't do for these startups is write their application code.

For all of that support, Salesforce.com charges $20,000 per year for access, plus the startup's own costs for staff and other expenses.

Denis Pombriant, managing principal for Beagle Research, told internetnews.com that this kind of incubator is only possible in a SaaS world. A regular startup might need hundreds of thousands of dollars in systems and tools; by comparison, Salesforce.com's $20,000 fee is a pittance.

"You couldn't do that at that kind of price point for anything other than SaaS," Pombriant said. "It enables more innovators to get started and for entrepreneurs to see how far they can take those ideas. By lowering the cost of the attempt you get more ideas going."

To expand on the concept of SaaS, Pombriant said Salesforce.com needs to offer more than just CRM SaaS. "A lot of the apps we're seeing come out of this place have to do with ideas that might not have historically been the kinds of ideas that could find VC funding," he said.

Many of the startups in the Salesforce.com incubator are geared to build specialized, vertical applications, and VCs shy away from them, Pombriant pointed out.

That's not to say there isn't value; San Francisco's Salesforce.com has already bought three of its own SaaS hatchlings. The company has purchased Koral, which added unstructured data support to Salesforce.com apps, Sendia to provide support for mobile applications, and Kieden, which added Google AdWords support to Salesforce.

Rene Bonvanie, senior vice president and general manager of AppExchange and developer relations, said the idea of the incubator was to drive more innovation.

"As a company we've done a lot of innovative work," he told internetnews.com. "We've been talking to many partners about what would it take for them to become the next Salesforce.com and what kind of things would they expect us to do."

Partners told Salesforce.com they wanted help with learning the engineering process behind AppExchange and how to bring the products to market.

"We said 'what better way to do it than have them sit in the building with us?' We said 'bring your developers, come sit with us and let's grow the pie,' "said Bonvanie.

The goal was to do things different, and also get the companies profitable well ahead of the curve. "We have a very strong desire to get these partners up and running and profitable within the year," said Bonvanie.

Salesforce.com also helps get the startups connected with venture capital firms and introduces them to its customers, so the startups have a chance to sell Salesforce.com's existing customer base.

Eventually, the hatchlings have to leave the nest. Salesforce.com expects them all to become independent, standalone companies (unless Salesforce.com buys them).

This is to make room for the next wave. On top of the initial 32 startups, the company expects to add 29 more startups to its incubator, all building AppExchange SaaS applications.

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