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Salesforce.com AppStore to shop for revenue

Company to unveil plans for generating revenue from its third-party on-demand applications marketplace AppExchange.

Salesforce.com unveiled on Tuesday its long-awaited plan for generating revenue from its on-demand applications marketplace AppExchange.

Salesforce, a pioneer in on-demand applications, plans to introduce the AppStore, which is designed to work in conjunction with AppExchange. AppStore aims to bring marketing and back-office tasks, such as billing and collection services, to small third-party applications vendors for a fee.

"From the moment we started talking about our vision of a marketplace of on-demand applications, the market has been asking, 'What is Salesforce.com's strategy to monetize the AppExchange?' AppStore is the answer," Marc Benioff, Salesforce.com chief executive, said in a statement.

Third-party vendors, however, will find that AppStore does not come cheap.

Under AppStore, developers will have their choice between a standard referral service and a premium referral service. The AppStore referral program, in essence, will work much like the sponsored links on Google or Yahoo--participating vendors will receive premium placement on AppExchange search categories.

The standard service, which includes a marketing program and eligibility to participate in Salesforce events, carries a 10 percent referral fee paid to Salesforce on all transactions that the third-party vendor closes on AppExchange.

But with the AppStore premium referral service, Salesforce will receive a 25 percent cut of the action for providing customized marketing.

And if a third-party developer wants to have Salesforce handle its online ordering, billing, invoicing and collection services, that will cost them an ongoing 20 percent commission to use AppStore Checkout.

As a result, a third-party vendor could end up paying Salesforce.com 45 percent of all of its AppStore-related revenue the first year it uses the service. After the first year, only the ongoing 20 percent AppStore Checkout commission would apply.

AppStore standard referral is set to launch in February, while the premium marketing referral service is slated for August. The AppStore Checkout is expected to debut in December 2007.

Despite vendors facing the potential of paying upward of 45 percent of all their AppStore-related revenue to Salesforce in the first year of use, the company notes it still leaves vendors in a better situation than having to pay upfront for such services.

"Our services are targeted toward companies on a shoestring budget," said George Hu, chief marketing officer for Salesforce. "A lot of small companies have cash-flow constraints and don't want to pay for marketing before they sell anything. With AppStore, they don't have to pay until they make money."

Analysts agree that despite the 45 percent cut that Salesforce could potentially capture from a customer, there will likely be takers.

For example, emerging companies that are focused on building their portfolio of customer references may be more apt to try AppStore than would established applications vendors, noted Rebecca Wetteman, vice president of research for Nucleus Research.