Article

Salesforce.com cuts VARs in on recurring revenue

Barb Darrow
VARs that customize applications to run atop Salesforce.com's cloud infrastructure will get a piece of the continuing revenue now and forever.

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Under the company's Force.com VAR program, announced this week, resellers pay the vendor $7.50 per end user per month for the base infrastructure, develop products atop it and charge for them what they want.

"If [VARs] take the platform license and build an application with their legal IP on that and charge $49.99 per user per month, they make that margin" for the life of the contract, said Bobby Napiltonia, senior vice president of worldwide channels and licensing for San Francisco-based Salesforce.com.

End user price for Force.com infrastructure ranges from a free trial for one application for up to 100 users to $75 per user per month for unlimited applications and round-the-clock support.

That recurring revenue is very important. Salesforce.com offers traditional VARs a one-time-only 10% referral fee for bringing customers into the company's business applications. Many VARs barked that that model was not attractive. While they make more margin on services than on product sales, many VARs still rely on license sales to fund other activity.

Salesforce.com execs responded that with the way software licenses are discounted, margin on those sales are less than meets the eye anyway. "If VARs get 40% [discount] off product X, they sell it at cost plus 5 and it also costs them 7 to 10 points to carry a product, so there's not much [margin] left," Napiltonia said.

To qualify, VARs must pass a Force.com certification test, training either online or via a week-long class. There is no fee for that education.

Force.com is an example of how Software-as-a-Service pioneer Salesforce.com has grown beyond its roots as a purveyor of hosted customer relationship management (CRM) and sales force automation (SFA) systems. The company claims 120,000 Force.com custom apps now, and many have nothing to do with CRM.

Still, Salesforce.com has cut partners in on recurring SFA sales in some other geographies, including Latin America. But Napiltonia would not say whether the company would consider revamping that model for the U.S.


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