October 4, 2007 5:41 AM PDT

Salesforce fund offers boost to developers

Salesforce.com's $25 million venture-capital fund could be great for developers, say analysts, as long as they prepare carefully for providing support to a global market.

Salesforce, with VC partners Bay Partners and Bessemer Venture Partners, has announced it will offer about 50 software start-up companies $500,000 each to develop on-demand applications on Salesforce's platform, Force.com.

The decision comes after Salesforce's chief executive, Marc Benioff, said that most people see Salesforce as only a customer-relationship management company--a perception its competitors in on-demand services, such as SAP, use against it. Salesforce is using the fund to attract developers to change this perception and boost the appeal of its services.

Intelligent Business Research analyst Joseph Sweeney said the investment fund is a relatively small but necessary step for Salesforce to take.

"Salesforce does not have a history (with developers)--now they're having to woo developers to the platform. But what that shows is a maturity in the market, an acceptance of SaaS (software as a service), and a maturity in Salesforce," Sweeney said.

"Especially for developers, platform-as-a-service is pretty attractive," a spokesperson for Salesforce said. "A developer gets free access to development tools, frictionless access to a market of at least 35,000 customers, which are familiar with on-demand."

One CRM company, Australia-based Sqware Peg, has already developed a SMS (short-message service) marketing application using Salesforce's platform. "Now they have customers in Mexico, North America and Eastern Europe. There's just no way that a small company could achieve that level of reach in a traditional channel," said Salesforce's spokesperson.

However, a significant challenge remains for developers: supporting newfound customers, most of which are based in the northern hemisphere.

"If you've got customers coming to you from Europe or the U.S. or Japan, and you're in different time zones, that's something to be ready for," Sqware Peg founder Shawn Stilwell said in an interview with ZDNet UK sister site Builder AU.

Analyst Sweeney agreed that managing support for a rapidly expanded client base is a critical issue for developers. "Support costs have killed many smaller (independent software vendors)," he said. "If you can't deliver support, you'll get no repeat customers, your business goes down the tube and you're left trying to fix investments that shouldn't have made it in first place."

Salesforce's spokesperson said smaller companies may be challenged but added they don't need to invest in channel infrastructure, marketing or sales support.

However, it might just be that VC firms will prove to be the greatest help to developers. VC firms typically use their investments in other countries to match the skills needed to keep investments afloat, said IBRS's Sweeney.

"I would expect over the next two years some of these companies that have been invested in will be making investments in each other and leveraging each other's support streams. Salesforce is small enough to broker these arrangements and, because they're small, hungry and flexible, they are less likely to cast you aside like some of the larger companies."

Liam Tung of ZDNet Australia reported from Sydney.

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