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Caris & Company analyst Tim Boyd addresses clients on Salesforce.com's (NYSE:CRM) recent launch of the service "Salesforce for Google (NASDAQ:GOOG) AdWords." His note follows:

At a NYC luncheon earlier this week, Salesforce.com announced the acquisition of Kieden Corp., an AppExchange developer which has built a product that enables customers to create, manage and measure searchengine marketing campaigns with Google AdWords. Salesforce.com has renamed the service “Salesforce for Google AdWords”. Terms of the deal were not disclosed, but given the small size of Kieden (only four employees) we believe that the amount paid was likely inconsequential.

Kieden’s AdWords solution has gained a solid amount of traction since it was launched this past January: the company has grown its customer base to 45 customers on 730 downloads.

Salesforce.com will offer a free 30-day test drive of the new product; the service will formally launch at the company’s Dreamforce event in October for $300 per month per organization. Assuming at least a modest rate of adoption by CRM’s existing customer base, the new service should provide support to the company’s ASPs – this should partially mitigate investor concerns that CRM’s ASPs are likely to be dragged downward by an increasingly competitive pricing environment.

• Given CRM’s existing customer base of 24,800 and an annual cost per organization of $3,600, we estimate CRM’s total market opportunity at $89MM for the new product. Assuming a 10% adoption rate (which we believe to be a conservative estimate given the continued hyper-growth in paid search advertising), the acquisition would add $9MM in annual revenues (2% of our FY07 estimate).

An ongoing Bear concern has been that CRM would struggle to adequately monetize the AppExchange platform. This acquisition highlights (a) at least one way in which CRM can monetize it and (b) the way in which AppExchange serves as a development lab for premium services that can be attached to the company’s core CRM offering.

We reiterate our 2*/Above Average rating on CRM shares.

CRM 1-yr chart:

CRM 1-yr

Source: Launch of "Salesforce for Google AdWords" Demonstrates the Power of AppExchange