Clement Vouillon, Senior Research Analyst at Point Nine Capital:
In the original article, Clement Vouillon shares that 70% of the twenty biggest public SaaS companies have an app store (ex. Salesforce AppExchange).
However, this trend is not limited to public companies. Private companies like Slack, Stripe and Intercom also provide an app store. This rise of app stores is driven by two reasons.
Changing Consumption Habits
In 2017, organizations used an average of 16 SaaS apps, compared to 12 in 2016, and 8 in 2015. Companies that run entirely on SaaS use an average of 34 apps. Faced with this explosion of tools, customers privilege convenience, choosing software “hubs”—like G Suite, Slack and AppExchange—to manage their consumption.
These trends have several implications for SaaS teams:
- Integrations are a must. Data from ProfitWell showed that products with 4+ integrations have 25–30% higher retention than products with no integrations.
- App stores are viable growth channels. Many startups generate most of their revenue through these platforms. For example, as of April 2018, Shopify had paid out $100MM to its app store developers.
- New skills are required. There's increasing demand for “Partnerships and API” roles, both for building and maintaining app store apps, and for distributing apps on these platforms.
Increasing Industry Maturity
Many verticals are dominated by SaaS companies that control such a significant market share that it's hard for newcomers to disrupt them. Once companies like Salesforce, Zendesk, Workday and HubSpot established their dominance, they needed to solidify it and create new defensive moats.
Software marketplaces provide that moat. They offer value to customers without requiring costly in-house product development and create network effect dynamics: reaching a critical mass of users and third-party developers strengthens their control over the market.
For example, AppExchange is a critical piece of Salesforce's continued success:
- AppExchange generates $2B+ per year, accounting for 21% of Q1 19 revenue.
- Over the same period, AppExchange's platform revenue (+36% y/y) grew faster than product revenue (+16% y/y).
- 95% of the Fortune 100 run an AppExchange app.
Summarized by Reforge. Original article by Clement Vouillon • Senior Research Analyst @ Point Nine Capital