Industry Insights

Building Developer Ecosystems: A Formula for Success

By Nick Gilbert / January 25, 2015

An increasing number of companies are exploring how to encourage software development that complements their core products. As the head of solutions consulting at AppDirect, I’ve helped a number of our partners—including ADP, FICO, and Appcelerator—explore and implement technologies to build and support these developer ecosystems.

Over the years, I’ve seen firsthand how developer ecosystems can deliver impressive results, including faster innovation and higher revenue. However, there are a number of different factors that companies need to consider before attempting to create one. In this series of blog posts, we will explore the three general types of ecosystem plays and important aspects of each, such as integration, sales enablement, and more.

In two follow up series, we will also explore reseller enablement and management, as well as the innovation advantage that companies can get from building developer ecosystems. This includes how data generated by ecosystems can inform technology build or acquisition strategies, for example.

Developer ecosystems are multi-sided and involve numerous participants, which can make them incredibly complex. However, a clear understanding of how these ecosystems work can make it far easier to create one for your own core products.

The Three Types of Developer Ecosystem

Companies are experimenting with various ecosystem types, but most fall into three general categories:

Commodity: In this type, the services you are offering are basic building blocks that many developers will need to build out their own applications. For example, databases, caching services, or error reporting tools. These are “commodities” because you are offering functional tools, with defined shapes and sizes, which developers can take off the shelf and incorporate into their products.

Add-on: Here, you have existing products which could benefit from additional features and functions. Instead of incurring the cost and risk associated with building these capabilities yourself, you want to enable third-party developers to build these add-ons to expand your functional footprint. Generally these add-ons will have a smaller functional footprint than your core product and will provide enhancements.

Sell-with: In this model, you have an existing product which actually sits in an ecosystem of other products that complement your core offering. You want to be able to offer your customers these complementary products so you can offer comprehensive solutions to meet their needs. For example, your CRM system works well with a number of analytics and email marketing tools, and you want to package these as complete, easy-to-buy solutions.

A Detailed Look at Add-On Ecosystems

In this scenario, you have built a product platform and have a gained customer traction. Now, there are many features and functions you want to build in order to support and delight your customers. The challenge is that you only have a fraction of the resources you need to develop this long list of capabilities.

To fill the gap, an increasing number of companies are looking to enable third-party developers to create these features and functions. With this strategy, third-party developers take on the risk but also earn the monetary reward when their products help provide your customers with a more complete product. An ecosystem of add-on solutions can help increase existing customer usage by unlocking new use cases for your products. It can also drive retention, since customers are more likely to continue using your product as its feature set becomes more complete. In addition, this can hinder competitors who are trying to take advantage of weaknesses in your products and win customers away from you. Finally, you will be able to sell more product, because you can offer the market a more competitive feature set.

Success in this strategy usually hinges directly on your ability to attract developers to build add-ons for your product. Three key components will determine your success in attracting developers:

• Market opportunity: How big is total addressable market for your product?
• Ease of participation: How hard is it to build, submit, and begin selling add-ons?
• Ease of sales: How easy is it for developers to sell and promote their products on the platform?

There is a very simple mathematical expression that can define whether you will succeed at garnering developer attention: P + S < M. That is, if it’s easier for a developer to build a product (that is, Participate) and it’s easier to start Selling and be promoted with your core service (the left side), and together, that effort is less than the capture of the total addressable Market that a developer can reasonably expect (on the right side), you will be successful.

In other words, if you are a near monopoly or duopoly, then no matter how hard you make it on developers—not an ideal situation, obviously—they will participate because the monetary incentives for success are so high. However, assuming you aren't Google Play, Apple’s App Store, or the Salesforce AppExchange, you will need to focus on reducing the left side of the equation.

Brokerage—technology that makes it easy to provision, consume, and manage cloud services—plays big part in the left hand side of the equation by making it easy to participate in an ecosystem and making it easy to sell. The next blog post in this series will explore these two factors, ease of participation and ease of sales, in depth. It will also highlight some other elements that you can use to reduce friction, that, while not related to brokerage, are still highly correlated to success.

In the meantime, if you have any questions about developer ecosystems, please don’t hesitate to let us know.

Nick Gilbert is the Global Director of Solutions Consulting at AppDirect.