Industry Insights

Building Developer Ecosystems, Part III: Risks and Rewards

By Nick Gilbert / May 04, 2015

Cloud Reseller Guide

Over the past few weeks, I’ve been exploring important concepts involved in building developer ecosystems. In Part I, I described the three main types of developer ecosystems—add-on, commodity, and sell-with—and did a deep dive into the add-on type, an offering that is quickly gaining market traction. In Part II, I discussed how to design and support an ecosystem that makes it easy for developers to participate. Simple and straightforward on-boarding, marketing, and pricing are critical to ensuring ecosystem success no matter which type you’re considering.

For the final post in this series, I’m going to circle back to take a look at the remaining two types of ecosystems, sell-with and commodity. Both present challenges and benefits and can be a key way to drive revenue, depending on what type of business you operate.

Sell-With: Biggest Risk, Biggest Reward

In the sell-with ecosystem model, you have an existing product which actually sits in an ecosystem of other products that complement your core offering. By offering these complementary products, both yours and those developed by third parties, you can provide complete solutions to meet your customers business needs. Here’s a concrete example: You offer a CRM system that works well with a number of analytics and email marketing tools, and you want to package these as complete solutions for your customers.

This scenario presents many of the same merchandising and sales challenges as the add-on ecosystem model does, only bigger. That is, cloud service commerce aspects like billing, provisioning, and identity become even more complex in this environment. In fact, tackling a sell-with ecosystem should be considered expert level partnering with developers in the ecosystem and the platform provider you may be working with.

Overall, integration will also be significantly more complex, so you should carefully consider how you will provision products for your customers, and then how you will facilitate the integrations between your product and partner products. If the products in the ecosystem are not integrated, the combined offerings will not provide enough of a value-add to make them a good buy for your customers.

Billing is, of course, another critical element and billing complexity in a sell-with ecosystem can be daunting. Your partnership arrangements may differ between partners—one may be a referral-only partner while another may get a revenue share—and you will need to track and reconcile every transaction, no matter what type, across all of your partners.

Going further, if customers can purchase products with their existing identities, do you give them access to the partner product with their existing credentials (via single sign-on)? Does this happen from within your existing user portal, such as Google Apps, or does the user have a separate entry point? Enabling your sales channels with the proper configuration will also be vital, but how can you accomplish this across the ecosystem?

Clearly, there are many questions to consider. However, when done correctly, a sell-with ecosystem can drive significant value and revenue for your core product.

The Unique Challenges of Ecosystems and Commodity Services

Commodity services present a special case. Like the “commodity” name implies, it can be very difficult to build these types of ecosystems because the products are just that, commodities, and they don’t have the sales pull-through effects of other ecosystems. For example, if you are a provider like SendGrid, one of the best email delivery services on the market, you have a large developer community that uses your service. However, email delivery can be considered a commodity service; in other words, it’s a well-defined common building block that is widely used across applications. If a developer has already built their application on the SendGrid API, it’s unlikely that they’re going to need another email delivery service anytime soon.

Instead of trying to build an ecosystem around a commodity service, it’s a better idea to place this type of software into an ecosystem with complimentary services that act as a collection point for like-minded target customers. For example, SendGrid does this by participating in the marketplaces of IBM, Cloud Foundry, and Red Hat, among many others. These markets attached to service offerings where developers go to build software, making them excellent locations to capture future customers. For SendGrid and other companies like it, commodity ecosystems can still provide tremendous uplift for their products, if placed where the right customer base can find them.

The Complexity of Creating and Supporting Ecosystems

A common thread that runs through all of my posts on developer ecosystems is that each type can be incredibly complex to build and require advanced capabilities, including billing, provisioning, identity and access management, and more. The costs, measured in both time and money, of building and integrating all of these functionalities into one platform can add up fast.

Fortunately, AppDirect has deep expertise and experience helping companies launch developer ecosystems quickly and cost effectively. Watch the video below to hear from our partners about why they made the decision to work with AppDirect. If you would like to learn more about our ecosystem-building capabilities, please don’t hesitate to contact us.

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