Industry Insights

From AppExchange to AppDirect: An Inside Look at the Evolution of Software Ecosystems

By Alex Smith / April 5, 2022

While everyone today realizes the success of Salesforce and its software ecosystem called AppExchange—by 2024, the revenue generated from the ecosystem will be six times bigger than the company itself—not everyone knows how this partnership model got its start back in 2006.

As a senior product manager for Salesforce AppExchange in the early days of its existence, Andy Sen, chief technology officer and co-founder of AppDirect, had a front row seat. We asked him to shed some light on the evolution of the software ecosystem, from his days at Salesforce to the beginnings of AppDirect, and then beyond as we look ahead to the future.

What made AppExchange different from previous partner models?

Andy: Salesforce AppExchange was an absolute pioneer in the idea of third-party software marketplaces. There were app stores for consumers using mobile devices, but there wasn’t a marketplace for business buyers and the apps they needed. This was 15 years ago—before we learned important lessons about how to make software ecosystems successful.

Let’s talk about some of those lessons. What was the biggest one that comes to mind?

Andy: Okay, one of the biggest lessons learned was that software companies need to make it easier for developers to participate. When AppExchange was launched, there was no user interface or portal for developers to get their product on the AppExchange. Instead, a developer would fill out an Excel spreadsheet and then email it to us. Someone on the operations side of AppExchange would then take the spreadsheet and upload it onto Salesforce. That was how products went into the marketplace.

One of the first decisions we made at AppDirect was to view developers as one of the customers of our platform. Our goal was to deliver a great experience so that third parties would want to put their software on our system. We created an automated, self-service experience for developers that put them in control of their products on the marketplace—from marketing to pricing to integration. We didn’t know it then, but the flexibility we gave developers enabled us to expand our catalog with many types of applications we hadn’t yet anticipated.

What else did you decide to do differently from AppExchange when founding AppDirect?

Andy: AppExchange was referral-only for many years, but when we started AppDirect, we knew we wanted to be commerce-first in our approach. It was the right thing to do because if you don’t have the size and momentum of Salesforce, enabling commerce is a great way to entice developers to come on board as you begin growing your ecosystem.

Since those early days of the software ecosystem, have there been major turning points that influenced the further evolution of the software ecosystem?

Andy: We’ve seen several major shifts happen over the past 15 years and these trends are changing how software companies should approach their ecosystems and marketplaces:

1) Software evolved to mean anything: The definition of software has expanded exponentially compared to the narrow definition we started with. Today, you can essentially sell anything as a service — not only the software, but hardware and services as well.

2) Boundaries between products are dissolving: Buyers want a unified experience. They don’t want to buy the core product through a traditional offline journey and then go online to search for add-ons. They want and expect a seamless, convenient way to purchase everything they need, including the core product and any add-ons.

3) Embedded commerce brings the purchase experience closer to the user: Companies are getting creative about how to embed commerce where the user is spending their time. This could be direct callouts in the core product that enable people to purchase products within the app experience. It also includes embedded commerce on devices or even on the command line.

Where do you see software ecosystems going from here?

Andy: When AppExchange was first launched, Salesforce was the main product and the ecosystem was a bunch of connectors. Today we’re seeing the concept evolve to be a true ecosystem, where the customer can build solutions online, with multiple software and hardware options that are certified to work together well.

Going forward, I believe more software companies will embrace the true ecosystem approach to give their customers choices. The most successful ecosystems will blend certified, integrated products with add-ons and services that give customers the freedom to tie together products in ways that make the most sense and deliver the greatest value for their businesses. And they can do all of that with one bill to pay, one vendor to manage.

What impact does this have on software companies making the decision today to launch an ecosystem?

This is where platform flexibility becomes extremely important. As a software company, either as the vendor of the core product or as a partner in other ecosystems, you need flexibility in how you price your product. You need the ability to price anything—whether it’s a total solution that blends software, hardware, and services or outcome-based pricing such as number of leads closed, number of sales, units sold—you name it, you need a way to price it and sell it in your ecosystem marketplace. At AppDirect, making ecosystem commerce easy, yet powerful has been our goal since day one. 

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