Strategy & Best Practices

The App Store Concept: From Novelty to Necessity

By Ideas @ AppDirect / September 22, 2020

Just about anyone of a certain age can remember the excitement surrounding Apple’s introduction of the iPhone in 2007. Part of what made the launch such an event to remember was the explosion of mobile app development that followed the launch of the company’s App Store—an online marketplace for iPhone apps—in 2008.

Offering just 500 third-party apps at its outset, within 10 years, the App Store had expanded to include more than 2 million apps—soaring growth that can be attributed to both the ease of entry for developers and the enthusiasm with which customers embraced the wildly innovative apps being offered there. Developers and users benefited, but Apple benefited most, taking a 30 percent cut of all App Store sales.

And thus a new software sales model was born. Or was it? While it may seem like Apple invented the app store, online application marketplaces (i.e., app stores) had actually been around for more than a decade before Apple popularized the term.

So What, Exactly, Is an App Store?

Defined in Wikipedia as “any digital storefront intended to allow search and review of software titles or other media offered for sale electronically,” app stores typically take the form of an online store, where users can browse application categories, view information about applications (such as reviews or ratings), and acquire applications—either via a one-time purchase or, as has become increasingly popular, via subscription.

While Apple may have been responsible for making “app store” a part of the common vernacular, the company’s online application marketplace had precursors in both the consumer and business-to-business (B2B) spaces.

Way back in 1992, in fact, Seattle-based Paget Press launched the Electronic AppWrapper as the first commercial electronic software distribution catalog. Providing an alternative to software distribution via floppy disks or CD-ROM, the storefront application delivered a standard, secure way to electronically purchase, decrypt, and install apps automatically. As such, it revolutionized software distribution—facilitating digital data encryption and digital rights management for apps, music, and data, and allowing small software companies to compete with much larger companies with more established distribution channels.

App Store Evolution

The rest, as they say, is history. The Electronic AppWrapper pioneered the app store concept that inspired not only today’s wildly successful mobile-app marketplaces like Apple’s App Store and Google Play (for Android apps) but also electronic bookstores like Kindle, digital streaming services like Netflix, and video game marketplaces, like Steam.

Consumer-oriented businesses, however, were not the only ones that benefited from the invention of the app store. Before Apple launched its App Store, software as a service (SaaS) giant Salesforce debuted its own AppExchange, a B2B marketplace that has since grown into a massive ecosystem of applications and components. In fact, the AppExchange is on track to be six times bigger than the company itself by 2024.

Other examples of B2B companies that have used app stores to enormous advantage include enterprise software maker Atlassian, whose app store has generated more than $1 billion in lifetime sales; help desk and customer service platform Zendesk; and software giant Microsoft, which offers three app marketplaces for its partners to choose from. The list goes on and on.

Building a Successful Custom App Store

If you want your app store to succeed, you need to ensure that it appeals in equal parts to developers and customers—and for that you need to put yourselves in their shoes.

What developers want

Your app store is nothing without a thriving ecosystem of software developers whose apps either extend the functionality of your core offering or provide solutions that complement your own. However, simply opening your app store platform to third-party developers does not ensure that they will come.

With companies increasingly realizing that applications are critical to their business, demand for software developers is at an all-time high. So high, in fact, that Apple CEO Tim Cook recently likened attracting development talent to “a street fight for market share.”

So how do you attract the developers your app store needs to survive and thrive in this landscape? The solution is twofold:

• Make it easy to join your marketplace. With their skill sets at a premium, developers are going to join the app stores that they know can ensure a positive customer experience for their apps, as well as an easy way to charge for their use. The onus, then, is on marketplace operators to provide the developer solutions that enable this type of omnichannel commerce for every party in its ecosystem. For all but the largest organizations with the deepest pockets, the easiest (and least disruptive) way to do so is not by developing such a system from scratch, but by working with a third party platform to launch an app store.

• Make it beneficial to join your marketplace. It’s not enough for marketplace operators to demonstrate that they can provide a large customer base for a developer’s app. If you want to develop a thriving developer ecosystem, you need to prove that you can provide a tangible return on their investment in your platform. This means delivering the tools they need to cut development time, reduce the cost of quality assurance, speed up time to market, and increase market reach. It also means making developing for your platform a great experience—for example, delivering the skills-building and certification opportunities that will keep them engaged and inspired.

What customers want

Whether your app store is geared to consumers or businesses, your customers want the same thing: a great experience with the applications they find there. And this boils down to integration. For consumer app stores, you must provide seamless integration with the devices the applications are designed for; in the case of Apple’s App Store, that would be the iPhone. And for B2B app stores, it means seamless integration with the core platform they’re designed to complement; for example, add-ons for Salesforce’s CRM platform.

In short, it should be effortless for customers to buy and install the exact capabilities they want on the platform they want when they want them. If you can deliver this type of experience across your marketplace, you will gain the loyalty required to increase retention and spur further development for your app store platform.

Special Considerations for Successful B2B App Stores

We’ve already touched on what makes a successful app marketplace overall, for both consumers and businesses. But, let’s take a deeper look at B2B app stores. Consider the case of Dell Computer, which launched a B2B marketplace in 2001 in hopes of increasing traffic to its website and improving sales by aggregating goods and services for business buyers in a one-stop shop. Just four months in, however, the marketplace was shuttered after signing up only three major suppliers and failing to ignite interest among business customers.

While one could argue that Dell was simply ahead of its time—that is, e-commerce was not yet mature enough to sustain a marketplace of the type Dell was attempting to offer and that B2B customers themselves were unwilling to take the complex business of B2B fulfillment online—its failure still serves as a cautionary tale. Building a successful app store is a complicated undertaking, and 10 years later success is still not guaranteed.

For a successful B2B app store, an operator needs a subscription commerce platform that can handle the complexity of B2B subscriptions. The platform should offer the ability to:

• Sell software directly to businesses, with assisted sales, via reseller channels, etc.
• Price subscriptions per seat, per GB, per month, etc.
• Bundle subscriptions with multiple services, on a single invoice, with interconnected discounts
• Manage taxation, supplier and reseller reconciliation, and other advanced billing considerations
• Handle quotes, customer specific discounts, and contracts
• Manage provisioning, deployment, and user migrations
• Administer identity and access management (including single sign-on, entitlements, etc.)
• Ensure security for highly sensitive business data

App Stores Today

For businesses that can master the art of app stores, the rewards can be enormous. Likewise, the stakes are high for companies that fail to capitalize on the opportunities which application marketplaces present.

Consider, for example, the following: Research firm IDC predicts that by 2023, 60 percent of Global 2000 companies will have digital developer ecosystems with thousands of developers. And McKinsey & Co. predicts that digital ecosystems could account for more than $60 trillion in revenues by 2025, or more than 30 percent of global corporate revenues.

Add to this a global pandemic that has resulted in fragmented supply chains, dramatic shifts in buyer behavior, and an unprecedented growth in e-commerce, and it’s easy to see why McKinsey has called enterprise marketplaces a “critical accelerant” for businesses in 2020, citing their ability to enable companies to create digital ecosystems of their own.

Software giant Microsoft recently demonstrated its commitment to its own Azure application marketplace by launching a program in India called 100X100X100, which provides funding, technology, and guidance for SaaS startups. It also runs Microsoft for Startups in that country, a program that allows early-stage B2B startups to take advantage of the company’s Azure marketplace and enterprise sales team. The idea behind both ventures is that, if successful, these companies represent ready-made customers with solutions that could benefits tens of thousands of Microsoft’s own B2B customers

Meanwhile, consumer app stores continue to proliferate with companies like Drone Deploy—a cloud-based drone software provider—launching marketplaces to enable developers to create and monetize solutions on top of their software.

“The drone economy is growing massively,” says Darr Gerscovich, Senior Vice President of Marketing for DroneDeploy. “It is going to touch all parts of society, and as it grows and businesses are created, more and more people are going to want to join that drone economy. [App stores offer] a way to incorporate developers in the rapidly growing economy.”

All of this begs a key question: If app stores are so beneficial, then why doesn’t every business operate one? The short answer is this—it’s not a simple undertaking. In addition to figuring out how to build the marketplace itself, companies must determine whether they have the right products, services, and mindset to make an application marketplace successful.

At minimum, you must be able to provide the following:

• A solid core product. Behind every successful application marketplace is a successful product or service. Think Apple and the iPhone or Salesforce.com and its CRM. If you’re developing a new product, aim to launch a basic version as soon as possible so that you can validate your business concept before going all out on marketplace development.

• A real solution for a real customer problem. A nice-to-have solution doesn’t cut it as the basis for a digital platform. To attract developers and customers to your application marketplace, you need to provide a must-have solution that fulfills a critical customer need. Be sure to gain a complete understanding of your customers’ pain points so that you can ensure your platform addresses them.

App Stores Tomorrow

If you think you’re ready for an application marketplace, here are three key technology trends that are impacting where app stores are headed. You may not need these capabilities at the outset, but you should keep them top of mind as you plan, launch, and scale your own marketplace:

1. The rise of artificial intelligence

Increasingly, app stores are taking advantage of sophisticated AI capabilities to offer personalized suggestions and retarget customers.

2. The emergence of dynamic pricing

By using algorithms that adjust for competitors’ rates, market demand, and other conditions, predictions, and trends, you can make sure your app store always generates the most favorable price for your customers and your business.

3. Internal app stores for employees

Internal app marketplaces, or enterprise app stores as they are sometimes called, offer all of the ease of use and convenience of a regular B2B marketplace. However, instead of targeting external customers, organizations set them up to make it easier for their own employees to find, provision, and manage company-approved software and services. As companies continue to adopt SaaS, internal app stores will become more common.

Interested in learning about how you can launch a custom cloud marketplace? Learn more about AppMarket.

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