The enterprise app store wars are here. That’s bad timing for Salesforce.

Salesforce will have to rely on ISVs and other partners to help push Genie. But with a plethora of competing marketplaces now available, the company has to sell its vision to the ecosystem harder than before.

A hand with scissors cutting a ribbon in front of a laptop reading "SaaS Fifth Avenue"

Participation in Salesforce’s AppExchange remains paramount for ISVs that want to tap into the customer base of one of enterprise software’s biggest names.

Illustration: Yurii Karvatskyi/iStock/Getty Images Plus; Protocol

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Salesforce has arguably done more to promote and establish the concept of software as a service than any other enterprise IT company, but it has never been able to go it alone. And now, armed with a fresh marketing message and a sparkly new product, Salesforce will need to prove to a still-skeptical community of third-party software vendors that the company’s prospects make it an attractive option around which to build a business.

Salesforce’s partnership ecosystem has always played an important yet evolving role in the company’s growth. For example, AppExchange, a third-party application marketplace where independent software vendors can sell the products they build that run complementary to Salesforce’s own products, was the first of its kind in the industry and even predates Apple’s signature app store. Today it houses over 7,000 apps.

AppExchange helped solidify Salesforce’s status as a leading provider of sales management software by extending the use of its products, ingraining the systems deeper into end users’ key business processes. And while its prominence has faded as Salesforce has grown, participation in the AppExchange remains paramount for ISVs that want to tap into the customer base of one of enterprise software’s biggest names.

Now, as Salesforce looks to push Genie, a central repository for information from its own disparate systems and external sources like the internet, it will have to rely heavily on that robust community of app developers it spent the past two decades building.

“One of the important design details of Genie is we made it extensible by default. I’ve talked to five ISVs already in the past 24 hours that are planning to build apps on Genie. Just an incredible opportunity to differentiate,” co-CEO Bret Taylor told Wall Street analysts at Dreamforce last month.

But amid a plethora of new marketplaces to align with and growing frustration from ISVs that are finding it difficult to stand out in Salesforce’s crowded ecosystem, Salesforce is at risk of eroding the important network at a critical time when investors are questioning the company’s future growth trajectory.

“If they’re successful, there is something amazing there,” said Formstack CEO Chris Byers. But “Genie is almost a custom solution every time you implement it. Maybe it will get there, but I haven’t yet seen how it will be super easy to get an ISV to be successful.”

Overall, for ISVs, it’s become much harder to get visibility with Salesforce without adhering to the so-called pay-to-play strategy, according to partners. Alongside agreeing to a 15% revenue share to be listed on the marketplace, ISVs also have to spend on marketing efforts — like co-branded webinars with Salesforce.

“It’s a pretty steep cost. It’s excessive,” Gainsight chief product officer Karl Rumelhart told Protocol.

And ultimately, just like independent retailers that sell on Amazon, ISVs run the risk of being quickly trampled by Salesforce: “The main real risk is Salesforce building your thing or buying a competitor,” said Blackthorn.io CEO Chris Federspiel.

It’s not just Salesforce. Such practices are common in the world of business software; Elastic settled a trademark lawsuit against AWS in February over a copycat product based around an open-source project. Some partners argue those are simply the inherent downsides in partnerships; there’s always some sort of financial trade-off. While companies like Salesforce and AWS can offer competing products, ISVs argue they can sell their own, more capable applications more cheaply with much faster deployments.

But partners also now have many more options to consider compared to when AppExchange launched 17 years ago. Many companies, including Microsoft, AWS, Atlassian, SAP, Sisense, and Hubspot, now run third-party marketplaces with a wide array of customers. Given the number of choices, it no longer makes sense for partners to devote so many resources toward one vendor.

The main real risk is Salesforce building your thing or buying a competitor.”

“Salesforce has built by far one of the strongest ecosystems around,” said Federspiel. “I also wouldn’t ever build a business that’s 100% dependent on Salesforce.”

Ultimately, the success of Genie — the most important product announcement at this year’s Dreamforce event — will rely on a broad array of partners, including ISVs, system integrators, and other IT providers. But as customers contemplate major shifts in IT amid an economic free fall, it’s likely they will approach purchases of heftier software like Genie with new skepticism.

“Partners will become more critical,” said RBC Capital Markets analyst Rishi Jaluria. But “given some of the pushback from customers to Salesforce … there will be a little bit of a pushback there.”

The hub and the spokes

There are several types of partnerships in enterprise tech that all ultimately play a role in bolstering software sales and maximizing user retention for the underlying platform provider; in this report, we’ll focus on Salesforce, and later examine Microsoft and AWS.

With Hyperforce, for example, Salesforce relies on arrangements with the cloud providers to help manage data for customers in areas that require the information to be stored locally. That saves Salesforce from having to build data centers in all the countries in which it operates.

Then there are initiatives with other large or growing vendors, an area that has become quite active as bigger software providers seek to extend the use of their platforms and burgeoning powerhouses to prove their viability by latching onto the credibility of established players.

Salesforce’s partnerships with data management providers like Fivetran will become paramount as it aims to make it easy for customers to store more data in the platform. Meanwhile, system integrators like Deloitte continue to hold ample sway, as corporate customers tend to rely on their advice when determining what programs to add to their IT stacks.

Both are long-standing aspects of partner practices in the software industry that predate the cloud computing revolution. But a marketplace for third-party business apps is a relatively fresh concept, one that is just now becoming a de facto tool in the growth arsenal of growing IT vendors.

“It’s a more automated way to do partner management,” said Valoir analyst Rebecca Wettemann. “It’s a lower cost of partner management for them. And it’s a way to guide customers hopefully towards solutions that complement what they are getting from” the company, she added.

Overall, demand for such marketplaces is growing. In 2021 alone, cloud marketplace transactions grew 70% to $4 billion, which was three times the growth of the public cloud, according to Bessemer’s 2022 State of the Cloud report. That number still pales in comparison to the $71 billion analysts estimate Apple made from its app store in 2021, as well as the $91 billion in revenue that cloud providers took in last year.

But despite a slowdown, collective spending on internet-based infrastructure and software is expected to reach $600 billion in 2023, per Gartner. And as users devote more money to those services — a sizable chunk of which is likely directed at Salesforce — it becomes much more likely those same customers will use the business app stores. That makes those marketplaces all the more important.

“It’s been a super powerful model,” said Sageview Capital partner Jeff Klemens. “By enabling this outside developer access to the data to build the applications on top of it, they further cement their system of record status,” he added.

However, for ISVs that build add-ons for these platforms, the benefits are more complicated. Although enterprise app stores provide opportunities for thousands of third-party developers to sell their products and reach new customers, high fees, stringent listing requirements, and mismatched incentives can make it a tricky proposition.

“The Salesforce revenue share of 15%. I don’t know if we get 15% value from having it, but it’s a heck of a lot more fair than Apple’s 30%” revenue share, said Federspiel. But “companies that have their apps on [Apple’s store] have lower potential overall risk than some of the B2B stores,” he added.

It’s also not as easy as just throwing a product on the site. The ISVs need to cultivate deep relationships with Salesforce account executives who can recommend their products, as well as those companies charged with actually deploying the products for customers like Infosys.

When Blackthorn.io first launched in the AppExchange over a decade ago, all of its sales came from the marketplace. Now, 75% of its sales leads come from system integrators, per Federspiel.

And success is a double-edged sword. The markets have become so crowded that it’s becoming harder to get the visibility needed to grow in mature marketplaces like AppExchange. That’s why some are migrating to platforms like HubSpot, according to Wells Fargo analyst Michael Turrin.

“Movement and migration is always going to happen to wherever the most greenfield opportunity is, and that’s clearly no longer Salesforce,” he said.

Movement and migration is always going to happen to wherever the most greenfield opportunity is, and that’s clearly no longer Salesforce.”

Ultimately, partners say cultivating a successful relationship with the likes of Salesforce or Microsoft requires ISVs to play by the respective rules of each vendor. Those who align closely with Salesforce can be brought into bigger deals or given exclusive access to product road maps, which allows them to see challenges to their own business models coming.

Shopping for software

Although Salesforce runs the longest-standing store, many other enterprise software vendors are jumping into the fray and building their own third-party ecosystems.

That’s why it’s increasingly common for ISVs to try to align themselves with multiple providers, or to partner closely with growing companies, like HubSpot, where competition for eyeballs isn’t as fierce and the prospects are potentially greater.

“The world is changing now,” said Rumelhart. “There’s more choice for the vendors and more acceptance and willingness to look around on the part of the buyer. Both of those things combined, [AppExchange] isn’t as unique of a thing as it once was.”

A main reason for spreading the love: It’s not unheard of for platforms like Salesforce to add the most popular apps in the store as a native feature within its product suite, which can throttle sales for partners that initially popularized the tools. The company released a data backup product in 2021 nearly a decade after OwnBackup and others launched their own now-competing tool. Salesforce Ventures even invested in OwnBackup. Notably, OwnBackup expanded its services to Microsoft last year.

Despite the challenges and restrictions, partners of Salesforce ultimately see the marketplaces as both necessary and beneficial. The obvious advantage is sheer exposure to Salesforce’s massive volume of customers. According to Salesforce, 90% of its customers download at least one program from AppExchange.

And a stamp of approval from Salesforce can be more valuable than any of the revenue gained through direct sales in the marketplace. The badge means the app has been verified to work with products from either vendor, alleviating concerns around, say, data privacy. And given most large businesses are bound to be customers of either, it’s often a necessary step to sell to enterprise or even mid-sized companies.

But partners remain aware that at any time Salesforce could shift the sands underneath them: hiking prices, removing their apps from the store, developing a competing product, or making it harder to receive benefits. This will become increasingly true as more and more software spending gets routed through enterprise app stores. And as these stores grow larger, the software giants may tighten their grips, squeezing partners for ever more customers and revenue, or ripping off their innovations to build those features for themselves.

“Every time any of these big platforms do something, it helps someone and hurts someone else,” said Fiederspel. With Genie, “you need to be an ISV without a lot of commitments in front of you already, or a really well-funded one where you can shift a bunch of people onto an initiative that’s going to net you zero money for a long time. It’s going to be hard to get quick adoption,” he added.

Every time any of these big platforms do something, it helps someone and hurts someone else.”

But if Genie succeeds, it could further cement Salesforce’s status in the small circle of elite IT vendors. Still, these are tougher times in enterprise tech. And the playbooks that worked a decade ago are out the window. Salesforce is no longer the new kid at school. If anything, the company is closer to a 20-something constantly agonizing over their place in the world.

Technically, Marc Benioff is the founder of the app store. Now, with Genie, he has a chance to leave his fingerprint on the next generation of marketplaces. The company just has to convince potential partners its peak hasn’t come yet, and that it still has their best interests in mind.


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