A few years ago, most enterprise software companies worked on creating superior and more powerful software products, but today enterprise software companies increasingly look towards platform architecture and platform solutions to gain competitive advantage over their competitors. Creating an App store to sell third party applications that would run on top of their software is one of the major platform solution strategies. The success of apps business for iPhone has reinforced the notion that a robust product ecosystem is not only a viable competitive advantage but also a huge barrier to entry for competitors.
Opportunities
Product ecosystem as a competitive advantage. A software product can be replicated. But platform solutions that create a robust product ecosystem of users, developers, apps, and a network that cannot be easily replicated. Customers will buy the software, not only because of the superiority of the software itself, but also because of the ability to install apps, plugins, and add-ons that suits their specific needs. The app store may not generate any significant incremental revenue by itself, but the apps marketplace will create a product ecosystem that will be a viable barrier to entry for new players trying to enter the competitive space.
Aggregated Market Place for Developers. For the developers, an app store is a one stop place to reach their target customers. In fact, all the developer needs to do is to develop and deploy apps in the app store. The app store itself has great potential to create a network effect by completing the virtuous feedback loop.
Why In-Product App Store? If the app store is available inside the desktop interface of the software, it will remove the barrier to actually go an online store elsewhere in the internet. Users can access the app store in one click. The app store is located right at the backyard of the customer, and as long as the customer is online, all apps, products and downloads related to the software can be made available right at the backyard of the user. However, an in-product feature can be only for the new releases of software. For the users for older versions of the software, the app store must be made available through an url accessible through the internet.
Outsourcing lower level R&D. Oftentimes, the company making the enterprise software is not structured to cater for the needs of every small segment of its customer base. For the company, the resources required to develop an app or a plugin to cater for a small segment may not be worth the effort, and at times, it could be highly risky to commit resources on a small piece of work. But for small 3rd party software/app developers, this small segment could be an attractive market, and they would be willing to take the risk. Allowing 3rd party developers to develop apps is akin to outsourcing lower level R&D, and the enterprise software company can use now their precious resources on improving the core product functionalities rather than on the peripheral improvements.
Sustained Release model. Normally, the product update cycle for enterprise software is 12-18 months, and the company sees each new version of the software as a source of incremental revenue. So the company will always group the new functionalities it has developed and market into a new version in regular yearly intervals. However, in an app store model, the 3rd party developers can rapidly build and deploy new apps/plugins that will give the users the desired functionality without having to wait for the update, thus allowing the users to enjoy a sustained update release, albeit only if they install the apps.
Challenges
Even though there are attractive opportunities, there are a number of challenges that can delay the successful execution of the platform solutions strategy.
App Store Product Development Cycle. The first and foremost challenge arises from the inertia and alien product development culture. An software product development cycle is about 10-12 months, where in the new release of the software is a “finished product” complete in most respects. The user, once he downloads the software to his desktop, will have to live with it until he upgrades to a new version. Compared to that, an app store is a web site, and the development time for the beta version is about 6 weeks. The web development model follows the iterative design cycle, in which each version is designed, developed, tested, refined, and redeployed, in rapid cycles. The changes can be done at the server end, and the user is able to use the improved version instantly. This rapid iteration cycle culture is very alien to most software companies. The software product development team could be wasting a lot of time developing the “perfect” initial app store without realizing the iterative design cycle, because they are hard wired to develop the app store the "software way", and/or senior management wants it that way.
Critical Mass of Apps. Creating a critical mass of the apps is very crucial to ensure that the app store goes live and kicking. Initially, the company itself may have to develop a certain number of apps, and deploy them on the app store. In order to drive traffic to the app store, other learning materials, blogs, and online help could be combined along with the app store portal. Once the traffic is ramped up to be attractive enough for 3rd party developers to develop and deploy apps, then slowly the company can disengage from actively producing apps. The challenges of targeting the right app developers, and active marketing to app developers is a topic in itself that is beyond the scope of this article.
Growing a Developer Network. Getting the developers interested in developing apps will be a major marketing effort. This is a chicken and egg problem. The company itself is orchestrating the app store strategy to grow the user base. But the user base is small to begin with, and it will unattractive for the developers to develop apps. Many of these developers are small companies/ startups, and they would be cautious to devote time and money if the rewards are not forthcoming. So the company must create confidence in the minds of the developers by aggressively marketing the apps store. The developers must be given tools to market their apps. Also, the company must share the analytics data with the developers about the number of views, downloads, and app content usage statistics. If there are revenue sharing agreements, then helping the developers grow their sales will also help grow own revenues.
Backward compatibility. The business rules whether to allow backward compatibility would decide the number of potential customers. Say the product has a 10 million user base, but only 20% of them use the latest version of the software that has the platform architecture. Now the net available customer base for the developers is only 2million and not 10 million. The company would have consciously limited the platform architecture to the latest version in order to create strong incentives for the customers using older versions to upgrade to newer version. But this will be a serious disincentive for the developers, whose market has now been limited to only 20% of the customer base.
Ecommerce Imperatives. The enterprise software companies most often sell through a reseller network, and through direct sales. The unit price of the software would be hundreds, or even thousands of dollars. The app store would be a completely new channel of payments system. The company might not have the processes for revenue sharing with small developers or collect micropayments; or perhaps the marketing department might not have expertise in dealing with a large number of small developers, most of whom would have one time relationship. It takes time and coordination work to set up these processes.
Integrating Legacy systems. It is highly possible that the existing customers would have a subscription account for their software, and perhaps another account to interact in the user forums. An app store account will be a third account, and it will only confuse the customer even more. If nothing else, the app store account must be connected to the subscription account if there are business rules preventing customers with older versions of software from using the app store. Again, this single-sign-on integration could take a lot of time, which must be factored into the overall time plan.
Seamless Offline - Online experience. It would be necessary to design the app store to provide a seamless user experience for user who goes offline while online. The user may never be online while trying to access the app store while working on his software. Or, the user goes offline while browsing the app store. There are many use cases for this scenario. For the in-product app store, when the user is offline, the exception pages, and offline contents in local machine for the app-store must be designed to deliver the best user experience, similar to overall user experience theme for the desktop software.
That said, none of these challenges are beyond the capabilities of the company to solve. If only the product manager is aware of these challenges, he would be able to work his way through to get the app store for enterprise software deliver real value in the targeted time frame.
