I’m just wrapping up my tour around Iceland in Reykjavik, as they celebrate their annual Culture Day, probably the biggest annual party in this mostly wild, rugged place.
Indeed, these hardy and clever people have a lot to celebrate. Iceland is currently ranked third in the 2024 World Happiness Report, as always, tightly grouped with other Scandinavian countries, #1 Finland, and #2 Denmark. Free healthcare, good schools, clean air and water, social cohesion, extremely low crime, and a diverse economy with natural resources like unlimited geothermal energy all contribute to a high standard of living.
However, it wasn’t always so rosy economically, when this nation of around 350,000 people was exposed to global financial markets, bank failures and massive currency devaluation in the Icelandic financial crisis of 2008—which proved to be a canary in the coal mine for the ‘too big to fail’ banking crisis in the United States.
The volcanic and economic microcosm of Iceland made me think about how enterprise software marketplaces have evolved as a digital analogue of regional and global markets in general.
Why do we need software marketplaces anyway?
When multiple buyers and sellers trade commodities, goods and services in a marketplace, participants benefit from efficiencies of scale, as their specializations of supply come together to meet customer demand.
In enterprise software marketplaces, each participant vendor contributes specialized contributions of expertise, functionality, and scale that are essential to building a complete solution for end users—assuming of course, that no single monolithic vendor would as efficiently meet all the needs of a diverse customer base.
Before software marketplaces, the only way an end user would get close to a complete solution would ostensibly be buying a niche solution built specifically for a particular vertical, such as ‘healthcare clinic management’ or ‘point of sale terminal system’ — or hiring a consultancy or MSP to customize a bespoke solution, since most enterprises didn’t have a deep enough development bench to do it themselves.
Development partners are precious
The biggest software marketplaces are especially well known, because they live on our smartphones: Apple App Store and Google Play pretty much have the markets cornered for their OS users.
These closed economies hit app developers with a 30 percent commission on each customer purchase, whether for a one-time purchase of the app, subscription, or even in-app transactions such as game tokens and add-ons. Developers who don’t want to pay the toll simply won’t have their apps listed.
Needless to say, this arrangement sucks for publishers. Epic Games vs. Apple are still in court today after the popular Fortnite game got kicked off the App Store for having its own internal payment system. European Union regulators are now looking at breaking up such monopolies.
In an enterprise software marketplace, application partners and integration providers are much more highly valued, because no vendor’s system is an island unto itself. Encouraging a developer ecosystem creates more choices for end user organizations, who will need to add new functionality and integrate with their existing systems.
The AWS Marketplace is just about as big as it gets. Vendors can get exposure to the world’s largest cloud services market at a low cost more in the range of credit card vendor fees, ranging from 1.5% to 3% depending on average sales volume. Many of the vendors on the AWS marketplace offer some functionality that overlaps with AWS services themselves, and that’s fine, because AWS still sells more cloud infrastructure either way.
The Atlassian Marketplace is another good case in point — as of 2022 they had already generated more than 500M in annual sales for their partner developers. Because Atlassian didn’t impose an extreme tax or compete with contributing vendors, they were able to bring together a strong set of vendors building add-on software specifically customized for their suite of tools such as Jira, Confluence and Bitbucket.
The wall of modules and integrations
Have you ever tried shopping in the back of a housewares department to look at the gadget wall, where the kitchen shears, ice cube trays and garlic presses seem to be randomly arranged, such that you can’t find the one thing you wanted?
Most enterprise software marketplaces started out as gadget walls. They are not well-planned, arising out of a necessity to provide integrations to the most likely external systems and core systems in play within the end user’s IT environment.
Back in the turn of the century, I designed B2B marketplace interfaces for i2, where we attempted to build a ‘marketplace of markets’ for every industrial supply chain, a hub-and-spoke model where we could charge both end customers and vendors enormous fees for utilizing the connectivity of our trade matrix.
The concept failed along with many other early B2B software vendors in the dot-bomb implosion. Enterprises with tight IT budgets were no longer willing to pay for integration services, and CIOs started to expect vendors to include SDKs and integration modules so they could hook up their existing software packages—thus the ‘wall of integration gadgets’ and service marketplaces was born.
Salesforce led the way in offering a marketplace of add-on services to its core CRM platform, albeit the hoops of initial partner enrollment and integration weren’t exactly simple to achieve. Later, we saw the rise of major business process automation, analytics and low-code app design vendors all offering a gadget wall of partner integrations in their own marketplaces.
Even citizen developers were starting to get in on the game, building solutions from a storefront of LEGO-like vendor pieces with snap-to-fit integration ease.
The rise of API, open source and AI marketplaces
The widespread adoption of SaaS software and cloud services led us to an API-driven consumption model, which really changed the game for software marketplaces. Instead of building custom integration models for each platform, vendors instead publish an API spec, allowing developers to programmatically build private apps or public services that connect to it.
Soon, walls of custom integration widgets gave way to API marketplaces, and a surrounding host of related devtest, management, orchestration apps, as well as identification and security services to govern customer access to APIs, including monetization.
At the same time, open source software underwent its own revolution, with downloadable packages on npm and docker hub, API integration code in Stack Overflow, SwaggerHub and git repositories, and enterprise sponsorship of new open standards. Open source marketplaces allow developers to contribute innovative efforts to the community in order to benefit development practices as a whole.
AI marketplaces represent the latest step in this continuum. While much attention has been paid to GenAI chatbots, as it turns out, AI models are even better at speaking the language of API connections than mastering the complex subtleties of human conversation. AIs can act as integration platforms, allowing even non-technical workers to call on a vast array of services, including other AI models behind their own APIs, with natural language queries.
The Intellyx Take
As always, I could go on forever about the subtleties of software marketplace design and economics, which would be outside the scope of this Cortex.
For instance, I could talk about intra-enterprise marketplaces that allow IT departments to provision employees and provide platform engineering services to developers, with interdepartmental accounting of the value delivered against budget allocations. But enough of that.
How could humble Iceland go from having virtually everything they need provided by the sea and land, to an economic crash based on derivatives and currency trading, and now, back to an economic success?
When the chips were down, new leaders treated each citizen as a valued asset, as they built new businesses atop a refactored economy.
The same lesson applies to software marketplaces. New ones will spring up that meet future enterprise needs, and the most successful ones will hold their vendor communities close, rather than abandon developers or suddenly game the rules against end customers.
Copyright ©2024 Intellyx B.V. Intellyx is an industry analysis and advisory firm focused on enterprise digital transformation. Covering every angle of enterprise IT from mainframes to artificial intelligence, our broad focus across technologies allows business executives and IT professionals to connect the dots among disruptive trends. As of the time of writing, none of the organizations mentioned in this article is an Intellyx customer. No AI chatbot was used to write this article. Image source: Adobe Image Express.
