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By Daniel Saks

In today’s rapidly evolving software industry, trends seem to evaporate as quickly as they emerge. However, one undeniable fact stands out—the most successful technology companies have gone all-in on cultivating a network of software, developed by third parties, that enhances their core products. This is true for “born-in-the-cloud” companies as well as tech giants that put ecosystems on the map with their app stores.

Software ecosystems are already big business, generating an estimated $230 billion in revenue worldwide, and that number will only get bigger as more companies build their own networks. But you can’t just snap your fingers and launch a fully functional ecosystem. Networks of third-party software are multi-sided and can be incredibly complex, with hundreds of developers and complicated legal and billing arrangements, and that’s before you even get to the technical aspects.

Before you dive in to navigate the choppy waters of creating your own software networks, it’s critical to understand the parts of these ecosystems and how they work together. This essential first step can make it far easier to create a developer ecosystem for your own core products.

Two Main Types of Developer Ecosystem

Today, advanced technology is allowing companies to experiment with a wide range of ecosystem types, but here are the two general categories that most fall into:

Add-on: Here, you have existing products that could benefit from additional features and functions. Instead of incurring the cost and risk associated with building these capabilities yourself, you want to enable third-party developers to build these add-ons to expand your functional footprint.

Sell-with: In this type, you have an existing product that actually sits in an ecosystem of other products that complement your core offering. You want to be able to offer your customers these complementary products so you can offer comprehensive solutions to meet their needs. For example, your CRM system works well with a number of analytics and email marketing tools, and you want to package these as complete, easy-to-buy solutions.

A Closer Look at Add-On Ecosystems

Software networks of all types are gaining traction, but add-on ecosystems, in particular, are generating a lot of interest and excitement. For one, they make perfect business sense; providers always seem to have a long list of features and functions that need to be built, and never enough resources to develop them. When providers fill these gaps with third-party add-ons, they can push risk onto developers but share the reward when the software gives customers a more complete product.

Add-on ecosystems can also unlock new use cases for your products as well as drive retention, since customers are more likely to continue using your product as add-ons enhance its feature set. Last but not least, add-on ecosystems can help you stay ahead of your competitors. With an ever-growing catalog of add-ons, you can quickly close gaps in your products and keep the competition at bay with features that are more advanced and innovative.

Ease of Ecosystem Participation

Success with an add-on ecosystem—or any ecosystem strategy for that matter—hinges directly on your ability to make it easy for developers to participate. When sign-up, on-boarding, marketing, pricing and other essential steps are simple and straightforward, developers will flock to your ecosystem and drive more revenue, both for themselves and for you.

Overall, a developer program should be designed to reduce friction when possible. This means making it as easy as possible for developers to get test accounts and API access, as well as making it a top priority to create crystal-clear documentation with samples. Generally speaking, becoming a developer on your platform should be as self-service as possible.

Sell-With Ecosystems: Biggest Risk, Biggest Reward

My focus here has been on add-on ecosystems, but as I mentioned, that’s not the only type of software network out there. Sell-with ecosystems present many of the same challenges as the add-on model does, only bigger. Cloud service commerce aspects like billing, provisioning and identity become even more complex in this environment. In fact, I would argue that tackling a sell-with ecosystem should be considered expert-level partnering with developers and the platform provider you may be working with. When done correctly, however, a sell-with ecosystem can drive significant value and revenue for your core product, which can make them well worth the extra effort.

The days of developing applications in isolation are over. To be successful in the fast-growing, ever-changing world of software, creating and nurturing a strong software ecosystem will be the only way to win.

Daniel Saks is co-founder, president and co-CEO of AppDirect, which provides cloud service marketplaces, billing and distribution, and reselling services for service providers, VARs and ISVs.