In this series, we’re breaking down key findings from our 2019 State of AppExchange Partners Report, highlighting how successful SaaS companies leverage the Salesforce AppExchange and how network effects are taking hold. Download the full report here!
Part 1: Product and Company Insights
In our previous post, we explored how Salesforce is growing through network effects. In this next area of focus from our 2019 State of AppExchange Partner Report, we take a look at one of the key drivers behind these network effects — partner growth. We dive into what the major challenges are for partners, the AppExchange’s role in company growth, the IPO outlook for partners, and how Salesforce is investing in this growth.
Top Organizational Challenges for Companies on the AppExchange
The best organizations are always evaluating new lines of revenue. And over the past decade, a number of new SaaS marketplaces like the Salesforce AppExchange appeared. When compared with other options for a SaaS marketplace, the AppExchange continues to outperform its competitors. According to Forrester’s latest SaaS Marketplaces report, Salesforce scores higher in eight out of ten categories evaluated. The next highest performer in terms of differentiated criteria only has four out of ten. As one of the first SaaS marketplaces, it has built up momentum and attracted a large number of partners. With Salesforce’s focus on innovation, they have maintained their leadership spot.
For growing companies, acquiring new customers has always been a challenge no matter if they are on the AppExchange or not. It has remained the top reported challenge for companies two years in a row. However, being on the AppExchange does present an advantage in listing products and generating leads. With 150k+ customers worldwide and 5k+ products, the ecosystem presents a tremendous opportunity to acquire customers that would otherwise be inaccessible. As covered in our product and company deep dive, 89% of Fortune 100 companies use at least one AppExchange product, and two of the major reasons for joining the ecosystem are Access to the Install Base and a Gateway to the Enterprise — meaning both established and growing companies recognize the customer acquisition opportunities with the AppExchange.
The number two challenge reported this year, hiring new engineers, is echoed by a Stripe and Harris Poll that revealed 61% of C-suite executives believe access to developer talent is a threat to their business — even more so than access to capital or corporate tax rates. All industries are facing the need for more developers, so companies are putting plans in place to either shift their development resources, build out their current team, or work with an external development team. We laid out the pros and cons of each option here.
With such a focus on bringing in developer talent, engineers are a hot commodity. In order to handle the growing demand that comes with an expanding ecosystem, more engineers are needed. From our findings, 53% of respondents predicted that they would grow their engineering headcount by 20% in 2019, with 12% forecasting over 50% growth.
Acquiring customers and hiring engineers consistently being in the top challenges to ISVs demonstrates that partner companies are growing at a high rate and are feeling the pressure to build out their teams while simultaneously expanding their customer base. These are both great challenges to have as it means companies are building for success on the AppExchange. The growth of these companies also coincides with one of the top reasons for joining the AppExchange and the third challenge to ISVs — moving upmarket.
This shift in the tertiary challenge can be attributed to Salesforce’s continued movement into the enterprise. While reducing implementation costs and time is still a challenge, moving upmarket has leapfrogged it. Companies can utilize Salesforce as a business lever to access enterprise clients, but selling and supporting these clients often increases sales cycles and requires significant investment to carry out. Variations in pricing models and price cuts may also be needed to rollout enterprise products.
The Correlation Between AppExchange Presence and Company Growth
Looking at the data, there’s a demonstrated relationship between AppExchange partnership and forecasted company growth. In the Forbes Cloud 100 List, which features the top 100 private companies in cloud computing, AppExchange partners made up over 20% of the list — and that’s not a coincidence.
For the second consecutive year, 99% of partners are predicting growth in their year-over-year top-line revenue. Even more, 82% of respondents saw an increase in both top-line revenue and revenue growth rate. In fact, 31% of partners are growing over 50% year-over-year and increasing their growth rate greater than 50%. This is interesting to note because typically, as top-line revenue increases, revenue growth rate slows. Why? s top-line revenue (i.e., gross revenue) increases, it becomes much harder to post the same large-percent increases in revenue (i.e., revenue growth rate) year over year. Ultimately, this is the power of network effects — when a company is able to tap into and provide value to the ecosystem, the results can be this dynamic growth trajectory.
AppExchange Partners are Looking to IPO
The strong growth that goes along with being on the AppExchange is leading to more and more companies going public. Last year, 4% of respondents believed they would IPO in 2018, and there were IPOs by Zuora, DocuSign, and Dropbox to name a few.
This year’s respondents are more bullish with their IPO predictions, with 6% of respondents forecasting an IPO. In the previously mentioned Forbes Cloud 100 List, Slack and Zoom — number two and three, respectively — look like they are already about to IPO.
Slack plans to go public in the second quarter of 2019 — and potentially with a direct listing. Zoom isn’t confirmed to be IPOing, but a source stated that it could be happening this year as well. These strong IPO predictions show that partners are confident in the AppExchange and how it will help them grow.
Salesforce Continues to Encourage Growth
Investing over $500 million in more than 280 companies across 18 countries, Salesforce continues to help companies grow in multiple ways. With the recent announcement of the $100-million Japan Trailblazer Fund, Salesforce Ventures now has seven active and two fully invested funds.
Salesforce Ventures is geared toward helping startups by not only offering funding, but also providing access to their product teams, executive leadership, customers, and partner events. Finding these new partners will bring innovative products to the ecosystem that will help attract even more customers and partners.
The growth that partners are experiencing is due in part to their great products, and also the advantages that the AppExchange presents. As partners continue to grow, it will only strengthen the ecosystem — and network effects with it.
Are you growing fast and want to update your product or develop an additional one? Contact us! We’ve brought 200+ products to the AppExchange and were the first to receive the Salesforce PDO Master designation — we have the product development lifecycle down to a science.
Be sure to watch for part three of this five-part series, where we’ll break down our findings related to product and technology. Can’t wait until then? Download the report now.