Jacob Rouser
Jan 18, 2019
In this series, we’re breaking down key findings from our 2019 State of AppExchange Partners Report, highlighting how leading SaaS companies are leveraging the Salesforce AppExchange and the role network effects are playing in growing the ecosystem. Download the full report here!

Dreamforce ‘17 marked the release of our first ever State of AppExchange Partners Report. Our goal: provide an objective look at the Salesforce AppExchange and how partners are using the platform to achieve their business goals. We followed up on that report to track the trends and showcase new data in the ecosystem.

As discussed during the Dreamforce ‘18 AppExchange Partner Keynote, the AppExchange continues to grow at a high rate. In fact, partners are growing 48% year-over-year! With 89% of Fortune 100 companies using at least one AppExchange product, and Salesforce recently passing 6 million installs of AppExchange products, the ecosystem has never been stronger and in a better position to continue to support this growth.

We surveyed more than 100 senior-level executives on the AppExchange and shared our findings here — but we wanted to take a deeper dive and add more context into specific focus areas. First on the list is Product and Company.

Network Effects Are Coming Into Full Effect

The buzzword for the year in the Salesforce ecosystem was ‘Network effects’. Why? Because of the significant impacts they are having on the growth rate of the ecosystem. The AppExchange Partner Keynote was even titled “Harness the Power of Network Effects & Ecosystems,” demonstrating the key role that they play.

In layman's terms, network effects are when the increase in the number of people using a product or service increases the value of the product or service itself. One of the original network effects was that of the telephone — namely, as more people bought a phone and connected it to the infrastructure, the value of the phone increased because you could now reach more people.

As network effects come into full force for the AppExchange, the growth of the ecosystem will only accelerate — and these network effects aren’t just benefiting Salesforce.

Both the 150k+ customers and 5k+ products offered by companies are benefiting from an increased presence on either side. As our CEO, Brian Walsh, stated while hosting a panel discussion during DF18, “The more customers we have [on the AppExchange], the more value there is for our partners — the more opportunity for distribution. The more products there are on the AppExchange, the more value there is for the customers at Salesforce.” This virtuous cycle will reinforce itself, strengthening at all times and benefiting partners and customers alike.

Salesforce Continues to Grow

Salesforce grew at a record-breaking pace in 2018. Their stock hit an all-time high of $161.19 per share, and they acquired MuleSoft for $6.5 billion — a price tag that is more than double its previous record for an acquisition.

After their third-quarter earnings were released, Marc Benioff, Salesforce Co-CEO, stated that “the company's never been stronger or been in a better position.” With this success, Salesforce is expanding its geographic footprint. The Salesforce Tower already being the tallest building in San Francisco and the announcement of an additional 800-foot glass high-rise expected to hold more than 1,500 workers, Salesforce has plans to build another 800-foot tower in Chicago starting in 2023.

Salesforce’s goal of reaching $20 billion in revenue by 2022 is looking more and more attainable, especially with the continuing acquisition of companies to bolster their capabilities and the steep upward trend of their revenue. However, $20 billion is just the first stop — CTO and co-founder Parker Harris shared that they are aiming for $60 billion by 2034.

Companies continue to invest in the ecosystem, recognizing the massive opportunity that it presents. For example, Insight Venture Partners, a significant player in B2B companies with over $20B of assets under management, recently funded over 29 AppExchange ISVs. Per Crunchbase, over $1.3 billion was raised by companies in the ecosystem in 2018 alone. These numbers indicate that the market realizes how much Salesforce and the AppExchange ecosystem is growing and wants to capitalize.

The Reasons for Joining the AppExchange Are Changing

As the AppExchange continues to evolve, so do the reasons why partners join.

Why did you join the AppExchange?

The number one reason, faster time to market, remained the same as last year — but the second and third reasons shifted from ‘security’ and ‘the partner ecosystem’ to ‘access to the install base’ and ‘gateway to the enterprise’.

We believe that these changes show that ISVs looking to leverage Salesforce as the entry point to the enterprise follow along with Salesforce’s success in selling into enterprise accounts — further supporting the hypothesis that the AppExchange network effects are taking hold. It also supports Salesforce’s additional focus on SMBs, as they are joining the ecosystem to grow and access enterprise accounts.

Multiple Apps Mean More Opportunities

We are seeing a growing trend of companies offering multiple apps on the AppExchange. We learned from our research that 45% of respondents have more than one product on the AppExchange — an increase from last year.

How many AppExchange apps does your company currently list?

In the first eight months of 2018, Korn Ferry, Twilio, Dropbox, and DocuSign all announced additional partnerships and products — to name a few. Even more large companies are joining the ecosystem and adding to the solutions available.

Companies consider a multi-app approach for a number of reasons. As noted above, access to large enterprise accounts is a driver for joining the AppExchange and companies already there look to do the same. Having more than one solution available to your existing customers provides opportunities for account expansion and can show that you are listening to their needs by building solutions that integrate with the tools they already use. These pieces combined equate to reduced churn and increased revenue — all of which strengthen the network effects.

Salesforce is Focusing on Industries and SMBs Too

While enterprise companies play a vital role in the AppExchange’s success, they’re not the only focus. In recent episodes our AppChat Podcast, Brian Walsh hosted Mike Wolff, SVP of Global ISV Partners at Salesforce, and Meredith Schmidt, EVP & GM Salesforce Essentials & SMB at Salesforce, to discuss Salesforce’s additional focus on industries and SMBs alongside traditional enterprise companies.

Salesforce is concentrating on seven core industries, but more importantly, they’re concerned with understanding the customers within these industries. They want to identify the gaps in the AppExchange and leverage new partners to fill this whitespace and strengthen the ecosystem.

In regards to SMBs, Salesforce introduced Salesforce Essentials so that SMBs without large sales or IT teams can leverage the platform for only $25 a user a month. They aim to grow the number of SMB customers — who already make up one-third of their customer base — and tend to their unique needs.

Attracting companies of all sizes and industries play right into network effects — lending more value and growth potential to everyone involved.

From our findings, we see that companies leveraging the AppExchange have a noticeable advantage over those who don’t. With Salesforce continuing to grow and network effects becoming even stronger, expect the AppExchange ecosystem to grow alongside it.

Be on the lookout for part two of this series, where we’ll dive into findings related to company growth. If you’d like more insights now, download your copy of the report.

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