Most new software vendors have a vision for how they can make better use of technology to solve a customer’s problem. But category leaders are more ambitious than most. They don’t just want their customers to buy a specific, point product (e.g. electronic invoicing). Instead they want their customers to buy an entire application suite (e.g. procure-to-pay). Category leaders don’t want to just plug in to their customer’s existing tech stack. They want to replace it with their own platform.
Category leaders recognize that they cannot accomplish this alone so they set out to build an ecosystem of partners that collectively become a force in the market. They ask – How do I get the best developers building on my system and the best consulting firms implementing my applications. Once they educate the partners on how they can profit from their success, the potential for growth becomes exponential.
There are six strategies that B2B application software vendors use to reinvent the technology platform:
- Modern Technology Stack – Category leaders win with IT buyers by offering modern technology that provides a foundation for future growth. Most are cloud-native and many have mobile-first architectures. Others are experimenting with blockchain, artificial intelligence, and other emerging technologies.
- Full Application Suite – Category leaders don’t build point products that solve niche problems. They build entire suites that enables customers to take a holistic approach to attacking an entire category of business processes.
- APIs and Development Framework – Category leaders know that they cannot build every possible new feature for every different industry and use case. So they create open APIs that allow third party developers to build extensions to their applications to fulfill the need for ”long tail” features.
- Developer Ecosystem – Software vendors know that the fastest way to get adoption of their technology is to figure out ways for others to grow and profit from it. So category leaders recruit third party developers to build applications on their platforms. The best programs have on-line portals, regional meetups, and dedicated conferences.
- App Marketplace – The new apps can be certified and sold in an online marketplace. The category leader often takes a percentage of the revenue generated from the app sale as a commission. Allowing third parties to sell apps on a marketplace serves a dual purpose. First, it allows the category leader to fill gaps in their product without having to make investments in long tail features that may not pay off. Second, it incentivizes third parties such as developers to build on the platform to generate revenue.
- Implementer Ecosystem – In addition to recruiting developers, category leaders also build ecosystems of 3rd party consulting firms to help customers implement the software. Using partners rather than in-house, professional services resources also boosts gross margins.
- Business Network – Category leaders want to play a central role in the day-to-day activities of their customers. To do so they build marketplaces and business networks that enable them to broker recurring transactions between the customer and its business partners. Most vendors will only join a few business networks so a “winner takes most” phenomenon occurs.
How Category Leaders Re-Invent their Technology Platform