Leveraging the Software Ecosystem
Towards a Business Model Framework for Marketplaces
Tobias Weiblen, Andrea Giessmann, Amir Bonakdar and Uli Eisert
SAP Research, CEC St. Gallen, Blumenbergplatz 9, 9000 St. Gallen, Switzerland
Keywords: Business Model, Marketplace, Software Industry, Software Ecosystems, e-Commerce.
Abstract: Software platforms in the form of marketplaces like Salesforce.com`s AppExchange, Netsuite`s SuiteApp or
SAP`s Commercial Platform are changing the way how software and services are distributed, consumed,
and priced. Technical innovations in the underlying platforms receive high attention, while innovative
business models that build on and commercialize a flourishing ecosystem are neglected. In this paper we
investigate the question which marketplace business model options are available to software platform
owners that want to commercialize their ecosystem’s products and services. We present a framework of ten
possible models that is derived from both theory and practice. The options are clustered by the required
level of product/service standardization to guide the choice of business model. The framework may serve
decision makers as a starting point for their business model innovation plans.
1 MOTIVATION
Successful business models today are often multi-
sided in nature. That is, a platform owner links
markets from different sides of its network and thus
can realize revenue streams on both sides
(Eisenmann et al., 2006). Such business models are
based on network effects: they not only require a
customer base on one side of the platform but also
depend on partners to cover the supply side. The
more partners and customers participate, the higher
the platform’s overall attractiveness and thus the
platform provider’s chance of success (Katz and
Shapiro, 1985; Katz and Shapiro, 1994; Parker and
Van Alstyne, 2005).
Large software companies typically not only
have a vast customer base using their products but
are also surrounded by “ecosystems” of partners,
who complement their offerings through software
extensions or services (Bosch, 2009; van den Berk et
al., 2010). It is hence no surprise that, in recent
years, many software companies have successfully
commercialized their software platforms in the form
of marketplaces on which partner supply and
customer demand are matched. Prominent examples
include Salesforce.com’s AppExchange, Apple’s
AppStore, Google’s Android Market, and SAP’s
SAP Store. Typically, the platform owner receives a
revenue share (e.g., 30%)
from every purchase made in the marketplace.
This predominant marketplace business model in
the software industry works well for standardized
digital products that can be sold immediately, such
as media or software. Yet, only a fraction of a
typical ecosystem’s offerings can be commercialized
in this way, particularly considering B2B markets
and enterprise software. Current marketplaces in the
industry fail to accommodate ecosystem players who
offer more complex products and services such as,
for example, customer specific enhancements and
integration work (Bosch, 2009) or consulting
services (Cusumano, 2008). We aim at closing this
gap by answering the question which marketplace
business models are available to commercialize
ecosystem offerings and which factors influence
model choice for the platform provider.
As a first result of our ongoing research, we
present a set of marketplace business models that
can be used by platform owners of the software
industry to commercialize a larger share of their
ecosystem’s offerings. We do so by combining
previous work in the field of business models and
marketplaces with insights gained during several
focus group meetings and interviews concerned with
the research topic of our paper. Our framework
systematically presents marketplace business models
conceivable in a software ecosystem context. We
thereby contribute to a broader perspective on
187
Weiblen T., Giessmann A., Bonakdar A. and Eisert U..
Leveraging the Software Ecosystem - Towards a Business Model Framework for Marketplaces.
DOI: 10.5220/0004077201870193
In Proceedings of the International Conference on Data Communication Networking, e-Business and Optical Communication Systems (ICE-B-2012),
pages 187-193
ISBN: 978-989-8565-23-5
Copyright
c
 2012 SCITEPRESS (Science and Technology Publications, Lda.)

software industry marketplaces that might also serve
as a role model for other platform-based industries.
2 THEORETICAL
FOUNDATIONS
2.1 Business Models
Business model research is an increasingly
important area, especially in e-business. As early as
1954, Peter F. Drucker posed the following key
questions to analyze and design business models:
“(1.) What is our business? (2.) Who is the
customer? (3.) What is value to the customer? (4.)
What will our business be? (5.) What should it be?”
(Drucker, 1954). Further prior studies that have also
noted the importance of actively analyzing and
designing business models include Timmers (1998),
Rappa (2004), Mahadevan (2000), Morris et al.,
(2005), Osterwalder et al., (2005), Chesbrough
(2007), and Zott et al., (2011). Based on an analysis
of definitions for business models in literature, the
definition of (Timmers, 1998) was taken as a basis
for the research presented in this paper. According to
Timmers, a business model is:
- An architecture for the product, service and
information flows, including a description of the
various business actors and their roles; and
- A description of the potential benefits for the
various business actors; and
- A description of the sources of revenues.
Besides the definition of business models, Pateli
and Giaglis (2004) distinguish seven more areas of
business model research. The research presented
within the paper at hand focuses on the research
field design methods and tools. Meaning “building
methods and developing tools for designing business
models” (Pateli and Giaglis, 2004, p. 309).
2.2 E-Marketplaces
An electronic marketplace is a platform where
demand and supply for certain goods meet in order
to: (1) offer products and services in a structured
manner as well as to select and find required
products and services, (2) to negotiate the price and
conditions, (3) to set up a contract, and (4) to pay
and deliver the offered products and services
(Bakos, 1991; Malone et al., 1987a; Schmid et al.,
2002). A typical market transaction within an
electronic marketplace therefore contains four
specific phases: (1) information, (2) negotiation and
price setting, (3) contracting, and (4) settlement.
This already indicates the three major roles and
players that are active on a marketplace. First, the
providers of the product and services; second, the
consumers of products and services; and, finally, the
marketplace operator, who provides the market
infrastructure and may support and participate
actively, also taking a share of the revenues
generated on the marketplace (Schmid et al., 2002).
3 METHODOLOGY
Overall, our research follows the design science
research (DSR) approach (Hevner et al., 2004;
March and Smith, 1995; Peffers et al., 2007). Design
science focuses on the development of effective
solutions for practical and theoretical problems by
creating and evaluating artifacts intended to solve
identified organizational problems (Hevner et al.,
2004). Effective solutions in DSR must meet two
central requirements: first, they must address a
relevant organizational problem and, second, they
have to add value to the knowledge-base.
Pursuant to DSR, requirements for the research
are derived from the environment in order to ensure
practical relevance. According to Hevner et al.,
(2004, p.80), environment in the sense of DSR
consists of people, organizations and technologies.
The research outlined within the paper at hand was
conducted in the context of SAP`s Commercial
Platform that enables service providers to develop,
publish, sell, and deploy their services (Wenzel et
al., 2012), see also (Beimborn et al., 2011; Faisst,
2011). “The knowledge base is composed of
foundations and methodologies” and provides “the
raw materials from and through which IS research is
accomplished” (Hevner et al., 2004). The paper at
hand contributes to the knowledge base by
developing a framework for a systematic and
structured business model design in a software
ecosystem context.
The design cycle is at the heart of the research.
The iteration between the two core activities of
designing and evaluating our framework allowed us
to repeatedly validate and improve the artifact until a
satisfactory design was achieved. Focus group
discussions have been conducted to evaluate the
developed framework. Focus groups are a special
type of interviews involving a small group of
interviewees at the same time (Morgan, 1998). The
advantage of a focus group as compared to
traditional interviews is the exchange of ideas and
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points of view among several participants. It allows
expanding questions and addressing further aspects.
The framework has been evaluated against the
real world by its reapplication in the context of
SAP`s Commercial Platform. Since the evaluation is
closely related with the designed artifact, these two
main activities in DSR are presented together in the
following chapter.
4 MARKETPLACE BUSINESS
MODELS
4.1 Decisive Parameters for Business
Model Design
In their groundbreaking work, Malone et al., (1987)
analyze the influence of information technology on
the coordination of economic activities. In summary,
they predict that electronic markets will be
increasingly preferred over hierarchical forms of
coordination (such as stable supplier-buyer
relationships) due to reduced search and coordi-
nation costs. They also identify two often interlinked
product attributes to be the decisive parameters for
the choice of organizational form: low asset
specificity and low complexity of the product
description favor electronic markets. Their
predictions have been confirmed in a number of later
studies (Daniel and Klimis, 1999) and also reflect in
our observation that software company marketplaces
today mainly sell standardized digital products. Less
standardized products or services, consequently,
might need different business models to be
successfully commercialized.
Apart from the degree of product or service
standardization, a multitude of aspects can play a
role in designing marketplace business models.
Transaction phases supported by the marketplace,
for example, differentiate different models (Schmid
et al., 2002) and depend on a range of institutional
aspects (Reimers, 1996). In our context of software
ecosystems, Cusumano (2008) mentions the trend of
software companies moving towards service
business and thus into previously partner-owned
territory. This trend might also influence
marketplace design on a more strategic level. In the
following, we will come back to these aspects where
they play an important role to motivate a specific
business model.
4.2 Overall Framework
Within the scope of our research question, which is
to identify marketplace business models that can be
used to commercialize software ecosystem offerings,
we identify ten overall possibilities. Each model is
applicable in different contexts, yet the degree of
product or service standardization is the most
prominent driver that determines applicability. We
hence use this parameter to cluster our framework of
marketplace business models into three groups:
(1) Models for Standardized products/services, in
which the marketplace serves as the primary
channel for transactions and covers most of the
transaction phases.
(2) Models for Configurable products/services, in
which marketplace support is limited to a
mediating and facilitating function, matching
supply and demand.
(3) Models for Customer specific products/services,
in which the platform owner’s marketplace
serves as a supportive channel only, guiding the
customer to appropriate offerings outside the
marketplace.
Figure 1 illustrates our framework. In the following
sections, we describe the business models in each of
the three groups and elaborate on them in more
detail.
4.3 Business Models
4.3.1 Primary Channel Models
For products and services that are highly
standardized, we identify four different models in
which the transaction phases of the buying process
are fully handled by the marketplace.
Restricted Model: Marketplace operators
following the restricted model typically regulate
market entry of product and service providers by
offering unique services without substitutes or
competing services. Consequently, a provider - once
accepted - serves the whole market in its category.
Collaborating exclusively with only one provider
per category is especially advantageous in highly
price-oriented industries. On the one hand, the
marketplace operator can avoid higher costs through
more complex processes (Oppewal and Koelemeijer,
2005). On the other hand, the provider is able to
realize economies of scale by serving a product or
service category exclusively. An example for the
restricted model is the cooperation of Ryanair and
Hertz. Ryanair collaborates solely with Hertz to
offer exclusive car rental rates to passengers during
flight booking.
Leveraging the Software Ecosystem - Towards a Business Model Framework for Marketplaces
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Figure 1: Framework of Business Models.
Controlled Model: In the controlled model
market entry is also regulated by the marketplace
operator. However, unlike in the restricted model,
the controlled model allows for competing services,
which puts more pressure on the service providers to
differentiate. The controlled model is favorable in
particular for companies with strong brands and/or a
large customer base, which attract a large number of
partners who try to skim market shares. Apple’s App
Store is a prominent example for the controlled
model.
Delegation Model: Marketplace operators that
follow the delegation model assign each service
category to a selected partner. These partners act as
category managers, very similar to the stationary
retail industry. There, category managers “are
responsible for integrating procurement, pricing, and
merchandising of all brands in a category and jointly
developing and implementing category-based plans
with manufacturers to enhance the outcomes of both
parties” (Basuroy et al., 2001).
The category manager has specialized
knowledge and resources in his specific domain and
receives a revenue share from the marketplace
operator. Through using a category master, the
operator can improve overall performance by
providing the right mix of offerings in areas where
his own expertise does not suffice to select partners.
Open Model: The open model follows a
polypolistic approach by involving a large number
of service providers who serve a large number of
customers. Market entry is solely regulated by
certain rules and guidelines that, once fulfilled by a
service provider, lead to its listing on the
marketplace. There is no control over the price and
often providers are rated by customers. Open model
marketplaces can, for example, be found in
automated reservation systems like hotel.com or
cheapflights.com for services and at ebay.com for
products.
4.3.2 Mediation Channel Models
For products or services that are not standardized but
can be described along a set of parameters, we
identify two different models in which the
marketplace takes over the role of a mediator that
supports the negotiation process between customer
and provider.
Configurator Model: The configurator model
electronically supports negotiations with a single
provider. Customers first select the provider, whose
generic offerings are listed in a certain category, and
then specify their wishes by means of supplier-
provided parameters. The provider typically replies
with a price quote and the offer to purchase “as
specified”.
In sophisticated configurator scenarios, quote
and contract creation is automatized. Examples are
car configurators or configurable PCs and laptops on
dell.com. In other situations, the configurator can
take more the form of a questionnaire to produce
“qualified leads” which are then followed up by the
provider individually and even outside the
marketplace. Consequently, revenue schemes in the
marketplace-supplier relationship can take the form
of listing fees, revenue shares, or “per lead”
payments. In the context of increasing
productization of services (Cusumano, 2008),
configurators are a promising means of productizing
the aspect of complex service sales.
RFx Model: In contrast to the configurator
model, which is applicable in case of a low number
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of providers in a certain category of the marketplace,
the RFx model gives the customer a means of
negotiating with many suppliers at the same time.
The marketplace operator determines parameters
that customers use to specify their wishes. In return,
they receive quotes from multiple providers who
promise to deliver the requested product or service.
This scenario is aptly described as “reverse market”
(Daniel and Klimis, 1999).
The model gives more power to the demand side
and can be applied in highly competitive fields or
when the marketplace owner has low strategic
interests in the partnerships with product and service
providers. Real-world examples include comparison
sites for insurance contracts (e.g., insurancefin-
der.com) or tradesmen services (e.g., myham-
mer.com).
4.3.3 Supportive Channel Models
Products or services that are customer specific are,
by our observations, rarely commercialized in
today’s platform provider marketplaces. Yet, they
complement more standardized offerings and can
benefit the entire marketplace by increasing
completeness. Based on (Rappa, 2004), we identify
four models for their commercialization.
Infomediary Model: In the infomediary
(information intermediary) model, the marketplace
operator plays a vital role in increasing market
transparency (Rappa, 2004). A list of suppliers and
their capabilities for a certain area is provided. The
operator decides about the partners to be listed and
might simply link to their websites for more
information.
In this model, information and transparency are
the main goal and we feel it is particularly suited for
nascent markets that emerge, for example, around a
new line of software products. Consequently, the
software company operating the market place is
interested in promoting its partners to increase own
sales and does not charge a listing fee. Instead, it
helps new partners gain traction in the market,
utilizing its brand name to promote their offerings,
(cp. Chu et al., 2005). An example is SAP’s EcoHub
(ecohub.sap.com) that lists, but does not sell,
partner-provided services and solutions that are
often customer specific.
Affiliate Model: The affiliate model focuses
more on the monetization aspect of the partner
listing – typical models are commissions or pay-per-
click fees (Rappa, 2004). The marketplace operator
still keeps control of which partner is listed but
rather due to strategic and profit considerations – for
example, to sell exclusive listings in some areas.
As in the other supportive models, the customer
has “to contact those who made [the product or
service] for further bilateral negotiations” (Reimers,
1996, p. 76). Emagister.com is an example for a
company running the affiliate model. The site lists
more than one million training courses in twelve
countries but refers visitors to the respective course
provider to place a detailed inquiry.
Community Model: Communities have a long
tradition in the software industry. Most vendors
today provide user and developer communities in
which users support each other or propose new
features (e.g., Microsoft’s MSDN community
MSDN.com). In those knowledge networks,
experiences and expertise are shared among
professionals (Rappa, 2004).
With regard to very specialized or niche markets,
a promising option for marketplace operators is to
use a community model to populate the marketplace
with providers. An existing expert community works
together to identify and rate niche players and their
offerings to provide the best possible choice to other
marketplace visitors. A similar approach is, for
example, applied by Mapquest to populate maps
with information on local businesses through
open.mapquest.com.
Advertising Model: Populating the marketplace
in form of the advertising model, the main focus of
the provider shifts towards commercializing the
traffic volume and the context provided by other
marketplace entries (cp. Rappa, 2004). It is hence a
model suitable for saturated markets with a high
degree of competition. Potential providers pay to be
listed in a certain marketplace category. As strategic
considerations on the side of the platform provider
are absent, any provider willing to pay and meeting
few criteria can be listed.
Ebay.com, for example, even outsources the ad
sales task to Google AdWords and provides their
“sponsored links” in the context of its catalogue.
5 CONCLUSIONS
In our paper, we have looked at marketplace
business models for software companies beyond the
prevalent “standard software” and “30% revenue
share” paradigms. The resulting framework shows
ten models that we derived both from literature and
real-world examples. As we show, the choice of
model by the marketplace operator predominantly
depends on the degree of standardization of the
product or service, but also on a wide array of other
Leveraging the Software Ecosystem - Towards a Business Model Framework for Marketplaces
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context aspects that we carved out per model.
During the course of our research, we have
evaluated the framework in the context of SAP’s
Commercial Platform, conducting five focus group
workshops with representatives from the market-
place operator role. Further, we have conducted
interviews with potential partners (9) and internal
experts taking on the customer role (16), thus
evaluating the framework through all of the three
marketplace roles. At current state, seven out of the
ten models were selected for future use by the
experts. This demonstrates that, in practice, different
business models are needed to commercialize
different types of products or services. Our
contribution hence broadens the view of software
ecosystem-based marketplaces in theory and
practice. The theoretical and practical contributions
may serve decision makers as a starting point for
their business model innovation plans.
Future research could assess the framework’s
applicability to other contexts of platform industries
to arrive at a more generalizable and more
systematic description of the marketplace business
models. Based on these foundations, a process
model for selecting the right model in a specific
context could be developed. Such a process model –
e.g., a decision tree or software tool – would support
less knowledgeable users in finding the right
business model.
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