The Opportunities and Architecture of Application Marketplaces
By Frederick Chong, Architect, Microsoft

The Long Tail Market Opportunity

The software industry is currently at an inflexion point where the reward of "long tail economics" is garnering significant attention from technology entrepreneurs and innovators alike. Many are wondering if the same business model that Amazon, Netflix and iTune used to build their success can be similarly applied to make money in the markets of long tail software consumers and niche applications.

Although it has always been common knowledge that there is significant untapped software revenue in the small-medium businesses (SMB) market, this long tail market has been largely ignored by major software players up till the recent advent of the Software as a Service computing model.

Aside from SMBs, there are also increasing opportunities for software developers to make money through niche applications. At the moment, Facebook is perhaps the best evidence of a successful long tail application marketplace.

However, social network applications are just one type of a monetizable long tail application. Thousands of other custom applications have been created for specific user and business scenarios. Many of these applications are not publicly available or reused, never mind reselling to third parties. With an appropriate online market channel in place, these niche applications could become the merchandise of a profitable long tail application market.

In Chris Anderson�s landmark book "The Long Tail", he noted that the three forces that drive the long tail business models of Amazon, Netflix and iTune are:

• Democratizing the tools of production
• Democratizing distribution
• Connecting consumers and producers

It turns out that these three forces (and an additional one for democratizing monetization) are just as essential for stimulating the long tail software economy.

Application Marketplace Architecture

The long tail software economy is not a prediction about the future. The presence and works of the four forces are already evident in current technology business trends, and most recently, in the increasing attentions placed on application marketplace development.

At Microsoft, we have been prototyping an application marketplace constructed with four loosely coupled modules: marketplace services, application designer and workspace, business operation services, and social networks. These four modules work together to provide an end-to-end solution implementation that would put the long tail forces into play.

Marketplace Services

Marketplace services offer two major buckets of features to ISVs and end user customers: an application catalog that functions as a directory for publishing, discovering, viewing and buying applications; and a set of administration applications for managing account profiles and performing business transactions at the marketplace.

Business Operation Services

While the marketplace services provide the public interfaces for the marketplace customers to publish applications and perform commercial transactions, the business operation services are a collection of infrastructure and management services that operate behind-the-scenes to support the marketplace services.

Social Networks

A social network at the marketplace not only enables the applications users and providers to interact with each other, it also relies heavily on user-generated content to help users find quality applications and to provide ISVs with market intelligence.

Through a ranking and reputation system, users can get a sense of what other users think about the usability and quality of the applications. These opinions also serve as information that the application providers can use to improve on future versions of the applications.

Application Designer and Workspace

The application workspace is the container that hosts the user interface for business users to interact with the applications. An application designer implements the development environment for creating applications that can be imported and exported out of the runtime environment as metadata, which can facilitate the process of publishing and subscription applications to and from marketplaces.

Conclusions

To partake in the application marketplace actions, some businesses may immediately identify existing business functions that can be enhanced by adding the architecture components mentioned above.

• A hoster can focus on creating specific hosting environments for applications sold at their affiliated marketplaces.
• A well-established value-added reseller with existing business relationships with SMBs in its specific geographies could expand its reach and services by creating and offering application marketplace services to attract additional ISVs, hosters and SMBs.
• An enterprise may want to transform itself to become the (social network) "hub" of business interactions for its existing suppliers, customers and channel partners. By leveraging network effects, this hub could garner a significant user base that in turn becomes a magnet for attracting third parties to create and sell business applications.

In a nutshell, application marketplace is not a single player game � it presents opportunities for all to blaze new money trails in the new long tail software economy.