Update: A new 2022 report from IDC has been published here.
Our business model fundamentally is about creating more surplus outside us. We will only be long-term successful if people are making more money around us.
That quote from Satya Nadella, CEO of Microsoft, from a few years ago, resonates deeply with me. I don’t think it’s a coincidence that Microsoft is now a $1.7 trillion platform company.
People can argue a thousand different definitions for what makes a “platform” great. It needs to be a rock-solid foundation that people can rely on. It needs to be extensible so people can innovate on top of that foundation. And it needs to bring continuity and coherence to the universe of specialized solutions that revolve around its gravitational center — enabling the whole of a customer’s connected stack to be far greater than the sum of its individual parts.
All those characteristics are important.
But the real magic happens when companies in a platform’s ecosystem are able to build businesses that collectively generate multiples of more revenue than the platform company itself. Because that multiplicative economic opportunity creates a strong, long-term bond between the platform and its partners.
That solid economic bond assures customers of the stability of betting on the platform and its partner ecosystem for building their businesses. In turn, this attracts more partners, growing the ecosystem further, thereby attracting more customers, which attracts more partners… and an incredible flywheel takes flight.
In this case, a flywheel generating nearly $19 billion in new opportunity for ecosystem partners over the next few years.
Before continuing, let me disclose that this is one of those rare occasions on this blog where I’m promoting what’s happening at HubSpot, where I’ve been happily serving as VP of platform ecosystem for three-and-a-half years. So you can factor in my inherent bias. But I wanted to share this with you for two reasons:
- HubSpot has truly become a major CRM platform in the martech industry, with over 100,000 customers worldwide, over $1 billion in ARR, and an anticipated $6.4 billion in revenue for our ecosystem partners in 2021. That’s newsworthy, regardless of my bias.
- The dynamics around HubSpot’s ecosystem are scale-free patterns relevant to almost any company building a platform. Since I believe platforms, networks, and marketplaces are one of the major trends all marketers will deal with in this decade, I think you’ll find this useful as an example to draw upon.
The HubSpot Ecosystem: Nearly $19 Billion in New Opportunity Ahead
Last week, IDC released a white paper that sizes the ecosystem of products and services around HubSpot’s platform. As seen in the chart above, they estimate that companies in HubSpot’s ecosystem will earn $6.4 billion in revenue this year — and nearly double those earnings to $12.5 billion in 2024.
The “nearly $19 billion” in new opportunity is all the additional ecosystem revenue that IDC predicts in 2021-2024, above the baseline for $4.8 billion of revenue to the ecosystem in 2020.
The distribution of that revenue is:
- 57% for IT and professional services
- 34% for add-on software
- 7% for resale commissions (paid to partners by HubSpot)
- 2% for additional infrastructure
I’m particularly excited by the add-on software portion of ecosystem revenue, as it attests to how more and more companies from across the martech landscape are successfully building deep integrations to HubSpot to tap into this rapidly growing market.
That’s $2.1 billion in add-on software that will be purchased from our ecosystem in 2021. In 2024, that number will be $4.2 billion.
This is great news for HubSpot customers, as more of the apps they use throughout their business integrate directly with their HubSpot CRM — connecting their whole business together for greater digital efficiency and better experience delivery. And when they want to add new functionality to their stack, they have a number of excellent options to choose from.
But the chart in IDC’s research that really made me smile was this one:
For every $1 in revenue that HubSpot earns this year, software and services businesses around our platform will earn $5.60 in revenue. In 2024, that ratio will be $6.16 in ecosystem revenue generated for every $1 of HubSpot revenue.
As Satya Nadella would say, “People are making more money around us.” Billions, in fact.
That’s a platform.