Many have little if any funding, so they bootstrap themselves.
Being part of an ecosystem gets them immediate access to a large customer base they can immediately sell into without huge marketing costs.
Xero has sent more than 240,000 web referrals to Add-on partners in 2012 alone.
The cloud has made the huge but fragmented small business market reachable.
Instead of software firms mailing out updates and requiring installation of CDs, small businesses can try hundreds of new applications through their web browser. Add-on application providers can be of all sizes and come from all over the world.
Start-ups see it as a superb low-cost entry opportunity, while larger companies can very quickly create more of a solution offering of their emerging or established cloud services.
Small business owners have been terrified of the cost of making software work together but in the cloud the solutions are pre-integrated and just work and mobile capability is also the norm.
The implications of the wider growing small business software ecosystem are mind-boggling.
Xero and our partners are updating software every six to eight weeks and often even faster - there is nothing for the user to install.
The need to use server-based software and hardware is all but gone, removing a major technical and cost headache for small business owners.
Not only are there cost savings because the IT integration has already been done, but it consequently makes highly integrated solutions available to a whole new range of small businesses who may never have considered or been able to access them.
It democratises technology in business like never before.
I believe that for every new job at Xero (we have more than 350 staff now) there are even more jobs being created with ecosystem partners. We're seeing cloud-based accounting firms, bookkeepers, trainers and add-on partners springing up every day.
The network effects are amazing, with everyone benefiting from the activity and innovation in the network.
New young companies are working together and comparing themselves with each other and that is spurring a whole new wave of beautiful business applications (see sidebar).
In the 1990s, Microsoft spurred thousands of new software companies using their tools to build new applications. In the 2000s Salesforce kicked off the concept of integrated applications, but that was over their platform.
This small business internet is businesses and business applications talking together and we're just seeing the very early phases of it.
Attaching to an ecosystem is a great way for new and young companies to get started. Not only can they piggyback on the market created by the platform provider but they will gain experience by working alongside bigger companies.
Fast growing ecosystems are therefore a great place to see and foster innovation.
Innovators in the ecosystem
Kevin Mann - Silicon Avenue
"There is a wide variety of cloud-based software available now, and developing a successful product requires that it be better than the others in its particular niche. For software development companies like us at Silicon Avenue, this means concentrating on developing the features that differentiate the product, not developing the infrastructure, or features that are also widely available elsewhere. Our Procision+ and TidyStock products are implemented on Microsoft's Azure public cloud infrastructure platform, and integrate with Xero's accounting platform, as well as other cloud storage and CRM products. We can pour the resources we save with these integrations into developing the parts of our products our customers find new and exciting. Cloud-based software products like ours also rely for their success on reaching a large, global audience. The marketing platform provided by Xero allows our products to be more easily discovered by our potential customers, through add-on listings for the platform - the time and money spent by Xero in increasing market share also increases the exposure for our products. The critical mass of these niche software products has also provided us the opportunity for integrations between the add-ons as well as with the platform, leading to product combinations working together to provide even more powerful feature sets for our customers."
Vaughan Rowsell - CEO, Vend
"With Vend being part of a wider online ecosystem, like Xero's, it means we can all share customers looking for seamlessly integrated solutions. We can collaborate on ideas that only really become possible when you combine the best-of-breed apps and create awesome new experiences for our combined customers. And we all leverage off of each other's innovation, so when new features are released in Vend, we make sure our Xero users leverage them too."
Greg Murphy - FounderUnleashedSoftware.com
"Unleashed inventory software is part of an ever growing global online community of business applications. This growing ecosystem is expanding rapidly, not just in numbers but also in mobility, connectivity and functionality. By being part of this global ecosystem, Unleashed has been forced to innovate quickly and methodically in software infrastructure, functionality and relating services. Due to working closely with software partners like Xero, Vend, GeoOP and Magento, Unleashed has been able to develop key functions and integrations to suit the need of the real users. Being part of a cutting-edge ecosystem puts the pressure on to do things right, and think big."
