AppDirect lands $9M in Series B, buys Standing Cloud

Consolidation in the cloud app marketplaces for small- to medium-sized businesses

AppDirect, a provider of white-label marketplaces for business apps, raised $9 million in a Series B round, led by INovia Capital, with participation from existing investors. The new round brings AppDirect's total funding to $20 million since being founded in 2009.

Along with the new financing news, San Francisco-based AppDirect also unveiled that it bought Boulder, Co-based Standing Cloud, a startup founded in the same year with a similar-though-complementary offering targeted at the same small- to medium-sized businesses (SMBs). Standing Cloud had raised $10 million in venture financing, from top VCs, such as Foundry Group.

Distribution is everything when it comes to scaling a company, and it looks like AppDirect figured out its distribution model a lot faster than Standing Cloud did.

AppDirect essentially works with channel partners, such as large telecommunications companies, hosting providers and retailers, from Comcast, Deutsche Telecom, Rackspace to Staples (image is of Staples' app store powered by AppDirect). It then white labels app stores for them to offer apps to their business customers. Through these partnerships, AppDirect can target 12 million SMBs, said Daniel Saks, co-founder of AppDirect, in an interview with me. 

The apps available on the store include Box.net, WebEx, DocuSign, Carbonite, etc. "We have over 120 apps in our master catalog and then our partners bring on their own apps," said Saks.

By adding Standing Cloud to the fold, AppDirect can now broaden its app portfolio with other apps, such as Drupal, Magento, SugarCRM and WordPress.  

While Saks wouldn't disclose how many business customers have purchased apps off the white label stores, he did say that AppDirect saw 150% growth in registered users in the last several months. He also said that the average business customer spends about $20 per month, per app, with the average number of apps purchased being three to four. That means, on average, AppDirect's channel partners can expect to upsell more than $720 worth of services a year to one business customer. Saks wouldn't disclose any conversion rates or how the company's partners market their app stores. He did say, however, that for every sale, the app provider, such as Box.net or Carbonite, gets about 60% to 70% of the revenue. AppDirect and its channel partner split the remaining fee, with the channel partner getting the lion's share of the fee because it provides more of the marketing and salesforce behind the app store.

So why would channel partners want an app store anyway? Ease of use and new revenue streams. "If Comcast had to create these arrangements [with all the vendors] it'd be expensive and difficult for them," Saks explained. Additionally, these partners are all looking for new revenue streams. They already have the relationship with the business customer, and AppDirect gives them more services to offer. 

As for business owners, the value in going through Comcast to buy a Box account is that the billing and password information is all the same. Rather than pay Comcast and Box, you'd just pay Comcast. So if you buy a dozen apps on your own, you'd end up with a dozen different bills and a dozen different passwords and IDs. If you purchased your app through one platform, the apps could be organized and managed through one bill and one user ID.  You might also get a discount. 

As apps explode, so do the marketplaces. While AppDirect appaers to be a leading marketplace, there's also Amazon, which offers a one-click access to a number of apps. There's also CloudForge and Rightscale, which has raised $40-plus million and provides a similar offering.