Based on the hefty valuation, last week’s announcement that Salesforce will acquire Mulesoft for $6.5 billion has caused significant buzz about the golden age of enterprise SAAS. More accurately, it’s a story about the rise of “middleware” as a hot category.

What is middleware? Middleware has always been one of the most unsexy categories in enterprise software. The CEOs of middleware companies often describe their businesses in such unflattering terms as “pipes,” “plumbing,” “Switzerland,” or “glue.” Employees of middleware companies usually struggle to describe their jobs simply to their friends and prospective employees. But the value middleware provides — and the business model underlying it — can be phenomenal.

A middleware company is a company that helps to make software apps interoperable. For example, if a company has payroll data sitting in its HR software, and wants that data integrated into its accounting software, it needs a service like Mulesoft to serve as “pipes” between the two systems.

Interoperability is the new black. While Mulesoft has carried the banner, the middleware category as a whole has been exploding in the last decade, with several recent IPOs and hundreds of venture-backed companies forming.

Middleware companies usually focus on a particular niche of interoperability: for example, the startup Clever focuses on middleware specifically for schools, ensuring that student data is portable across all educational technology apps. Analogous industry- or function-specific middleware companies have emerged for IT (Snaplogic, Okta), marketing and customer experience (LiveRamp, Improvado, Segment, MParticle), finance (Plaid), HR (Zenefits), BI (Domo), healthcare (Ciox, Universal Patient Key, Datavant), consumer (Zapier), and many other verticals.

The reason so many middleware companies have emerged is because of fragmentation, one of the most dominant trends within enterprise software. It has become dramatically cheaper to launch a SAAS product than ever before, and as a result many more “point solution” businesses have emerged that are best-in-class at a particular task. Most large enterprises now have technology stacks that include several thousand best-of-breed vendors; in marketing, for example, the typical large brand has gone from managing its campaigns with just a dozen vendors to several hundred vendors over the past 20 years.

As the number of vendors has expanded, interoperability becomes a more and more critical feature — and the category of middleware has taken off.

Why the high price? Mulesoft sold at an incredible revenue multiple due to its quick growth and highly-defensible business model. This is a result of the network economics that define middleware companies: they are slow and expensive to get to scale, but once there is scale, growth becomes automatic and sticky.

The core network effect for a middleware company is the number and quality of integrations. When a middleware company starts, no software apps have an incentive to integrate, so the company has to bootstrap its initial integrations between uncooperative vendors. But once a middleware company begins to reach scale of clients, all of the apps want to integrate, and volunteer to do the work on their end. As more apps get added to the ecosystem, the caliber of the product improves, driving a virtuous cycle of more and more adoption and more and more revenue.

What’s next? For the last decade, middleware has been an unsexy category with an attractive underlying business model, quickly growing because of underlying industry fragmentation. The Mulesoft deal has brought visibility to the category, and will likely spawn the emergence of even more middleware businesses (as well as more consolidation of existing middleware players). This is great for enterprise software as a whole: interoperability lifts all boats. Long live the golden age of middleware.

Travis May is CEO of Datavant, Chief Growth Officer of Acxiom (NASDAQ:ACXM), and former CEO of LiveRamp.

Thanks to

Auren Hoffman

for his ideas on this topic.