One of the activities we are engaged in is the cloud marketplaces run by the large public cloud providers. These marketplaces provide an alternative channel for software and services companies apart from the more typical direct sales or reseller/distributor models. Many customers ask about options to buy our product via one of these marketplaces – which has given us some tips for others interested in purchasing this way.
Given the “app store model” that has been so widely embraced by consumers (App Store, Google Play Store etc) it’s not surprising that the cloud providers see an opportunity to leverage their customer footprint and derive revenue share when customers choose to purchase via their marketplaces. For customers, it can be a way to consolidate bills, get discounts, and simplify administration.
How Cloud Marketplaces Work
The business model is simple. The Cloud Service Providers (CSPs) charge a percentage of revenue based on the value of the purchase price being paid by the customer. Companies list their products to reach buyers who they would not otherwise reach, or provide a purchasing method which better suits the customers needs since they can add the cost of the purchased product onto their monthly cloud bill thus avoiding complex new procurement / purchasing arrangements. The CSPs obviously hope that the value proposition is strong enough to warrant the sellers giving up some margin in exchange for net additional sales or sales which would be otherwise overly complex to close and bureaucratically burdensome.
Currently, we only participate in the AWS Marketplace, but there are similar options available in the Azure Marketplace and the Google Cloud Marketplace. The largest and seemingly most well stocked is that of AWS where there are close to some 10,000 listings from a broad range of software vendors. In fact, Gartner estimates that some 25% of global 1,000 organizations are using such online marketplaces. Forrester reports that as much as 40% of all B2B transactions are through digital sales channels. And a 2112 Group Survey reported that 11% of channel executives believe marketplaces will drive the majority of their indirect revenue as soon as 2023.
These organizations claim the benefits as being: a lower sales/buying cycle time; ease of use, increased buyer choice; and ease of provisioning and deployment. Additionally the promise of leveraging the CSPs own account managers to support co-selling on specific opportunities and the potential for them to act as lead sources, albeit we imagine these need to be larger deals and part of a broader relationship between the CSPs and their most valuable ISV customers. Still finding and aligning with CSP sales reps who get to retire quota by selling your product via the marketplace especially if it means those same reps get to sell more of their core cloud services.
Opportunities to offer alternate sales models can also be made available through the marketplace. For example, charging on a metered basis where the customer only pays for what is used and has this cost added to the bill (rather than a fixed monthly fee) or via longer term contracts secured over two or three years at discounted rates.
Those companies that have managed to optimize their offerings in partnership with CSPs and have developed co-developed / co-branded products have the potential for a lot of upside. Databricks partnership with Azure and Snowflake and Datadog with AWS have driven enormous growth and helped them build unicorn sized businesses within a few years.
One area which has been somewhat frustrating is the ability for customers to discover appropriate software products to meet their needs within the marketplaces. In part this is a similar challenge as faced in consumer-facing app marketplaces where there is an overabundance of products and the categorization and search algorithms are often weak. This leaves the sellers (particularly the lesser-known ones) frustrated and customers unable to determine what software is best to meet their needs. In our own cost optimization space this has many different dimensions and lots of offerings often
Tips for Purchasing on the Marketplace
So what do buyers need to know about these marketplaces and making them work to your advantage? To help answer this we have included a short checklist of tips and considerations.
- Always carefully check that any products you wish to research or purchase are listed in the marketplace. Despite the likes of Amazon and Google running these, the listing can often be hidden and categorized in unusual ways so if you do not find it listed always contact the vendor and ask.
- Marketplace pricing can often differ from buying directly from the vendor. Products might be bundled in certain ways or for different time periods (e.g. multi-year) which are not offered via a direct purchase. Additionally, all three of the large CSPs allow for a concept called Private Offers. These are uniquely negotiated between buyer and seller and allow for custom agreements such as additional discounts, different payment schemes, etc.
- The vendor’s pricing model can sometimes differ from buying directly given the availability of metering options i.e. paying only for what you use. If this is something available it will typically require some analysis to determine which model might deliver the greatest ROI.
- If you have an existing relationship with your account manager at the CSP it might be worth seeing what additional discretionary incentives might be available for use of the marketplace.
- Determine the potential reduction in administrative burden by adding the product cost to your monthly bill can be a worthwhile exercise. Minimizing purchasing and procurement team involvement as well as monthly processing of invoices by the finance team can alone be advantageous even if there is not a significant cost saving when buying in the marketplace.
Depending on your situation, there may be other considerations but what is for sure is that managing multiple marketplaces requires time and resources. If you have not already investigated these, either as a buyer or a seller, now might be the time to have a look.