Understanding Cloud Marketplaces
New software emerges almost daily to simplify and streamline our work. So why is buying and selling enterprise software still such a laborious and painful process?
It’s ironic, I know. But fortunately, we’re living in the era of the cloud. Cloud spending continues to soar at an astonishing pace. For 2021 alone, Gartner has forecasted growth of 18% — with over $500 billion of that going to enterprise software. But companies aren’t just spending to build with the clouds — they are buying software in a new way.
Our State of Cloud Marketplaces Report in 2020 revealed that nearly half of software buyers purchased software through a Cloud Marketplace in the previous year, and 74% say they’re likely to use Marketplaces for future purchases. And savvy sellers have already caught on. More than 35% of the 2020 Forbes’ Cloud 100 companies actively sell on Cloud Marketplaces (Amazon Web Services, Microsoft Azure, or the Google Cloud Platform).
Just as the cloud has revolutionized development, security, and scalability, Cloud Marketplaces are adding a much-needed go-to-market channel for enterprise software sales. But what exactly are Cloud Marketplaces? Who are they for, how do they work, and why are they catching on?
First, a little history. In their infancy, Cloud Marketplaces were basically digital bulletin boards. Buyers could purchase usually short-term software usage, mostly for DevOps and infrastructure. Fast forward a few years, and today’s robust Marketplaces bear little resemblance to their predecessors. Their virtual shelves are brimming with innovative technologies, and inventory continues to expand. Marketplaces are now full-fledged procurement options that take the friction out of B2B transactions by offering simplicity, speed, and incentives for buyers and sellers alike.
A Seller’s Paradise
It’s true in any industry: If you want to succeed in sales, go where the money is. For software vendors, the money is in the clouds.
Software companies are spending massive amounts of money with the cloud providers and are dedicating larger and larger pools of budget to them. Enterprise customers are making multiyear, usually multimillion-dollar spending commitments (often in exchange for discounts). This means they actually are incentivized to make their software purchases through the Cloud Marketplaces to “draw down” that spend, giving sellers access to otherwise unclaimed budget dollars.
That’s not all. Software sellers are driving up revenue by teaming with cloud providers on co-sell opportunities, which significantly expand their prospect pool. In a co-sell arrangement, Providers incentivize and reward software sellers for closing deals that drive up cloud consumption. Everybody wins.
Flexibility is another big win for marketplaces. Sellers can choose how they’d like to structure their transactions, allowing them to test new models and pricing packages or keep the Marketplace sales motion as close to their normal process as possible.
A Boon for Buyers
Through the direct sales route, enterprise software procurement takes a lot of time, not to mention the risk for issues with finance, legal, and vendor management teams.
It’s not surprising that buyers would flock to a faster alternative. Marketplaces vastly accelerate the procurement timeframe, especially for initial deals. There’s much less red tape and far fewer cross-departmental approvals are needed. Buyers can leverage their existing relationship with their cloud provider to transact seamlessly with marketplace sellers.
Marketplaces also enable the ever-valuable vendor consolidation, so buyers get more of the software they need with fewer vendors, contracts, and details to manage. Even better, buyers receive a single bill from the cloud providers with all their infrastructure costs and software purchased through the Marketplace. This lifts a tremendous burden off vendor management and finance teams.
Like sellers, buyers are drawn to the committed spend benefit. They’ve agreed to pay millions through their Cloud Providers, so given the choice, they’d prefer to make purchases that count towards (and reduce) their commitment.
So, What’s the Catch?
Software buyers and sellers both enjoy the unparalleled ease, convenience, and speed that come with transacting on cloud marketplaces. So why aren’t all software vendors jumping to get a piece of marketplace action?
The barrier to entry is steep. Getting listed as a seller on the marketplaces is a big undertaking and requires deep technical expertise. It means pulling two developers off of the core platform for 4-6 months, on average, in order to build the integrations needed just to get listed. And that’s after having to make sense of thousands of pages of documentation.
Since each marketplace has its own rules, APIs, configurations, and language, the learning curve is largely trial-and-error. It’s not as easy as repeating the same steps across each Marketplace.
Beyond getting listed, the cloud marketplace is anything but a “build it and they will come” proposition. Like any other sales channel, marketplace listings require ongoing attention, promotion, enablement, and refinement to get the best results.
Increasingly, forward-looking software vendors who recognize the potential of the cloud marketplace are bypassing the do-it-yourself approach and, instead, turning to specialists for assistance. Platforms like Tackle enable sellers to list and start selling in weeks on any, or all, Marketplaces with no engineering resources required.
The bottom line: Parties on both sides of software transactions are more than happy to ditch inefficient, complex sales processes of the past. Sellers are now investing more in cloud marketplaces as a go-to-market channel. And they are seeing returns in the form of more and bigger deals done at previously unimaginable rates.