Hyperscalers are taking a page from Amazon's playbook, growing 3rd-party marketplaces š 10X. They're transforming from infrastructure into ultimate software platforms, all while reshaping SaaS distribution at an unprecedented scale.
š Evolution of Amazon's Business Model
Amazon's model offers a blueprint on how scaling a 3rd party marketplace plays out. In e-commerce, 3rd-party sellers are now ~60% of Amazon's direct revenue, growing at 3X rate that of their own e-commerce (18% vs 6%).
For Amazon Web Services (AWS) the stakes are much higher. Despite accounting for only 16% of Amazonās revenue, it drives a staggering 63% of the company's operating income.
The slowing growth of AWS, from 33% YoY in Q2 ā22 to 12% YoY in Q3 ā23, prompts the question: how can AWS accelerate?
š” Cloud Marketplaces: Replication of Success
Amazon's success with 3rd-party sellers in e-commerce is an obvious answer. By expanding products that run on AWS, the company set to drive significant growth.
Today, cloud marketplaces are already making headlines. Recent case studies that went viral of CrowdStrike achieving $1Bn in sales since 2017. For companies like Wiz, Palo Alto Networks, Okta and 1000s of others, marketplaces are becoming one of key channels.
šÆ 10X Potential
While significant growth of cloud marketplaces so far only represents a fraction of their full potential.
Tackle.io recently estimated that $15Bn will flow through key cloud marketplaces in 2023. With AWS ~40% market share, we arrive at $6-9Bn of their marketplace sales, or <10% of their ARR this year.
Benchmarked to the share of 3rd-party sellers in Amazon's e-commerce, the growth for the AWS marketplace over the next 5-7 years could be 10X+.
āļø Driving Consumption & Network Effects
The significance of growing 3rd-party products for hyperscalers extends beyond cloud consumption. UK regulator Ofcom's research highlighted that all hyperscalers aim to make cloud marketplaces the primary online distribution channel for both first-party and 3rd-party solutions.
It noted that while marketplaces are not yet a major revenue source for hyperscalers, they ācan act as particularly powerful generators of network effectsā, specifically for customers who use marketplace to buy with cloud commits.
š„ The Ultimate Cloud Platform Race
As IT spending shifts towards software rather than infrastructure, becoming the first-choice platform for ISVs is crucial for hyperscalers. With AWS, Microsoft Azure, and Google Cloud marketplaces already hosting 10X more 3rd-party listings than their own products, the race to bring as many SaaS solutions as possible and make them successful is heating up.
This competition will drive the growth and innovation in marketplaces.
Looking ahead, they will be not just distribution channels, but true new platforms shaping the future of SaaS.
How are you leveraging this shift in your partnerships?
__________
š Accelerate your Growth in Cloud Marketplaces
Transform your marketplace strategy with first-hand insights from Cloud GTM leaders in our 5-week cohort course. Learn in a community of great alliance leaders. Join 100+ alums from companies like GitLab, Darktrace, IDC and others.
Comments