Hi, it's Roman and welcome back to the Partner Insight newsletter!
The cloud is accelerating before our eyes with customer commitments reaching new incredible heights this quarter. No wonder why almost half of SaaS companies are now leveraging Cloud GTM, according to recent data.
But knowledge is only half the battle. To truly seize this opportunity, you need actionable strategies and insight from experts and peers. That's precisely what our Cloud GTM Leader Course delivers. Cohort 7 kicks off Sept 10th, and early bird pricing ends this week, so don't wait.
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$370B Commits Locked In as AI Fuels Hyperscaler Growth
Last quarter, hyperscalers increased their customer revenue commitments to a staggering $370Bn, with AI emerging as the undisputed cloud catalyst. Let's unpack key insights and what this means for the industry:
The Numbers: A $22Bn+ Surge in 90 Days
Amazon Web Services (AWS): $156.6Bn(-$1.1B QoQ)
Microsoft Azure ~$134.5Bn* (+$17Bn QoQ)
Google Cloud: $78.8Bn (+$6.3Bn QoQ)
Total: $369.9Bn
* Conservative estimate: 50% of Microsoft's total commercial backlog
As the collective revenue backlog continues to grow, Azure is noticeably catching up with AWS. Last quarter, AWS's headstart was $40Bn; this quarter, it's "only" $22Bn ahead. The real spread might be even smaller, given our conservative Azure estimate.
AI: From Buzzword to Multi-Billion-Dollar Business
All three hyperscalers cited AI as a major growth driver, with both Microsoft and AWS touting AI as a multibillion-dollar revenue run-rate business.
Azure was the most specific, attributing 8% of its 29% growth to AI (up from 7% last quarter and 6% the quarter before). Microsoft also reported AI service demand exceeding their capacity, signaling significant growth potential as infrastructure scales.
AWS's CFO Brian Olsavsky highlighted that customer demand for AI services is "amplifying" AWS cloud sales.
AI Dominates the Conversation
Even as hyperscalers continue to massively increase their infrastructure spend, AI discussions dwarf mentions of capex. In this quarter's earnings calls, AI was mentioned a staggering 168 times across Amazon, Microsoft, and Alphabet - more than 4X the mentions of capital expenditures.
One of the reasons is AI's future potential, as emphasized by Amazon's CEO:
"In the generative AI space, it's going to get big fast and it's largely all going to be built from the get-go in the cloud..."
Partnerships as a Competitive Edge
Strategic collaborations, like Google Cloud's partnership with Oracle signed in June '24, continue to open new avenues for growth. This partnership offers customers seamless integration of Oracle's database services with Google's AI capabilities.
Data is Essential
AWS and Microsoft CEOs recently re-emphasized that data is critical to leveraging AI. Companies with clean, cloud-ready data are now ahead in AI adoption.
Amazon's CEO noted: "When we work directly with customers, as well as with systems integrator partners, everyone is in a hurry to get going on generative AI, and one of the first questions we ask is 'show us where your data is, show us what your data lake looks like...'"
This surge of AI-driven cloud adoption creates a critical need for partners who can help enterprises unlock value from their cloud investments.
A substantial share of the $370Bn will be spent on cloud marketplaces - are you scaling your growth there?
Read my detailed breakdowns of each of the hyperscalers updates in the last quarter:
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SaaS Leans on Channel & Marketplaces, as Partners Cut Sales Cycles 25%
In the last year, companies with >30% channel revenue shortened sales cycles 25%. Those who sell directly? They saw 10% longer sales.
This is driving a major YoY increase in channel revenue across SaaS. Cloud Marketplaces are now a top 3 partner channel, used by 47% of software companies.
Let's dive into the data.
ICONIQ Capital, managing $83.5Bn in tech investments, recently released a report on the state of SaaS GTM 2024. Drawing insights from 150 GTM executives at leading B2B SaaS companies, it reveals major shifts in sales strategies of software companies.
Channel Revenue Share Increased Across Sectors YoY
Infrastructure companies are leading the charge, increasing the share of channel revenue from 25 to 30% (+5%) YoY
This share of channel also went up in horizontal SaaS, where it's now 24%, and vertical SaaS (+2%).
Chanel Efficiency Gains
But it's not just about revenue diversification.
Channel partnerships are proving to be a more efficient sales motion.
Companies with >30% in channel revenue decreased their average sales cycle by 25% between 2023 and 2024.
Those without channel focus saw a 10% longer sales cycle.
$100M Inflection Point: How Partnership Share of Revenue Increases with Scale
Data reveals a clear trend: as companies scale, they increasingly rely on channel partnerships.
For companies <$25M ARR Channel/partnerships revenue hoovers at 22%.
Channel/partnerships revenue share grows to 26% for those $250M+ ARR.
Companies in the >$100M range see a notable jump in channel revenue to 24%, suggesting this may be a critical scale for partnership maturity.
Infrastructure companies with 100M+ in ARR drive 33% of revenue on average.
Horizontal SaaS - 24%
Fintech - 28%
The most striking trend?
The rise of cloud marketplaces of Amazon Web Services (AWS), Microsoft Azure, Google Cloud, now leveraged by 47% of software companies.
ICONIQ underscores:
"While reseller, system integrator, and referral models have been historically common across the SaaS ecosystem, channel leaders are turning their attention to cloud marketplaces as the future of partnerships."
But Why the Channel Shift? SaaS Sales are NOT Getting Easier
Headlines from the same report summarize the challenges:
Over the past year, top quartile ARR growth has decelerated for companies amidst a challenging go-to-market environment
New logo velocity has slowed as well, with the exception of companies <$25M ARR
Net dollar retention has decreased in conjunction with ARR growth
LTV:CAC ratio and net magic number have declined year over year for companies regardless of ARR scale
Measures of Sales and Marketing productivity have declined for most in 2024....
How are your adapting GTM strategy in response to these trends?
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How AI is Transforming Cloud GTM and Partnership Playbooks: Insights from Industry Leaders
AI is accelerating cloud ecosystem growth, but it's not a solo game. 🤝 How are successful SaaS and AI companies adapting their cloud GTM playbooks for the AI age?
I asked 3 industry leaders:
Neeti Gupta - Founder and CEO of AI Partnerships Consultancy, frm. at Microsoft, Meta, Amazon, VMware
Yan Zhang - AI Operator and Investor, frm. COO at PolyAI
Jonathan Kingsepp - Cloud GTM Mentor and Advisor at Partner Insight with CXO-level experience in Invisory, Tackle, OutSystems, Pivotal
Here's what they told me. Watch the episode or read key insights below.
Partnership strategies are quietly transforming
In our latest podcast, Neeti Gupta, CEO of AI Partnership Consultancy and alum of Microsoft, Amazon, and Meta, unpacked this shift:
"Partner playbooks are changing... one-on-one partnerships are happening. Then there'll be the democratization of the tools where basically, what I call the AI to API wave is going to happen…. and then finally the agent phase where the automation will happen."
Meanwhile, many try to apply AI to GTM on a tactical level:
"From an ISV perspective, I see a lot of trial and error in the go-to-market side of it. And that includes building intelligent bots or assistants that will improve maybe the response from an introduction through a co-sell program at one of the hyperscalers," explained Jonathan Kingsepp, Cloud GTM Mentor and Advisor at Partner Insight.
Data and customer value drive AI partnerships
AI is a game-changer, but not a magic bullet. Successful cloud partnerships will be built on data, customer value, and integrations.
"Right now, data is the best value add you can provide... if you, a legacy company, have a large customer base and can provide certain kinds of data that is not available to any of these companies and you can monetize that, that is kind of the Holy Grail," Neeti Gupta highlighted.
Cloud Marketplace success requires a long-term view
Amidst the AI hype, it's easy to overlook the importance of relationship building and partnership efforts.
Yan Zhang, former COO of PolyAI, noted on their journey to become one of AWS's key partners: "It could take years between signing up to be a partner and when you have the deal flow...it's a lot of networking within the ecosystem."
Service partners are crucial, especially for AI companies
"I always push people to think about selling the result, right? Selling the end result rather than just the software because a dirty little secret about people who worked in AI...is that it doesn't always work all that well," Yan underscored.
The implication is clear: AI will be a rising tide that lifts many boats in the cloud ecosystem.
However, hyperscalers aren't just looking for AI buzzwords - they're looking for partners who can bring unique value to their ecosystem.
To capitalize on this opportunity, ISVs and channel partners need to think strategically where they have an edge - whether through data, industry expertise, or custom solutions.
What’s your unique advantage and how can you leverage it to become a key partner to hyperscalers?
The answer may define your new cloud GTM playbook.
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