Hi, I’m Roman from Partner Insight,
Welcome to the New Year edition of my newsletter, where I explain the latest Cloud GTM strategies and key 2024 trends in rapidly evolving cloud marketplaces. After a brief hiatus to launch our Cloud GTM Leader course - now a thriving community with alumni from leading companies like Citrix, BMC Software, TD Synnex - we're back to share the latest insights and trends.
Whether you're new to this newsletter or have been with us since the beginning, you're in for a treat. Today, I'll unpack key takeaways from our last event's keynote panel, featuring two industry leaders - Jay McBain, Chief Analyst at Canalys, and John Jahnke, CEO of Tackle.
Our recent event “How to Win in Cloud Marketplaces in 2024” was an incredible culmination of the year, bringing together over 120 of alliance leaders for an insightful exchange of ideas and strategies.
Let’s dive into key trends and opportunities that will shape Cloud GTM in 2024.
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The Big Picture: The Tech Sector Opening Up to Marketplaces
Jay McBain, Chief Analyst at Canalys, underscored the historically critical role of indirect sales, stating, "75% of world trade is sold indirectly." A significant portion of these sales is now transitioning towards cloud marketplaces, marking a profound evolution. McKinsey projects a staggering $17 trillion in B2B transactions moving through digital marketplaces by 2030.
While McBain notes that this “prediction is too fast and too large by 2030,” the mere fact that such vast sums are under discussion is significant. This represents a large, fast-growing opportunity, particularly in the technology sector, which accounts for about 5% of the world's $105 trillion GDP. Notably, two-thirds of the technology sector now comprises services, underscoring the industry's evolution and its openness to marketplace models. "This entire pie is open to marketplaces," as McBain emphasized, highlighting the immense potential of this shift.
Watch key insights from Jay McBain keynote:
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Marketplace Revolution: Reshaping the Economics of Partnering
Previous forecasts suggested that top cloud marketplaces might generate $45 billion by 2025, growing at an 86% compounded rate. However, McBain believes this target might be reached much sooner, possibly by mid-2024. This acceleration can be partly attributed to significant reductions in marketplace fees by Microsoft, Google Cloud, and most recently AWS, all of which have aligned their marketplace fees to 3%.
This adjustment represents a fundamental shift in the economics of partnering, not seen in over four decades. Jay advocates focusing on the value that partners bring to customers both before and after a transaction. He likens the 3% marketplace fee to a consumer credit card swipe, indicating a fundamental change in how the act of collecting customer payments is valued.
McBain astutely points out the misalignment in traditional partnering models:
"In some cases, there was a partner that would join an RFP at the last minute, price themselves a dollar less than the competition, and win the deal. As fast as they took the money, they left the customer high and dry and moved on to the next one. So, paying 20 or 30% margin at that moment, you severely overpaid that partner. But on the flip side, there's a whole half of partners that you underpay. They do all the marketing, they do the selling, they do the engineering, they do the long-term support."
With marketplaces now facilitating transactions for a modest fee, there's a need to realign partner incentives and the value they deliver to customers.
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The Billion-Dollar Marketplace Wave: Reshaping the Tech Industry's Future
In 2023, cloud marketplaces have experienced a remarkable surge, with leading SaaS companies such as CrowdStrike, Splunk, Snowflake, and Palo Alto Networks each announcing turnovers exceeding $1 billion through the AWS marketplace alone. This trend is a powerful indicator of the evolving role of hyperscalers and their marketplaces in the tech industry. AWS, previously anticipated to become a top 10 distributor by 2025, is already making significant strides toward this goal, contending with established giants like TD Synnex and Ingram, which are 50 and 60 billion dollar distributors, respectively. Jay McBain emphasizes, “[AWS] they'll probably be in the top five by the time we have this conversation in 2025.”
This rapid shift towards marketplace dominance is also reshaping corporate go-to-market strategies. McBain notes,
"For the 35,000 vendors that we work with... they are reconsidering how they go to market…how transactions are going to work to get customers."
Marketplaces are evolving from mere sales channels into pivotal components of business strategies and customer engagement models.
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Evolving Partnerships and Millennials’ Marketplace Preferences
The nature of partnerships is changing rapidly. An overwhelming 82% of global CEOs across various industries, including pharmaceuticals and automotive, are investing heavily in partnerships while transitioning their business models towards subscription and consumption-based approaches. As Jay McBain points out:
"These models don't work unless they're wrapped around partnerships."
This transformation is further influenced by the purchasing preferences of millennials, who are becoming the dominant demographic in terms of both quantity and budget control. They prefer purchasing multi-layered solutions through marketplaces, often relying on a group of seven trusted partners.
This trend underscores the role of marketplaces as orchestrators, aligning with customers’ strong preference for integrated solutions. Marketplaces are also simplifying complex transactions by bringing a diverse array of products and services together under one umbrella.
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Embracing the Cloud GTM Strategy: Beyond Initial Deals to Scaled Revenue
John Jahnke, CEO of Tackle.io, emphasized the tech industry's recent paradigm shift from prioritizing aggressive expansion to focusing on efficient growth strategies. This transition has led companies to re-evaluate their GTM approaches, particularly in the cloud space.
Jahnke noted: “Sales productivity and efficiency continue to be an incredibly hot topic for every ISV. Cloud Go-to-Market is part of this story and increasingly being seen as one of the most efficient paths to the customer.”
Jahnke observed a significant change in industry perspective, where the emphasis has transitioned from securing individual deals to utilizing cloud marketplaces as major revenue source. He explained that the goal is no longer just about winning single deals, but about transforming cloud GTM into the company's most substantial channel.
At the same time, Cloud GTM is not one-size-fits-all; the strategy varies significantly based on factors such as company size, cloud maturity, product complexity, and commitment levels. Jahnke emphasizes the importance of recognizing where a company stands in its cloud journey, whether it's a cloud-native startup, a multi-cloud enterprise, etc.
"We're seeing at-scale sellers do more than 20% of their revenue through the Clouds," Jahnke pointed out, highlighting the significant revenue potential of a well-implemented cloud strategy.
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The Cloud Go-to-Market Journey: Tailoring Strategies for Maturity Stage
Jahnke also highlights the rapidly evolving pace of cloud scaling strategies, where companies are transitioning from tentative experimentation to significant, large-scale investments. He notes, "People are making bets bigger and faster than ever before," indicating a fundamental shift in how companies are approaching cloud GTM.
An essential element of this evolution is the adaptability of strategies based on factors, like company size, cloud maturity, product diversity, and commitment level. Jahnke introduces a maturity framework developed by Tackle, which helps companies to identify their current position in the cloud journey and suggests strategic steps for progression.
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Aligning for Success: Mastering Cloud GTM Strategies
John Jahnke zeroes in on the critical role of cross-functional alignment in executing winning Cloud GTM tactics. He identifies a prevalent challenge: internal misalignment, especially between C-suite executives, partner teams, and revenue teams. This disconnect is evident, as he notes, less than a quarter of companies have successfully aligned their co-sell motions between alliances and sales teams, signaling that we're still at an early stage in this transformative journey.
Jahnke further stresses that Cloud GTM is not a short-term goal but a long-term commitment. Drawing on the success stories of tech giants like CrowdStrike and Snowflake, he illustrates that achieving significant results in the cloud space requires time, experimentation, and consistent effort - "it's a journey, it's not a destination". The good news however is that the path paved by these pioneering companies provides valuable insights and practices that can accelerate the success of other ISVs in cloud marketplaces.
Jahnke highlights the importance of building a strong cloud brand, focusing on delivering success for joint customers and effectively communicating those success stories to scale initial wins.
He also notes that sellers' compensation neutrality for selling via marketplaces has become essential, with many companies moving towards a “comp positive”.
He also observes a trend where cloud marketplaces are not just for infrastructure but are increasingly focusing on business applications. "All the clouds are in some process of verticalizing, applying more focus to business applications," Jahnke states, indicating a broadening scope of companies leveraging cloud GTM.
Finally Jahnke underscores the growing significance of public offers in the cloud marketplace, poised to become a new driving force alongside private offers.
”Private offers have driven the majority of revenue this time, but public offers I think will emerge especially this year as a new force.”
He notes a trend in product-led sales through marketplaces, indicating a shift in buyer behavior towards starting their journey directly on marketplaces, rather than using them solely as distribution channels.
Delving into practical insights for evolving cloud market strategies, John Jahnke, focused on the significance of APIs and data utilization. He highlights the growing complexity of integrating marketplace and Co-sell operations, underscoring the importance of automation for scaling Cloud GTM.
Jahnke also emphasizes the increasing role of data in shaping go-to-market strategies, with companies combining various data sources, including SixSense, ZoomInfo, and G2 for more targeted marketing. This approach has notably brought marketing departments, particularly CMOs, into a more strategic conversation within cloud marketplace dynamics.
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The Evolving Role of Systems Integrators and Channel Partners in Cloud Marketplaces
Jay McBain highlighted the significant opportunities for systems integrators (SIs) in cloud marketplaces. For every dollar of public cloud consumption, partners can earn about six dollars in services like implementation and integration, McBain explained, emphasizing the substantial revenue potential for SIs. From a customer point of view,
“if I can do all of that in one place and exercise my credits…I'm now acquiring a total solution and again, procuring, provisioning, integrating an entire solution with one point of transaction - that's the holy grail for system integrators”.
Jahnke noted that the increasing complexity in software offerings, partly driven by AI advancements, places SIs in a pivotal role to guide buyers. He advised SIs not to limit their role to implementation, and instead position themselves “from a broader strategic perspective” in a cloud-forward way for a scalable win next year.
Jay McBain shared that AWS disclosed that 30% of deals are partner-driven, with partners typically playing a crucial role in various transaction stages, from consulting to the final click of purchase. This significant involvement of partners, he explains, is now reshaping vendor programs to better recognize and reward these efforts, emphasizing the strategic value partners hold in influencing customer decisions.
Jahnke added that in larger companies with ARR exceeding $500 million, the percentage of channel-driven transactions is notably higher. He also highlighted that growth-stage companies are increasingly adopting cloud-native channels earlier on.
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The Future of Cloud Marketplaces: AWS, Microsoft, and Google in 2024
Discussing the evolution of strategies among the three major cloud providers - AWS, Microsoft, and Google, Jay McBain highlighted the collective drive of hyperscalers to integrate traditional channel programs into marketplaces.
“The end goal is for them to take what today is a traditional channel program and allow somebody to forklift that into a marketplace to say that all the ways that you incent and engage and enable your partners today that functionality will be there.”
He emphasized the investment by these giants to enrich marketplace functionality, ultimately aiming to redirect sales of software and soon hardware through marketplaces.
Jahnke added that the normalization of programs across these cloud platforms is a strong indicator of where the market is heading:
“we're definitely in a normalization phase of marketplace across the three hyperscalers ”.
He drew an analogy to consumer payment options like Apple Pay or Google Pay, envisioning a similar diverse yet streamlined approach with cloud marketplaces.
Advising on choosing on which marketplaces to focus, Jahnke highlighted the importance of focusing on buyer needs, especially for SaaS companies operating across multiple clouds.
“as far as where you run…the incentives really tie to your ability to drive core service consumption… focus on your buyers. helping your buyers and knowing if you're an at-scale company you're likely going to have buyers in all three hyperscalers”.
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Customer-Driven Transactions Gaining Ground in Marketplaces
Discussing the evolution of customer preferences in transacting via marketplaces, McBain referenced their comprehensive survey of 21,000 partners. It showed a significant surge in customer-driven activity: over half of these partners now report that marketplaces are becoming a primary transaction source for their customers. A staggering 92% of partners note increased marketplace inquiries from clients, signaling a crucial transformation in how transactions are made.
Jahnke further elaborates that while infrastructure purchases via marketplaces are increasingly buyer-initiated, sales of business applications often require more guidance from sales teams, indicating a need for strategic positioning and education on marketplace advantages.
Jahnke explains that
“we're not at the point where biz apps are buyer initiated, infrastructure absolutely buyer initiated, but we're going through that transition.”
This trend is accompanied by a broader shift in cloud budget control from departmental to enterprise levels and the rise of FinOps. Typical company cloud spend is now among top 10 spends.
“at the top 10 line item in a company. It's a CFO budget line item. And they're the ones who are making those decisions”.
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Key Cloud Marketplaces Strategies for 2024 and Beyond
Wrapping up, Jay McBain and John Jahnke emphasize the crucial shift in the cloud marketplace landscape and its strategic implications for 2024.
McBain highlighted the critical importance of recognizing the changing economics of partnering and the value partners bring before and after the sale. In his perspective cloud marketplaces are not a threat but an opportunity to enhance revenue generation. He underscores that marketplaces will soon become central for GTM, with a significant portion of customers preferring to buy via digital marketplaces.
John Jahnke echoes this sentiment, highlighting that Cloud GTM is a boardroom-level conversation. He urges partnership teams to adopt long-term thinking and cross-functional strategies to leverage the huge opportunity presented by the cloud marketplaces.
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🎄 A Heartfelt Thanks and New Year Greetings
As we step into 2024, I want to take a moment to extend my deepest gratitude to each of you, my readers and followers. Your engagement and feedback throughout 2023 have been invaluable in shaping our content. Your continued support and interest in exploring the evolving landscape of cloud marketplaces and GTM strategies are what drive this community forward.
It's been a remarkable journey filled with insightful discussions, shared learning, and strategic advancements. As we continue to navigate the dynamic world of cloud marketplaces together, I'm excited to delve into new topics, trends, and opportunities that await us in 2024.
Thank you for your unwavering support and for being an integral part of this thriving community. Wishing you a prosperous and innovative New Year ahead!
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