The tech business landscape has undergone a significant transformation in the last several years. Explosive growth of cloud marketplaces of AWS, Azure, Google Cloud offer unique opportunities for businesses ready to harness their potential. But this go-to-market strategy is relatively new and its advantages and challenges are still not well understood.
I recently had an insightful discussion on how to leverage cloud marketplaces with Avanish Sahai and Bryan Williams, tech industry experts who helped grow cloud marketplaces from the early days.
Avanish led building cloud marketplaces in Google Cloud, ServiceNow and Salesforce, while Bryan led Xero ecosystem before founding Hockey Stick Advisory.
Intriguingly, Avanish believes we've merely scratched the surface of this transformational journey.
"I've really seen a pretty dramatic evolution over the last 12-13 years from the point of view of how both companies are selling and how customers are buying...
And frankly, I think we're just at the beginning of that cycle.”
Read on for the key insights, or watch the video for the full discussion.
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Riding the Wave of Cloud Commits on Cloud Marketplaces
Focusing on opportunities on cloud marketplaces of AWS, Azure, Google Cloud, Avanish set the stage with an overview of their staggering scale and the amount of cloud commitments they’ve accumulated.
"If you look at the growth of those three alone, they're really transacting multi-billion-dollar commitments. They're telling their customers, 'Move your workloads to our infrastructure and give us a commitment of sometimes 3 years, sometimes 5, sometimes even 10 years. And, you know, they can range from a few million dollars to literally more than a billion dollars.'"
What he's pointing to is a significant shift in how software is deployed and consumed with cloud commitments. It's much like buying prepaid phone credits. A business commits to spend a certain amount, sometimes billions, over several years. Then they "burn down" or use up that commitment over time.
Cloud marketplaces play a critical role in this model. Hyperscalers use marketplaces "to bring in technology partners, ISVs, application partners, and say, 'Hey, you can help the customer burn down those commits,'" explains Avanish.
Bryan points out that being part of a hyperscaler's cloud marketplace can put your company in a much better place in the customer procurement cycle. Being listed on hyperscaler marketplaces makes you a vetted solution, which makes it much easier for the end customer to buy.
Additionally, marketplaces significantly increase retention for hyperscalers platforms, making their and your products much stickier. All these thousands of products listed on marketplaces are solving the gaps in workflows that customers demand. As soon as a customer implements a full solution, they are effectively locked up. They're unlikely to change providers because they've already made a substantial commitment.
"It significantly increases the switching costs for someone to jump out of these five-year deals. It's just not going to happen. The company's way too invested," says Bryan.
Key Insights:
Hyperscale cloud marketplaces like AWS, Microsoft Azure, and Google Cloud are reshaping how software is sold and used. They're handling massive commitments from businesses that are used up over time, much like prepaid phone credits.
Businesses that offer products and services in these marketplaces can help customers use up their commitments.
Consider:
Get to grips with the changes hyperscalers are bringing to the software industry and align your strategies accordingly.
Look at how your business can join these marketplaces and help customers use up their commitments.
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Sidebar: Cloud commits breakdown
Why sell through cloud hyperscalers' marketplaces? Because they're sitting on $240+ billion of committed spend 💰 from their customers - spend that could be directed to buying your software and services. Let me explain. (read the full breakdown)
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How Cloud Marketplaces Evolved to Reduce Customer Friction
Reflecting on his vast experience of building marketplaces in Salesforce, Google Cloud, and ServiceNow, Avanish outlines the shift from the early days.
"The marketplaces really were listings, and that's about it. But now, if you think about all the things that a marketplace does, I think about it primarily in three buckets."
These three buckets include discovery, transactions, and deployment.
For discovery, marketplaces now offer a streamlined process of finding solutions that have been vetted for both business and technical compatibility with a given hyperscaler platform.
Transactions have also grown more complex, with options for individual pricing, set terms, and support for resellers. This includes things like a private offer, which is not just a click to buy - there is a negotiation process. You can price it individually, and you can set terms. These things did not exist five years ago.
Reduction of commission played a crucial role in the adoption of cloud marketplaces of hyperscalers. In the early days, it was 20% revshare, which raised some questions from vendors. In the last 18 months, there's been a rapid movement down to 3%, started by Microsoft and followed by Google and AWS. The current 3% is a low transaction cost to get exposed to a rapidly growing install base.
The third bucket is deployment. Given that applications are already integrated and vetted, deployment becomes seamless. As Avanish explains,
"All of those, at the end of the day, it's about reducing friction. That's, I think, the key element that marketplaces have learned how to do - is reduce that friction in the buying process."
Bryan highlights the growing role of the agency and service partners that also help to reduce friction on marketplaces. New companies entering the cloud marketplace are seeking two main opportunities: net new business opportunities and services revenue. They're keen to align themselves with cloud platforms to leverage these opportunities.
Post-deployment services are a focal point for these companies. They return to the marketplaces to find and create solutions to customer workflow issues, which creates a burgeoning industry across these platforms. As these businesses grow, they are building dedicated teams and business units to cater to specific needs. This development is leading to deeper specialization within specific platforms and hyperscalers.
Key Insights:
Cloud marketplaces have evolved from basic listings to comprehensive platforms for discovery, transactions, and deployment.
Reduction of commission to 3% played a critical role in this evolution.
Service partners play a crucial role in facilitating frictionless experiences in these marketplaces. As these platforms develop, the role of these partners will continue to grow.
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Google Cloud growth with Partner-First GTM
While diving into cloud marketplaces, we couldn’t omit the impressive growth of Google Cloud, which is reaching a $30 billion run rate this year from less than $4 billion several years ago.
Avanish, who led Global Partner GTM in Google Cloud explained that this can be largely attributed to two key factors.
Firstly, its focus on creating a remarkable product experience, which includes innovations like the Kubernetes framework, has been a significant driver of its growth. This technology-first approach builds upon the company's deep roots in AI and leveraging its vast data.
Secondly, the shift towards a partner-first GTM strategy has played a crucial role. Under the leadership of Thomas Kurian, Google Cloud has placed considerable emphasis on fostering partnerships and facilitate the development of joint customer solutions. This strategy incorporates “sales with” as well as deeper collaborative relationships, highlighting a keen interest in avoiding direct competition with partners.
This strategy has enabled Google Cloud to rapidly expand its partner network, encompassing various types of partners such as technology, service, and delivery partners. The sheer scale of its partner ecosystem, which reportedly consists of hundreds of thousands of partners, is testament to the success of its partner-centric model. While Microsoft maintains a larger partner network due to its longstanding history, Google Cloud's rapid catch-up is notable.
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Marketplace-first GTM or not?
While cloud marketplaces are fast becoming pivotal elements of go-to-market strategies for many tech companies, yet they are not the exclusive channel for many. Businesses, whether they are established enterprises or emerging startups, are realizing the need for a diversified channel mix. This approach allows them to meet their customers where they are, while also embracing the potential of growing cloud platforms.
Avanish cited Palo Alto's work with Google Cloud, AWS, and Azure to illustrate the strategy of diversification and meeting customers where they are.
He confirmed that "marketplace will play an increasingly critical role", but unlikely to substitute traditional resellers or distributors, or a direct sales team.
The choice of a cloud marketplace isn't a one-size-fits-all decision also. It's driven by industry-specific considerations. For example, a retail tech company might naturally gravitate towards Azure and GCP over AWS due to the competitive landscape. This nuanced approach highlights the need for businesses to take a strategic view, considering both business and technology decisions when selecting their cloud partners.
In the realm of startups and growth-stage companies, marketplaces often serve as springboards for success. One of the key trends Bryan underscored is the evolution of startup accelerators within these programs, such as the Slack developer fund and Canva's recent $50 million developer fund, which support upcoming businesses. These initiatives accelerate growth of key marketplaces.
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The Winning Marketplace Strategy: Playing by the Rules and Beyond
Engaging with hyperscale marketplaces might seem like a straight road to success, given their customer scale and the potential for widespread distribution. However, the path is not always as smooth as it may seem.
Bryan made it clear that when it comes to partnering with these major players, it's crucial to understand the rules of the game and adapt. Despite the excitement of reaching their vast customer base, it's important to manage expectations and prepare for the reality that attention from these giants might not be as forthcoming as desired.
While it's essential to collaborate with their teams as much as possible, understanding their programs inside and out is the true key to growth. Moreover, amidst the sea of partners vying for their attention, standing out becomes crucial.
Bryan advises companies to partner with other companies offering complementary solutions. This approach not only increases the value proposition to the hyperscaler but also enables the pooling of resources and collaborative efforts, optimizing the chance to get noticed.
The common misconception that simply listing your product on a marketplace guarantees success could not be further from the truth. Avanish shared a candid and somewhat "controversial" view,
"[The notion] that you build it and the customer will come is not true… it's not basically, hey, I built it on XYZ hyperscaler, and now I'm gonna fold my arms and wait for the register to ring."
The task at hand involves a comprehensive understanding of the marketplace programs, co-marketing efforts, clear messaging, and positioning.
Bryan offers a similar perspective, emphasizing that a company's focus should not only be to get listed but also strive to become 'known'. He states, "What it actually gives you access to is to be vetted... and to make sure you're known." Both agree that building reviews and gaining attention through events and conferences is a part of the journey. However, there's more to it - understanding the sales teams, their KPIs, and their individual goals.
One key insight from the discussion is that the most effective way to win over sales teams is by demonstrating how your solution assists them in achieving their KPIs.
As Bryan put it,
“if you help that AE, that seller, that sales team and your solution somehow accelerates that cycle or adds more value to it or makes them look good, that's the one where I see companies and sales teams bring in app partners….because you're actually helping them achieve what they care about personally, which is gonna allow them to hit their targets to move forward.
Avanish emphasizes the importance of demonstrating value beyond the technology and using concrete examples and case studies.
Key Ideas:
When partnering with hyperscale marketplaces, understanding their programs and adapting accordingly is critical.
Stand out among other partners by partnering with complementary entities and collectively enhancing the value proposition.
Don't rely on the "build it and they will come" notion. Invest in traditional sales processes and make it easy for customers to understand your product's value and fit in their workflows.
Understand the KPIs and the compensation model of their sales teams.
Define your target segments accurately - spraying and praying doesn't work.
Work on understanding how your product aligns with the sales cycle and brings value.
Be prepared to demonstrate value beyond just the technology - use case studies, examples, and value stories.
Be a painkiller, not a vitamin. Show how your product is a solution to a real problem.
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Cracking the 'Better Together' Story: Non-Obvious Tips
One of the frequently overlooked aspects of many partnership journey, especially on hyperscaler marketplaces, is that companies don’t leverage the 'Better Together' story to its full potential.
Bryan offered an essential paradigm shift. Instead of broadcasting 'features and benefits,' he suggests partners should ask the question, "What are you trying to achieve? What are the gaps?" Businesses need to empathize with their potential partners, focusing on the problems they are trying to solve.
This win-win-win strategy, which puts the customer and partner before your own interests, was also reinforced by Avanish. He emphasized that companies should not get bogged down in the complexities of their technologies. Instead they should be very precise in articulating how your product can help customers. Avanish stressed that "if you take the customer-first lens to that, it helps them understand, hey, now I can connect the dots."
Both experts echoed that a successful partnership isn't just about the offering but about aligning with your partner's and customers' needs, being a crucial part of the solution, and understanding their priorities. "That company's doing something that my customer actually has talked about. And I can now make an introduction," says Avanish, underlining the importance of the correct mindset in approaching hyperscalers.
“That's how Co-sell works, right? It's like, I can see the customer's needs and I can see what the complete solution looks like and now I can bring in the help, make introductions. Then the partner is actually gonna carry the bulk of the work, but it's gonna benefit me. That mindset is often missing.”
Key Ideas:
Invert the narrative: Shift from features-driven to solutions-driven dialogue. Understand your partners' challenges and align your offering with their needs.
Adopt the win-win-win mindset: Prioritize the customer, then the partner, and finally yourself. This mindset leads to a more significant value proposition and longer-lasting partnerships.
Be precise: Avoid the 'tech-jargon' trap. Communicate your value proposition clearly and efficiently to stand out from the crowd.
Understand your partners' business landscape and seek to add value.
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Channel Partners & Marketplaces: Unraveling the Future of Business Ecosystems
In the era of marketplaces, the role of channel partners appears to be in flux. As we adapt to this new landscape, our speakers offer a compelling perspective on how channel partners can evolve and thrive amid these changes.
Bryan emphasizes the increasing significance of marketplaces, noting that "their influence is accelerating and only going to continue accelerating." However, he also warns against total reliance on marketplaces, underlining the necessity of forming a 'horizontal play' to unlock growth opportunities.
“I encourage the horizontal play of solving those workflows… working out those nodes left and right of you, who's the other partners also trying to sell on that marketplace”.
Avanish, taking a slightly controversial stand, suggests that traditional channel partners might struggle to adapt to this new environment. However, he suggests that savvy channel partners can still find opportunities in specific segments where customers prefer to buy through resellers due to longstanding contracts or relationships.
“...think again about how the customers are buying. In certain segments, U.S. federal government, U.S. state governments, telco companies in Europe, etc, they actually only buy through resellers. So if you're a vendor, if you're a tech partner, an ISV, etc., working with one of the hyperscalers, you need to understand who those end customers are and what is their buying model.”
Both experts agree that the marketplace environment demands flexibility, collaboration, and a deep understanding of customer buying behavior. The ability to maneuver through this complexity will determine the success of channel partners and vendors alike.
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Artificial Intelligence✨ Revolutionizing Partnerships and Cloud Marketplaces
Today, AI is reshaping business landscapes more rapidly than any previous technology trend, be it cloud, mobile, or SaaS.
As Avanish remarks,
"Right now there is no conversation that's happening without the words AI in it, right? For better, for worse. So short answer is everything's gonna change."
The role of AI in partnerships and cloud marketplaces is vast and multi-layered, making it a potential game-changer for every stakeholder involved.
As AI affects all business functions from production and development to marketing and sale, businesses are grappling with questions like how and where to utilize AI, and the impact it will have on their operations. Our experts agree that cloud marketplaces, acting as curators, will play a pivotal role in vetting high-quality, high-trust AI solutions.
Yet, this newfound reliance on AI solutions may create a different dynamic within the marketplace. The same AI solutions are simultaneously boosting consumption of the underlying infrastructure provided by the hyperscalers.
"The marketplace may not be the neutral party that you think it is, because there is a vested interest in driving more consumption," Avanish explains.
Bryan highlights the need for cloud marketplaces to provide seamless, curated experiences for users, fostering easy adoption of AI-recommended tools in low-code or no-code environments.
Bryan emphasizes the overall industry shift towards AI-powered solutions is moving fast, underlining the importance for businesses to adapt to these new dynamics. We need to remember that:
‘Marketplaces are thinking through their own customer lens and their own KPI lens. So they think, "How do we bring more cutting-edge technologies that are trusted so we will make our customers happy? And in the process, we will improve our business performance as well."
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