In previous articles, we have been working hard to give you an overview of the motivations, inner-workings, and intricacies of the Cloud Providers, so you can best understand how to benefit from working with them and use their various benefit programs.
Today we will review the Cloud Providers’ recent focus on building more holistic cloud marketplaces – complete ecosystems that’ll allow cloud partners to buy and sell from one another, with the Cloud Provider taking a cut. Let’s take a look at the incentives behind this move, and most importantly, how it may benefit you.
Age of the Cloud Marketplace
As we have previously discussed, the Cloud Providers have been investing a staggering amount of resources into building various benefit programs for their cloud-consuming partners. The main idea is that by investing resources into helping partners grow their business, cloud consumption will increase and reflect back on a Cloud Provider’s bottom line.
But scaling their cloud computing business is only a part of the Cloud Providers’ ambition. By establishing a robust partnership infrastructure, they have perfectly positioned themselves to build cloud marketplaces.
What’s a Cloud Marketplace?
A cloud marketplace is a B2B commerce platform that gives End Customers access to software applications and services that are built on, integrate with or add to the cloud provider’s offerings. Its business model is simple – an End Customer will discover an ISV’s solution via an online marketplace directory or Cloud Seller introduction, strike a deal, and pay the Cloud Provider for the service. The Cloud Provider will then take a cut, and pay the ISV. All business, including contracts and legal work, is done via the marketplace, courtesy of the Cloud Provider.
The Cloud Providers are incredibly motivated to substantially increase the number of deals done through their marketplaces, and will work aggressively towards ensuring more business is done that way.
Why focus on marketplaces?
Firstly, by encouraging companies to work via marketplaces and facilitating the deals and transactions between them, the Cloud Providers are tapping into an unlimited pool of deals happening in between their various cloud partners – an enormous potential revenue source. In other words, there’s very big money involved.
Furthermore, by taking care of operational hassles such as discovery, vetting, legal contracts, and reconciliation for their End Customers and ISV partners, it becomes more and more attractive for these entities to channel more and more deals through the marketplaces. This greatly contributes to stickiness as, for example, an End Customer with 10 ongoing contracts done through a cloud marketplace is much less likely to leave the service altogether.
It is important to understand that for these reasons, the Cloud Providers are incredibly motivated to substantially increase the number of deals done through their marketplaces, and will work aggressively towards ensuring more business is done that way. For example, Account Mangers and BDMs from the Cloud Provider’s side could be a tremendous resource for an ISV looking to drive sales. But they might be less inclined (or completely reject) to tap into their networks if the business they’re helping drive isn’t done through their respective marketplace.
In order to further promote the adoption of doing business through marketplaces, the Cloud Providers have created incentives for the various parties involved, let’s review them briefly:
Benefits for the Cloud Seller
The marketplace model is highly beneficial for Cloud Sellers, the various stakeholders in charge of attracting and retaining cloud customers, whose sales quotas are directly affected by the contracts they help run through the marketplaces. And with quotas retired at rates upwards of 50% of an ISV’s annual contract value, Cloud Sellers will find it easier to reach their targets and increase their commissions. (It’s worth noting that compensation structures will affect teams in AWS and Azure differently, we’ll elaborate on this in a further article.).
Benefits for the End Customer
For End Customers, onboarding new partners and suppliers via cloud marketplaces will eliminate drawn-out procurement, legal and reconciliation processes. By consolidating these various bureaucracies, dealmaking and initiating work can be sped up by months. This is especially beneficial when working with big corporations, as drawn-out procurement processes can often cause deals to fall through altogether.
Secondly, End Customers often have long-term, prepaid cloud consumption agreements with the Cloud Providers. With their cloud quotas often going unused, End Customers can see their budgets go to waste. Using the marketplace, committed cloud funds can be easily redirected to buying third party services or extending work with existing cloud partners.
Benefits for ISVs
Much like an end customer, an ISV offering its services will benefit from greatly reduced timelines and hassle of initiating work with other organizations. This is great news for ISVs looking to scale quickly as potential barriers such as cumbersome vetting processes and legal work will be eliminated completely. Furthermore, as mentioned earlier, there will be unspent cloud money actively looking for solutions to buy!
Moreover, ISVs will benefit from an increased pull on cloud sellers as the latter will directly benefit from any deals facilitated for them via the marketplace. This will directly contribute to an increase in traction, budgets, marketing and sales aid from Cloud Sellers to the ISVs.
Lastly, most marketplaces will have commission structures that will reward higher transaction volumes with lower commission rates. Meaning that the more business you make through the marketplace, the less you pay in commission.
Summary
By creating holistic cloud marketplaces and intensely promoting their adoption, cloud providers are hoping to win a significant cut of the business happening between their cloud partners and ISVs. A move that’ll greatly benefit the cloud providers but will also present extraordinary opportunities for savvy cloud partners with deep understanding of the playing field.
We hope this has sparked some ideas in regards to your next move in the space. Or, should you be interested in further brainstorming, we’re always here to help.