State of Cloud Marketplaces 2020: Trends, Predictions & Insights for Software Sellers

John Jahnke:
My name’s John Jahnke, I’m the CEO of Tackle. Today I’m joined by Mike Droesch from Bessemer Venture Partners. We’re really excited for everyone to join us for us to cover the first annual State of Cloud Marketplaces Report, via this webinar. Really appreciate y’all taking the time and we look forward to sharing more about our insights from the research that we’ve done, as well as share some predictions on where we think the future of cloud marketplaces can go.

John Jahnke:
This report was really inspired by the Bessemer, Sate Of The Cloud report, that’s been coming out for a bunch of years, and that was what kind of planted the seed in our minds to start to create a State Of The Marketplace report. Mike focuses on investing in Marketplace companies and actually is the lead investor in Tackle, series A.

John Jahnke:
From an agenda standpoint, many of us at Tackle to spent our entire career in B2B enterprise software sales, in either sales roles or technical roles or combinations of the both. And we’ve lived the problem of scaling revenue systems over and over again. Buyers wants solutions, but engaging with buying processes is difficult and time consuming, sellers clearly want to sell, but the process and workflow of selling is fraught with friction and cumbersome. More buyers are moving towards this digital engagement where they’re engaging with content and spending less time with sellers. And actually we’ve seen the pandemic accelerate that movement. And we think that cloud marketplaces offer an avenue to meet your buyers where they want to buy, both digitally and in the cloud.

John Jahnke:
So, from an agenda standpoint, Mike is going to kick things off with the Bessemer point of view around cloud Marketplace, and then we’re going to dive deeper into buyer insights, seller insights, predictions for both buyers and sellers. We’ll talk a little bit about the Marketplace landscape, and then we’re going to close with a summary. Feel free to ask questions along the way. Mike’s going to be able to inject them into our discussion and we’re excited to get started.

John Jahnke:
So Mike, you spend a lot of time in the Marketplace world. Why did we create this report? Marketplace are really at this tipping point and I think if you pay close attention to this industry, whether it’s as a seller or a buyer, the volume of discussion around this topic has really increased tremendously. I think in 2020, and after the pandemic from the cloud providers releasing new features, analysts covering the space, new Marketplace emerging, even the venture capital ecosystem, engaging more actively, thinking this is a more efficient way to scale revenue for software companies. We think this digital sales shift, it’s a seismic shift in the way selling happens and marketplaces make up part of that transformation.

John Jahnke:
As a company who focuses exclusively on selling the software companies and helping software companies generate revenue, we think it’s our duty to monitor closely the landscape of Marketplace and be able to share these insights and predictions with everyone. So we look forward to doing that on an annual basis. Mike, you spent a ton of time as an investor thinking about marketplaces and how do you and Bessemer see this world evolving?

Mike Droesch:
Yeah. Awesome. Thanks John, [inaudible 00:03:28] to talk about this. This entire cloud Marketplace trend is one that is super exciting for us, and it’s really a theme that strikes a chord with Bessemer. As you mentioned, B2B marketplaces is a big theme that I focus on at the farm and investments broadly have been along that, investors, evangelists, and analysts of the cloud industry. You alluded to the State Of The Cloud Report. I think anyone that’s looked at the 2020 State Of The Cloud Report, I would imagine one of the insights that quickly jumped is the power of exponential growth that we’ve seen in the industry over the last two decades. I think it’s really rare to see this exponential growth over this long a time period, at this large of a scale, and we just think that, that’s a testament to the power of the cloud delivery model. And we’re really excited cause we think we’re witnessing the beginning of this similar trend in cloud Marketplace growth.

Mike Droesch:
On the Marketplace side, we’ve included a bunch of logos here, BB portfolio or Bessemer portfolio buddies that have been early adopters in Marketplace. I think honestly, we’ve just had the privilege of seeing a bunch of early adopters in our portfolio and how powerful Marketplace has been for them. I think that’s one of the [inaudible 00:04:47] if we just look at the Forbes Bessemer Cloud 100, out of those top 100 private cloud companies, 37 of them are Marketplace sellers, which is just kind of astounding. And 65% are Tackle customers as well. So awesome. Just goes to show that the folks who are really leading the way in the cloud industry or are actively thinking about Marketplace and selling through it.

Mike Droesch:
I think as we’ve studied the Marketplace a little bit more as we’ve talked to the customers in our portfolio and reviewed the survey with you guys, I think the things that jump out to us is we really just believe that this is still in the early days of a massive wave of Marketplace adoption. As we’ll discuss later, there are true win, win and dynamics here that we just rarely see in other industries. And we expect that honestly, billions of dollars of enterprise software spend are going to shift over the coming years to flowing through these pipes. And so we think this is a really exciting trend.

Mike Droesch:
We’re starting to see the early signs, both within the portfolio and then honestly with other growth stage software companies that we speak to day, the majority of them are either already in one of these marketplaces or they’re already thinking of it, have it high on their list. And even more interestingly, when we look at really early stage companies in our portfolio, we are starting to see more and more success stories of companies that are sub five sub $10 million a day, finding their way to Marketplace because they realize that it can be a really powerful way for them [inaudible 00:06:26]. And in many cases, kind of skip through a bunch of the legal hurdles that would be required to get through the procurement cycle of a larger organization, particularly in highly regulated industries.

Mike Droesch:
That being said, I think we were super excited about what this looks like over the next 10 years. And if you want to flip forward one slide, John. I think if we had to kind of sum it up, we kind of extrapolate the exponential growth that we’ve seen in the cloud industry more broadly. And we look at early signs in Marketplace growth. We think it is very possible if not conservative that over the next decade, we see well over [inaudible 00:07:11] fairly direct spend today flowing through cloud marketplaces.

Mike Droesch:
And as we have in past years, I wouldn’t be surprised if we actually wildly undershoot with this estimate over the next 10 years as we’ve consistently done with our State Of The Cloud Report. That’s a quick summary, and then look forward to digging a little more there, John.

John Jahnke:
Awesome. Thanks, Mike. Really appreciate that. And we’re super excited to innovate on behalf of our customers, both in the portfolio, as well as those who are part of the Cloud 100. I couldn’t agree more that we were in the earliest days of this sales transformation and excited to see how it evolves. We view Marketplace, as Mike said, truly as this win, win, win channel for buyers, sellers, and cloud providers. Everyone wants a more efficient buying and selling experience. And as buyers are making larger commitments to cloud providers, as they accelerate their migration to the cloud, those budgets they’re looking to use for things beyond just core services and really anything they need to operate their company in this cloud area.

John Jahnke:
And the billions are, I think are already flowing through the cloud marketplaces from a gross merchandise value perspective. And it may be slightly counterintuitive to a lot of people newer to Marketplace, but your really large scale enterprise transactions are happening through these fulfillment systems. It’s not just organic purchase. It’s not just kind of click and consume. It’s really, truly those large enterprise contracts happening as well.

John Jahnke:
So let’s dive a little bit deeper in from a buyer perspective. And I think the cloud-first mandate continues to accelerate. cloud-first can have a lot of different definitions. And whether that means people are making commitments to a single cloud or multi cloud, or really thinking about SaaS first from a consumption standpoint, the use of cloud, especially enterprise, is here to stay and is accelerating. And enterprise is a loose term, I’d say. Almost all companies are making large scale, and we have a stat a little later, 95% of the Fortune 1000 are large consumers of cloud services. Those workloads are really spread out across the three hyperscalers and beyond.

John Jahnke:
There’s no exact pattern for how this kind of cloud-first mandate plays out. And I think it will be hybrid, it’ll be multi, it’ll be single. Buyers are demanding what the clouds offer, which is efficiency, elasticity, flexibility, and really access to the tools they need when they need them, whether they’re first or third party. I think one of the things we see in these cloud-first mandates are enterprises who look to go more all in actually rethink their tech stack when they do it. Because, a lot of the tools they may have had from five or 10 years past, may not be applicable in the new world. And they look for kind of new modern versions of a lot of the solutions that they have today.

John Jahnke:
And that creates an opportunity for really cloud forward software companies to be there at those times of decision as they rethink that tech stack. And this is an area we see Marketplace being a huge compliment to this macro level acceleration and cloud adoption. You’re making a large commitment to a cloud provider. Maybe you don’t know exactly what your core service consumption’s going to look like, you do your best to estimate them. But being able to purchase third party software on that same enterprise cloud contract can give you a chance to mitigate some of that commitment or even potentially negotiate a better deal on your enterprise cloud commitment.

John Jahnke:
As Mike said, 37 of the Cloud 100 are present in one of the loud Marketplace. To me, that just means that leaders are succeeding with marketplaces and we have some data a little further on that kind of reinforces that.

John Jahnke:
On the buyer side, digital buying is here to stay. This slide shows a couple of different things. I said 95% of the Fortune 1000 leverage cloud today. Only 24% of the Fortune 1000 have tried cloud marketplaces. I think what that signals to us is really, a couple of the survey results we pull out here, is that Marketplace is still in the departmental phase of adoption. And the left hand side of this slide highlights the departmental benefits. And those departmental benefits, simplified procurement, fast access to tools you need, it’s really, “I want to be able to get access to what I need to solve my problem.” Those are departmental benefits.

John Jahnke:
What the right hand slide starts to represent, are more of those enterprise level benefits for marketplaces and ability to consolidate IT spend under a cloud contract being one. And then we’ll touch on this point as well during the seller section, the ability to burn down committed cloud spend. And honestly, this number is lower than I think we expected at this point, from a buyer awareness standpoint. But we also have, when you correlate buyer and seller data together, we have some predictions as to why this is where it’s at.

John Jahnke:
I think a few other [crosstalk 00:12:49]. Yeah, go ahead, Mike.

Mike Droesch:
We actually just got a comment to argue this point, that 20% of cloud budget seem surprisingly low, should this not be the killer application. I don’t know if you have any thoughts on that right now.

John Jahnke:
Yeah. Kind of bury the lead from later, but if you think about it, all of the cloud providers over the last couple of years have made this alignment of their enterprise agreement and Marketplace, and those take a little while to roll out. Enterprise agreement cycles are likely on three or five year timelines and the awareness of the field inside a cloud provider to position this benefit with a buyer as well as capturing the cycle, is why we think this number’s a little bit lower. And the opposite data, 63% of sellers look at this as a core value for why they want to sell at Marketplace. And I think we see the more buyers who are buying and Marketplace, the more exposure to Marketplace, the better the experience they receive with Marketplace, the more this number is going to go up.

John Jahnke:
A couple of other macro level trends. I think the pandemic and the shift to remote work, no doubt has accelerated digital buying. And we’ve seen kind of record level selling and buying happening since the pandemic kicked off. Gartner says 80% of B2B sales interactions between sellers and buyers will be via digital channels by 2025. I think analysts are also predicting a significant increase in digital buying.

John Jahnke:
That leads us to our first couple of predictions around buyers. The first is this, marketplace-first will emerge as the buyer pattern. What does that really mean? Similar to the cloud mandate, a lot of times with cloud enterprise has said, “Hey, we’re going to go cloud-first. We’re going to make a mandate.” A lot of times that was for new things, when they were building new, they were going to go to kind of cloud-first as a first strategy. And then think about migration over time.

John Jahnke:
But why is this going to happen for buyers? I think it all really comes down to the buying experience. Marketplaces offer a better buying experience, hands down. And once people experience purchasing via Marketplace, they don’t want to go back to a traditional line experience. The process is faster for buyers, it’s faster for sellers. We’ve had sellers quote us 30 to 50% deal cycle time improvement when they’re using Marketplace versus a traditional direct transaction. And we think this is going to tie really closely with that enterprise declaration of cloud, like cloud-first, SaaS-first, Marketplace-first, it’s almost the next chapter in that cloud declaration.

Mike Droesch:
John, was kind of curious, for companies that may be buyers that are not at this point in maturity yet, but have heard of Marketplace, what are the types of things that you would recommend that they could do to actually start accelerating their adoption to Marketplace?

John Jahnke:
It’s interesting. Sellers who haven’t bought or buyers who haven’t bought this way, I mean the best thing they could do is try. I think trying can be done a lot of different ways. It could be if you’re looking for a new solution, ask your ISV, if these pathways are possible for you. And then trying to get a feel for that experience and compare it to a traditional experience and then really connecting the dots with stakeholders. Because while you may be able to go to departmentally by a Marketplace solution today and have a better experience, surprisingly, a lot of enterprise procurement is still just starting to wake up.

John Jahnke:
And really this ties to our next prediction around the fact that the next chapter of growth for marketplaces is really going to be in that enterprise procurement, joining the story. Kind of maybe to follow on a little further on that question, a lot of the buyers who are accelerating with Marketplace today started in that they bought something, they bought a couple things a department got excited about Marketplace, they started to educate finance on it, they start to educate their peers on it, they educate procurement and all of a sudden there’s some sort of cloud marketplace-first mandate inside an organization.

John Jahnke:
I actually think the next wave of adopters are going to be able to skip a lot of steps and just say, “Hey, we know marketplaces offer a better experience based upon all of the movement in the industry around it. Let’s just try to fast forward and skip some of the departmental, organic adoption and go right towards, how can we as an organization adopt Marketplace more holistically?”

Mike Droesch:
We actually got one other question here on this topic, from Tom. His question is, “Is the experience materially better, even for those products that are sold via private offers?” I don’t know if you have any thoughts on the Marketplace experience. I assume this is for buyers since that’s what we’ve been talking about here.

John Jahnke:
Yeah. Tackle as a seller, we drink our own champagne, we use our platform to sell using private offers, private plans, through all three of the cloud marketplaces. Compared to the process of doing a direct deal, a private offer, especially when you can leverage the standard contracts from the cloud providers, can be far better. This is an area that we’re innovating on as a company, building technology to allow sellers to align those kind of private offer mechanisms to their existing quote-to-cash process, to even elevate the experience, make it even better for sellers, better for buyers, a higher level of intelligence around where things are at in the process and how to ensure that people are following through on that experience. I know sometimes those experiences can be a little clunky in the early days of some of those workflows, but we’ve seen a real improvement and we’ve done a lot to work with our customers to try to accelerate that improvement.

John Jahnke:
Okay. So enterprise procurement, I think this gets back to that natural evolution of enterprise agreements. So as the cloud providers are educating their field on the benefits of Marketplace plus enterprise agreements, and we’re entering a kind of maybe second wave of those enterprise agreements with Marketplace, as well as seeing the supply in Marketplace increase, as well as the numbers of buyers in Marketplace increase, you’ll see this network effect continue that I think will allow people to skip some steps in their adoption of Marketplace.

John Jahnke:
I think one of the things we talked about a lot, like this potential opportunity, for a better deal on core services, if you can integrate things you’re going to buy with your cloud contracts, is an area that I think a lot of people understand, but the level of understanding around that, especially over the next year, I think it’s going to increase a lot. I also think this, this idea of private marketplaces, which aren’t new, Azure just released one at Ignite. A couple others are available as well. I think that gives procurement some options for self service that will also be interesting and unique going forward.

John Jahnke:
Mike, I’m curious, any thoughts from you on this kind of enterprise procurement movement, just as you think about more macro level Marketplace adoptions?

Mike Droesch:
Yeah. This is one that I think we’re going to see a big shift in over the coming years. And particularly when we look at a lot of other B2B marketplaces, I think a common pattern that we see as in the early days, most marketplace platforms have to kind of bootstrap activity by providing single player mode. You get enough value, even if you’re just kind of in a one-to-one transaction. And that’s to some extent been the story with marketplaces these days. The fulfillment value that you get is dramatic, even if you are bringing a direct deal and fulfilling on the Marketplace.

Mike Droesch:
But what we’re thinking really gets special on what is true with all of these marketplaces, when you’re going to open up the multiplayer mode or the true network effects. We think so far, we’ve witnessed the value of these marketplaces, even just in one-on-one transactions, driving enough interest and enough engagement that it’s bootstrapped a ton of volume from sellers, and we feel like we’re close to a tipping point where we’ve got critical mass of people who are both registered and selling and now critical mass buyers, hopefully coming up and in the next year. Where I think all of a sudden it’ll go from being, “This is a great tool to facilitate procurement,” to now, “This is actually the place I go to run my entire procurement program, because I can actually make new connections. I can find new products that I otherwise was not going to find.” I really exciting opportunity.

John Jahnke:
Awesome. Cool. Any questions? We’ll make the pivot to seller. But any other buyer specific questions out there?

Mike Droesch:
We just had two. One is, “Do you consider Salesforce AppExchange as part of cloud marketplace?” I know that’s…

John Jahnke:
Yeah. We actually have some of that later on. We’re going to cover just the broader kind of marketplaces and other marketplaces that respondents to surveys talk to. So maybe I’ll table that one for now and we’ll come back to it.

Mike Droesch:
Great. And then the other one, “What are you seeing in terms of line of business apps? Any cloud, commercial marketplace has being considered yet for accounting, marketing other non IT spaces?”

John Jahnke:
That’s a great question. To touch on quickly, we’re definitely seeing, as you see procurement engage, I think you’ll start to see a shift from that IT pro categories that were more departmental in adoption to more enterprise decisioning, which will include more business applications. I also think the Dynamics with the hyperscalers the way Microsoft approaches marketplace, having a storefront that’s business focus in a storefront that’s IT pro focus between Azure App Source and Azure Marketplace is different. And that actually kind of compliments what Salesforce has done with a platform specific Marketplace that may be much more business focused. I think we’re seeing more momentum across the business applications, across the Marketplace in the last six to nine months than we’ve seen in the past.

John Jahnke:
All right, cool. I will transition into digital selling. And we definitely have some time about 10 minutes at the end at least, to do more Q&A. So we’ll continue to try to weave them in as we go, but if we don’t get to them, we’ll get to them at the end. Digital selling is a new frontier, and I thought this was a great stat. 70% of the survey respondents said they will invest in Marketplace in the next year. It’s really a big acceleration tied to the pandemic. And we kind of had separate questions around COVID-19 impact and how they were thinking about digitally selling specific to Marketplace.

John Jahnke:
The record level of buying and selling activity since the pandemic started, and I’m sure like many on this call, I don’t think anyone was sure how the pandemic would affect a business. But you know what? We actually saw a tailwind in the marketplace movement from pandemic activities due to this desire to invest more in marketplace and digital selling. I think marketplaces compliment the already underway content led selling revolution in a really positive way. Because you can engage digitally, you can now transact digitally and you don’t have to create new mechanisms to do that. There’s already infrastructure in place with benefits.

John Jahnke:
As a counter to this point, we did ask some questions around the reasons why software companies have held back from making the leap in the marketplace to date. And 44% signal that internal resources and bandwidth, was their primary issue. And then a 28% also said they struggled to translate their business model to the cloud. And I think those are areas we as a company, hope to be able to help mitigate as we evolve. And if those are areas you were struggling with, we’d love to talk more about.

John Jahnke:
From a distribution of companies, and this is all of the respondents to the survey, categorized by their ARR. It was interesting to me how flat this set of responses were. Any survey, I think as a statistician, you’re taught to expect a bell curve and this is not a bell curve. Really the two largest percentages are 30% are greater than $100 million in ARR. I think that to me, is the leaders in cloud are market placing as a strong signal. That group is also transacting the most, which I think makes the sense, largest revenue transacting the most.

John Jahnke:
But the emerging category, so we’d say that between zero and $20 million in ARR, made up 39%. And that group’s really looking at, “How do I scale my go-to-market powered by Marketplace?” I think that we’ll talk a lot more about some potential ways we see Marketplace helping these categories of companies, but we’re effectively seeing the emerging cloud companies follow the leaders in this Marketplace style movement.

Mike Droesch:
I would just echo that, John. Anecdotally, I can speak to a couple, very early stage companies where I’ve seen just how much Marketplace can unlock huge deals for them. And I’m thinking of one example in particular, security company that was stuck in procurement with a large company in a somewhat reactive fashion realized that the only way to get the deal done was to go through Marketplace, because they were able to find some budget there.

Mike Droesch:
And so they kind of quickly rushed to get listed and obviously there’s a huge win for them. And that’s a story that I’ve heard at least across a couple of the really early stage companies that we’ve seen repeated time and time, again. More of a reactive experience for a lot of these very early stage companies. But I think, that’s just because this has been a bit of a secret. As the secret gets out, I would expect more and more early stage companies start to be proactive about building the foundations for Marketplace. I know that’s something we’ll get into it a little bit more, but certainly it’s something that in all of our portfolio company discussions at the board level, we are pushing to actively start thinking about this earlier.

John Jahnke:
If I talk to a real estate company, the first thing I try to teach them to do is just ask if their buyer has a strategic relationship with one of the cloud providers. You don’t have to ask about Marketplace, you don’t have to buy, transact it, just keep it super simple. “Do you have a strategic relationship? Would it be easier to buy our software on the cloud?” You’ll be surprised the answers you get to those questions.

John Jahnke:
Maybe the last point here, I think the biggest software companies in the world are really just starting to get organized around this movement. Some have been really successful in building kind of new cloud businesses, but a lot of others are losing business to kind of born-cloud-native companies. And now they’re starting to look at how they can compete in this market, whether that’s engaging in Marketplace or building new products that could show up in a more cloud forward way.

John Jahnke:
When you look at the key benefits for software sellers in Marketplace, I mean, really I’ll just go across these, streamlining contracting, simplifying procurement, being one, advancing partnerships with the cloud provider, being a key one, we hear heard a lot, gaining access to buyer pre-committed cloud spend. This goes back to that point. At a buyer level, only 20% of buyers understood this value prop. At a seller level, 63% do. I think this is where both the cloud providers are educating the buyers about the power of an enterprise agreement, plus Marketplace sellers are educating buyers about this it being easier to buy software on your cloud bill. And that’s going to increase that kind of buyer awareness of this movement. Accelerated deal velocity being a key one, and then unlocking co-sell as a longterm value prop for Marketplace.

John Jahnke:
Any questions on the sell side popping in? No. Awesome. All right, cool. Sellers want to sell where their buyers want to buy. This is a summary of all our respondents and currently where they are in Marketplace. A few interesting data points here. 50% of the sellers surveyed said they plan to expand into more marketplaces in 2021. And then 38% said, they’re likely to expand after they have initial traction with their current Marketplace presence.

John Jahnke:
So, once they make that successful, I think that actually maps very much so to the experience we’ve seen with sellers. We’ve seen a huge acceleration in inventory available and people looking to get to Marketplace, and we encourage all new Marketplace sellers to focus on building the muscle of selling through the cloud, like teaching your sales force, how to use these tools, bringing these channels to life, building the stories that your sellers can identify with, that your buyers can identify with. And ultimately, that the cloud providers can identify with. And then replicating those patterns of success.

John Jahnke:
I think too many people try to go too big, too fast in Marketplace and starting small and building the muscle and then growing with success, we’ve seen be much, much more powerful. And that doesn’t mean it has to be a long period of time. You can move through that success pattern pretty quickly. But it does take a little more thoughtful engagement and evolution. And then, [crosstalk 00:32:09]. Yeah, Mike, go ahead.

Mike Droesch:
John, just one question that came in now on this point a little bit from Tom. “How do you recommend dealing with real or perceived competitive threats for those sellers that have an overlap with a cloud provider offer?”

John Jahnke:
That’s a great question. We see that with a lot of offerings and I think it’s the unfortunate reality for a lot of third party ISVs, is that the clouds are going to have some native service that overlaps some ways with their core offering. And to me, it’s about all the cloud providers having knowledge that the future is a combination of first and third party services. There may be some overlap, but you need a compelling value proposition for your product at a buyer level that makes it clear why your product. While there might be some friction in certain areas of that product overlap, I think what we’ve seen most sellers do is come up with a really compelling story as to why their product.

John Jahnke:
I think Snowflake is an amazing example. Snowflake was on the Cloud 100 webinar with Frank Slootman who was on it and was talking just about these dynamics and how in the early days of Snowflake it was directly competitive with Redshift. But they actually saw the AWS field lean into snowflake in a lot of ways. I think the cloud providers are large and complex these days. The thing that’s great for all of them are they’ve really focused on the value of their customer. And if you’re delivering incremental value and a great solution, then I think there’s a way to take advantage of Marketplace and manage those coopetition dynamics. That was a lot. Lots of words, sorry.

Mike Droesch:
It was great.

John Jahnke:
All right. This will lead us to a couple of our seller predictions. First and foremost, and this is an area that I’m excited to chat a little bit about, marketplaces will enable new business models for sellers. Mike, do you want to maybe lead us through this one?

Mike Droesch:
Yeah. This is one I’m particularly excited about, particularly as I think of like the next wave of early stage companies that we’ll see. Just like we’ve seen with plenty of other trends, I think new technologies and new go-to-market motions tend to unlock new types of businesses that are hard to imagine today. I think a little bit about, as the next generation of software companies are built, somewhat Marketplace native, what are the things that they won’t have to invest in early on, because they won’t have as big of a concern around fulfillment, around chasing down collections and things that are just kind of abstracted away when you went to Marketplace.

Mike Droesch:
But then I also think about today, a lot of the Marketplace businesses that we see, are not necessarily even leveraging Marketplace for customer acquisition. I can only imagine what companies could build on top of a Marketplace based fulfillment, to help also spur a little bit more of customer acquisition focus in these marketplaces.

John Jahnke:
Yeah. I think that customer acquisition focus, especially we see there was a question earlier on private offers, private plans. We see a lot of activity in the private offer, private plan motion. But I do think as marketplaces become more mature, you’ll see more organic discovery as well as organic execution. That’s going to take a period of time. A couple chapters in Marketplace really to play out. And around this idea of a kind of Marketplace native, I love that term. Matillion is a great example of a company like that. Just a company that we’ve become friends with over the years operating in the same space.

John Jahnke:
They build their go-to-market marketplace up. They’re a cloud ETL technology and they’re headquartered out of Manchester, England, and they thought a lot of their buyers might be in the US and that a lot of their buyers use core cloud services, and maybe this Marketplace thing could be a way for them to get to those buyers faster and cheaper. And really, they were early, kind of started their Marketplace journey, same time around when Tackle was founded. They were early in this movement and have seen amazing success growing the company as a Marketplace. So that’s a pretty cool story.

Mike Droesch:
Yeah, I totally agree. We’ve been super impressed by what they’ve achieved there. I can even imagine for companies that are going to be building so much of their fulfillment on marketplaces, potentially there interesting ways for them to tie in other aspects of the underlying cloud infrastructure, as part of like a seamless, self-serve, customer buying experience. It could involve everything from potentially spinning up seamless free trials in this infrastructure or even just taking customers further down the customer journey while remaining within this one procurement platform. I think it’d be really interesting to see how these merge over the next couple of years.

John Jahnke:
Yeah. That’s an area we want to invest more in, to figure out how to not have these cliffs in your customer journey, where today you have an organic free trial that would go on a process and then kind of falls off a cliff before it gets to salespeople. And that might fall off another cliff before it gets to Marketplace. How do you truly make that seamless end to end? I think there’s a lot of workflow work that could be done there to make that process better.

John Jahnke:
One last area around these creative business models, we think super cool is the combination of contract purchases and metering. So the ability to do consumption-based billing in combination with contracts. People who’ve done this well are really product led growth companies who built that level of logic into their product. When you think about doing that in a multi-cloud distribution world across Marketplace, is a really, really complicated thing to do. But we’re starting to see customers use some of our technology from a metering standpoint in combination with Marketplace and some sophisticated thinking around new business models. Either create new packages that are really easily consumable at a cloud audience, or lower barriers to entry, but still have a contract and use metering to charge on a usage basis. I think there’s a lot of cool things that could be done.

John Jahnke:
Our advisory board, we have a bunch of kind of top Marketplace sellers on our advisory board. And this was an area they’re years into their Marketplace journey. And they’re like, “Yeah, we’ve had amazing success with contracts, but we really want to figure out how to compliment our contracts with a more usage based model over time.” So some of these solutions can be really compelling.

John Jahnke:
All right. So our last prediction, marketplaces offer an avenue for sellers to lower their customer acquisition costs. This may be the most complicated of our predictions and as a SaaS company CEO, it’s something that I think about all the time get asked about all the time. As you think about scaling the company, how do you efficiently scale your customer acquisition system, that is a key driver. I think startups have the opportunity, as Mike said, Marketplace native, to kind of build your go-to-market with this integrated from day one. And I think that gives you the opportunity to set the table for efficient scale economics.

John Jahnke:
On the flip side, kind of more traditional software companies, this can be really complicated. You have to retrofit your go to market or hopefully compliment your go-to market. And in really channel forward companies that that can be confusing or cause risk. But at the end of the day, there’s the potential to potentially take a fair amount of percentage out of customer acquisition cost. If you talk to a CFO and say, I could take potentially 10% out of our customer acquisition costs, there’s not a lot of ways to do that, especially for an at-scale company. So Mike, curious, I know this is one you’re super interested in evaluating over time.

Mike Droesch:
Yeah, well, [inaudible 00:40:53]. As VCs go, that’s where it tends to be pretty nerdy when it comes to all things SaaS economics. And so, any opportunity to lower CAC I think is super powerful. And when it comes to fundamental, just imagine a company that’s able to successfully take whatever 10% plus out of their CAC by leveraging Marketplace fulfillment. And that just provides such fundamental advantage over many of your competitors. You’re able to double down and invest more efficiently in acquiring customers. And simultaneously, I think investors view that super favorably. So those companies become valued more highly, just like we see with a lot of today’s product growth companies that have more efficient customer acquisition. Because investors are much more eager to put additional dollars into a company that they believe can efficiently turn those dollars into revenue. I think there’s been a ton of innovation on the customer acquisition side of things and how to further optimize the top of sales funnels, but this backend feels like they’re ripe for improvement.

John Jahnke:
Yeah. One of our advisory board customers really shared the story how most of the time Marketplace starts as a chief revenue officer discussion, “How do I unblock deals? How do I reduce budget, give my sales people roads to drive on?” Or it’s a partnership discussion where, “I want to figure out how to partner more closely from a co-sale standpoint,” but that’s really partners plus revenue. It’s rare that it’s a finance driven discussion. The CFO is thinking about improving the scale of your SaaS metrics via Marketplace. That was an emerging theme for us that we didn’t understand in the early days, but we’re really excited to hear some at-scale sellers talk about the power of.

Mike Droesch:
And John, we actually just had two other questions that have just come in. But I think these are still relevant. First being, “What kind of motivations, challenges do you see around balancing the pricing, selling through different channels? So this is direct versus marketplace, verse partner channels. And how do you also think about including the Marketplace fees and sales compensation and stuff like that?”

John Jahnke:
Lots of unpack there. How do I cover this simply? Motivation-wise, we encourage all sellers who are engaging the Marketplace, not to make this channel negative for your sales people. If you do, you kind of like stop it in its tracks at the start, when what you really want to do is get this fly wheel going. So, compensating your field on Marketplace transactions, having them understand that making a company [inaudible 00:43:39] is a really important thing we’ve seen from all the top sellers. That’s first thing.

John Jahnke:
On the challenges side, I think the partner ecosystem is an area where if you’re really partner forward, how Marketplace plus partners fits together can be confusing. We do think there’s a great story there that’s emerging. And all the cloud providers are investing, whether it’s incentives for the channel to use Marketplace or programs to make the process easier or programs to make it easier for you as a seller to manage your channel, seller ecosystem.

John Jahnke:
But if we’re in the first inning of Marketplace, we’re in the first out of the first inning of channel plus Marketplace, I think lots of dynamics there to play through. This is where you think about Marketplace as an adoption curve, if we’re in the early adoption phase of Marketplace and you’re building that muscle of how to sell and how to scale and how to operate this way, these are some of the things. Often, we’ve had these discussions with some really channel forward ISVs, and it’s like, “Hey, it’s going to be hard to solve for every scenario. The best thing you can do to is, start and try it.” You don’t have to commit to moving a 100% of your business to Marketplace, you can just start drying and figure out how it compliments and then make decisions with the data that’s helping your sellers sell and not like just anecdotal kind of fear of change catching on.

Mike Droesch:
John, one similar question, in some respect, going back to the earlier question about competition and competing product offerings with some of the cloud providers. This one being, “How do you see companies responding to having to share their pricing with cloud providers who may also be offering a competing product or overlapping solution?” I know that price transparency is a topic that comes up a lot with Marketplace.

John Jahnke:
If you think about it, to go to Marketplace, you have to have public pricing. If you go to a Tackle’s Marketplace listing on Azure or GCP or AWS, you’ll see our pricing is public. Obviously, private offers flow through that’s a custom contracts, potentially custom pricing to a buyer. Really, the exposure of that custom contract and pricing is likely to the group that is selling to the same customer that you’re selling to. And while yes, there probably is exposure at a much higher level, we haven’t seen any behavior from the cloud providers that would highlight them using that information in some way against our partners.

John Jahnke:
Kind of back to that core tenet of cloud plus Marketplace, the future is a combination of buy and build, and the future is made up of first and third party services integrated together to deliver a compelling business value solution for consumers of cloud. I think that constant reinforcement I hear from of the leadership at all the cloud providers, is that’s a future they’re committed to, and they see the ISV ecosystem as being critical to their success, long-term.

Mike Droesch:
We just got a question from Kyle, which is interesting. I don’t know the answer here, but, “Have you observed any differences in the LTV of customers that are acquired through cloud marketplaces? Are there higher or lower ACVs higher or lower churn?” I don’t know if we have enough data on this yet, but be curious if you have any anecdotes.

John Jahnke:
Anecdotally, we’ve seen higher ACVs, and the ACVs are really kind of a combination of the pre-committed dollars. We’ve seen sellers who have large buyers with large commitments with dollars to burn down say, “Hey, I’m going to take my one-year deal and make it a three-year deal,” or “I’m going to take my one year deal and increase it by 30% just because I know I can kind of draw down and meet my commitment.” So it’s that like spending incentive from a buyer standpoint, if you’re already strategic. So we’ve definitely seen that.

John Jahnke:
And I do think if you have a product that ties closely to core cloud service consumption, and the clouds are growing at 45% year over year, you should theoretically be able to think that there’s likely some expansion for you as they grow with the cloud. I’ve heard that from people who build smart business models around like cloud consumption and that’s where that kind of ties back to that prediction around interesting business models. If you can link your business model to the growth of cloud in some ways and use metered consumption-based methods that capture value there, I think there’s a lot of potential there versus like that one time contract type purchase.

Mike Droesch:
That’s super powerful. I think that’s a great way to frame it. I think we would all love to have been early investors in anything linked to general cloud consumption growth. Awesome. I know we’ve got [crosstalk 00:48:44].

John Jahnke:
Let’s roll with some questions. We only have a couple of slides to go.

Mike Droesch:
There’s one more question from Katrina. She says, “I deal with ISVs, they think that they just need to get onto the Marketplace and then orders start flying in. This is not the case.” Which we would all agree with. And so the question, “What would you say to them?”

John Jahnke:
Getting listed is the starting line, not the finish line. You have to have a plan to bring the channel to life. And I think that plan starts with initiating selling and that selling you should think is more of fulfillment versus organic discovery. How do you help your customers understand that they can purchase your products through a Marketplace and then work with them to leverage that channel, to start to build that muscle of selling in this way?

John Jahnke:
I always break it into like, you have your first five deals, that’s like your batting practice. And then you’re kind of like, “Okay, how do we go from five to 15 and 15 to 30 and 30 to 60?” And we’ve seen customers consistently have the hockey stick style in Marketplace as they’re building that momentum. But think fulfillment, think asking your buyers those questions around, “Would it be easier to buy from us?” And not framing it in a Marketplace way.

John Jahnke:
We definitely have sellers who do get organic transactions, but those organic transactions, when you look at them from a percentage of their revenue standpoint, tend to make up smaller, kind of get started transactions versus more kind of mid and at scale transactions.

John Jahnke:
And I’d say, I get the question all the time. “We did Marketplace already and we weren’t successful. If we wanted to start over what would be different?” And I think a lot of those same themes tie to, I ended up talking to startup CEOs about this, where they kind of did it thinking it would be, “We’ll get into a slide at Microsoft Ignite or we’ll get into a slide at Reinvent or a Google Max.” Then nothing happened. And it’s like, hey, you got to work the system to get the flywheel going. But the systems are powerful ones to work.

Mike Droesch:
One other just came in, John. “How often do ISVs try to pass some or all of the Marketplace margins onto end customers? Perhaps, for those that just want to do a renewal on the marketplace?”

John Jahnke:
I don’t think it’s a best practice to do that. I will say, I think that the dynamics of cost in cloud Marketplace have been interesting to observe over the last few years, where I think everyone’s trying to make it more compelling to do more business through Marketplace and create programs to encourage people, not just to do first transactions, but to do renewal transactions. Just like the incentives of a seller you’re trying to grow your company, you’re trying to kind of demonstrate a high level of renewals. You’re trying to demonstrate growth and expansion and look at all the core metrics associated with that, the cloud providers are thinking that same way around Marketplace.

John Jahnke:
I do think that they’re going to try to continue to make it compelling. And some of this is back to that flywheel fulfillment style. If you’re trying to save a few points versus get a kind of a large scale channel up and running and succeeding, how do those kind of cost benefit analyses play out for you? We’ve seen some really successful big sellers use renewals to really accelerate their Marketplace business and go from being a nowhere seller to a meaningful seller in a short amount of time.

John Jahnke:
I know we got five minutes left, maybe I’ll cover this, and then we’ll get to our closing side and then hopefully have a couple of minutes left for questions. There was a question earlier around Salesforce AppExchange. We really break the Marketplace into a couple different categories. On the left-hand side of the slide, there’s the heterogeneous, kind of AWS, Azure and GCP being the three kind of at-scale heterogeneous marketplaces we’re seeing have a lot of success. Ali Cloud definitely has invested heavily, and I think has been successful, especially in Asia, but hasn’t crossed over into maybe the North American or European markets at the same level as the three other hyperscalers. But we do see them as a challenger in that heterogeneous marketplace space.

John Jahnke:
AppExchange was a pioneer from a marketplace standpoint. Really the difference between AppExchange and the heterogeneous is, it’s platform specific. Everything that you buy there runs on Salesforce. So it’s really tied to that Salesforce ecosystem. Where our customers tend to be more heterogeneous kind of companies, like the GitHub New Relic, PagerDuty kinds of companies, versus companies in AppExchange. I’m curious to see, especially when you look at Salesforce’s acquisition history around MuleSoft and Tableau, where does that go for them? It’ll be super interesting. And clearly they built a lot and had a ton of success in AppExchange but really platform specific.

John Jahnke:
We do see some emerging heterogeneous marketplaces. VMware has had activity around Marketplace over the last year and had a lot of history with Solutions Exchange where a lot of vendors created integrated solutions for VMware. They merged Solutions Exchange with VMware Marketplace recently, which I think is a strong signal of which way they’re going. And Red Hat Marketplace made some announcements about a month ago of their kind of new motion around Marketplace, which is pretty exciting and we’re starting to hear some more about.

John Jahnke:
And then the last two, on the distribution partners, they’re in the marketplace game as well. And Ingram and Arrow are two examples where we’ve had ISVs bring both up to us and just trying to figure out. Especially those companies who are more on the mature side of using distribution and channel and resell, as a primary kind of channel for their business and looking at the distribution marketplaces as a potential compliment to that, in addition to some of the hyperscalers.

Mike Droesch:
We actually just got a question about that, John. “How do you see the Arrows and Ingrams of the world playing together with AWS Azure?”

John Jahnke:
I think that’ll be a prediction next year. If we go back to that customer acquisition cost story, maybe I’ll just talk specifically for Tackle, the efficiency of scaling your business from a customer acquisition standpoint leads you to look for the most efficient ways to do that. I think the channel’s evolving and clearly they deliver tons of value for tons of companies, but for emerging companies, it’s more of a question mark. I think the jury’s still out.

John Jahnke:
I kind of look at it from a selection standpoint. The selection is more limited today than the hyperscalers, and I think sellers want to sell where buyers want to buy. That’s the guiding light we use for all of our engineering investment. Sellers want to sell where buyers want to buy. Why do sellers want to sell in certain places? If there’s not a really clear answer to that question, it causes us traditionally to pause.

John Jahnke:
Maybe in summary, we’ve got a minute left. I think this is a win, win, win business for buyers, for sellers, for cloud providers. It compliments direct selling, it compliments the channel, albeit maybe it’s a little more complicated there, access to budget, lower customer acquisition costs, faster contracts, the ability to enable efficient fulfillment.

John Jahnke:
And going back to Tackle, as a company, we sell everything through the marketplaces. And there was no category for marketplace middleware when the company started. We were kind of creating this new thing. We’ve been able to find our way to 200 plus customers using Marketplace as an enabler. We love the fact we get to help sellers sell, we get to sell ourselves, we get to help buyers buy and bring all of that intelligence together. And that’s just a super fun part of the business for us.

Mike Droesch:
I’d just echo that. I think we’re out of time here, but I’ve continued to be blown away by the potential power here at the fact that it is truly a win for all three sides of this ecosystem. Like we’ve seen in other aspects of the cloud industry, I think it’s really hard to fully grasp how big this can be over the next 10 years. We’re fully, fully bought in that this is going to be one of the next major shifts in enterprise software.

John Jahnke:
And there’s way more in the State Of Cloud Marketplace Report. It’s on our website, you can find it, here’s a link. We do weekly office hours every Thursday at 1:00 o’clock Eastern. You can sign up on the website to get on the distribution of that. Literally, it’s myself and our CRO and one of our other leaders and we do open Q&A, or we’ll do the topic. We’re here as a resource for everyone in the community. And I just want to thank everybody again for spending some time with us and look forward to doing this on an annual basis.

Mike Droesch:
Thanks all.