Anatomy of a Cloud Marketplace Transaction
“How do we get paid?” is one of the most common questions we get at Tackle from software sellers considering doing business on Cloud Marketplaces.
The answer is simple but the logistics do vary a bit because each Cloud Provider is unique and because Marketplaces offer lots of options around contracts, terms, and payments. In this post, we explain some of the more common definitions and options along with other considerations to help you better understand the mechanics of Marketplace transactions.
How to Optimize Product, Pricing, and Packaging for Cloud Marketplace →
How Buyers Buy on Marketplace
The biggest benefit of selling through Marketplaces: tapping into your buyers’ strategic sourcing opportunities. You can read our State of Cloud Marketplaces Report to see why buyers love purchasing through Marketplace, but ultimately it comes down to convenience and speed, specifically around procurement and vendor management.
The buyers you encounter on Marketplaces are ready to deal and chances are high that they already have contracts in place with at least one of the Cloud Providers. On the hyperscale Marketplaces (AWS, Azure, and GCP), they simply need an active account with valid payment information. No new vendor setup, no purchase orders, no trading W-9s, and no hassles. Your software appears as a line item charge on their Cloud Provider bill.
Public and Private Offers
Listing options exemplify the flexibility of Cloud Marketplaces. Buyers can purchase from your “Public” listings on the Marketplace at a set, public price. This is a cut-and-dried process with no negotiations involved, commonly used for try-and-buy products or software that’s relatively inexpensive
You can also work with buyers on Private Offers and Private Plans to customize the solution, pricing, terms, and conditions, similar to your direct sales process. Private Offers require a little more management up front, but the experience for the buyer and the resulting relationships are often well worth the effort.
Marketplace Contract Terms: A Short Glossary
Like other software transactions, purchases on Marketplace include the seller’s terms. How you structure those terms is up to you.
- Standard Contract Agreements—Many sellers opt for Cloud Providers’ standard agreements to streamline procurement with companies of all sizes. These agreements dramatically reduce legal review cycles and costs compared to negotiating Master Service Agreements. All three hyperscale Cloud Providers offer standard contact agreements.
- Enterprise Contract Agreement—Cloud Providers also offer enterprise contract agreements so larger buyers can use software across the company at discounted rates. Marketplace sellers do have to enroll for this option, and when you enroll as a seller in the enterprise contract program, you can still offer standard contracts to non-enterprise buyers.
- Public End-User License Agreement—Known as a EULA, this agreement allows you to insert terms and conditions for software usage that buyers and users must accept before installing. EULAs explain what users are and aren’t allowed to do with your software, copyright provisions, etc.
- Modified Contracts—If you and your buyer cannot agree to the standard contract terms, the Marketplaces do allow you to negotiate modifications or create custom agreements. Before spending a lot of time redlining the standard agreement, connect with your buyer to determine the best route forward.
Common Marketplace Payment Options
Payments funnel securely to you through the Cloud Provider(s) for each transaction via credit card or invoicing terms. There are two primary options payment schedules in the Marketplaces, which are both managed through the Private Offer workflow.
Private Offer without Flexible Payment Schedule (Installments)
In this scenario, the subscription is paid in full and up-front. When subscribing to a Private Offer without FPS, buyers must pay with either a credit card or bank account.
Private Offer with Flexible Payment Schedule (Installments)
Flexible payment schedules (FPS) allow software sellers to offer custom payment
schedules to customers, typically through monthly installments. Private Offers with flexible payment schedules cannot be expanded during the contract duration, however overages are allowed.
For maximum flexibility in negotiations and payment terms, your buyer will need to be on invoicing terms with the Cloud Provider.
Other payment options include:
- Milestone-based Payments—You can build an agreement around the understanding that your product has features or functionality that your buyer will eventually use based on your own internal customer success milestones. Cloud Marketplaces allow you to amend contracts and modify buyers’ subscriptions or payment due dates based on milestone attainment.
- Ramp-Up Payments—Marketplaces can manage offers, metering, or scheduled payment options for buyers who request to spread out or “ramp up” their payments versus paying up front.
- Deferred Offer or Deferred Payment Date—You have an interested buyer, but they don’t have the budget in the current fiscal period. With Marketplaces, you can secure their commitment with a deferred offer or scheduled payments to hit on the first day resources are available.
- Term Commitment with Recurring Payments—Marketplaces also allow you to schedule recurring payments for buyers with extended term commitments who cannot pay upfront. This shifts the collections risk to the Cloud Provider.
- Down-market Option to Buy—Also known as land-and-expand, many sellers unable to convert large opportunities at full value offer down-market or Marketplace-only deals with lower costs of entry to secure a commitment. You may want to grow these Marketplace-only customers with frequent offers or more granular upgrade opportunities at lower costs based on the value of the reduced collections risk and other benefits of nurturing an existing client.
It Pays to Team with Tackle
With any important business endeavor, more options lead to more questions. At Tackle, our sole mission is to simplify your decisions and transactions on Cloud Marketplaces. We’ll help you navigate the possibilities and negotiate optimal deal and payment terms with your buyers, especially in your early days.
Get in touch with Tackle to find out more about the mechanics of Marketplace transactions and how we can help you easily reach a broader field of qualified buyers.
