Cloud budgets represent a significant opportunity to help ISVs weather economic downturns while promoting efficient growth
It feels a bit like whiplash: Until fairly recently, the tech sector was on a tear as cloud infrastructure and software sales grew at a fast clip. Yet in the past year or so, the landscape has changed, with recent trends indicating that procurement processes have become more rigid as buyers scrutinize their budgets, setting the stage for a new reality in which buyers are more focused on efficient growth, rather than “growth at all costs.”
That certainly doesn’t mean the news is all doom and gloom. Although budgets may be shrinking, that doesn’t mean they’ve dried up completely.
On the contrary, worldwide spending on public cloud services is forecast to reach nearly $600 billion in 2023. In fact, cloud spend is estimated to increase by 25-35% this year, according to Gartner. And this largely untapped budget represents a huge potential opportunity for ISVs to weather an uncertain economic climate.
By all accounts, the market has shifted to a focus on sustainable, efficient growth—with cloud spend increases and 68% of buyers indicating they will increase investments in cloud budgets, according to Tackle’s State of Cloud Marketplaces Report.
CFOs and other leaders are closely examining their organizations’ software spend to find ways to spur more efficient usage, and Cloud Marketplaces and Cloud GTM are proving to be important drivers for building and maintaining revenue during murky economic times.
In short, this represents a massive opportunity for sellers to access a buyer’s committed cloud spend. How can software companies better navigate a changing economic landscape, and how can they leverage Cloud Marketplace benefits to grow more efficiently? Here are a few key points to keep in mind.
Software purchases are under increased scrutiny
Although turbulent economic cycles are nothing new, the devil is in the details: Extrinsic factors, such as world events, can impact the economy and influence how companies respond. “I’ve seen a bunch of boom times and downturns in the economy,” noted Mike Asher, CFO of Neo4j in a Tackle webinar. “This is just the latest one, but each one has a different wrinkle.”
Read More: 3 Reasons Buyers are Flocking to Cloud Marketplaces
The “wrinkle” this time is a confluence of high inflation, changes in how investors are investing, supply chain issues, and the rising costs of finding and retaining top talent. Despite that, Neo4j — like most companies — is still spending, albeit more judiciously. “There’s lots of uncertainty, which makes everyone more hesitant, including us at Neo4j,” Mike said. “We’re still spending on important initiatives, but we’re trying to say, ‘all right, what’s the must have? What do we need to spend now? What can we push off?’”
“This economic cycle is slightly different from prior cycles,” said David Schneider, General Partner at Coatue. “In the past, there was a seminal event that started the downturn, such as with Lehman Brothers closing or the dot com crash. I think we’re surfing a wave into a recession at this point with different parts of the market slowing things down, but almost everybody’s going through another layer of inspection in the sales process.”
As for selling software in the current climate, the pace may have slowed, but significant deals are still happening.
As for selling software in the current climate, the pace may have slowed, but significant deals are still happening. “We’re still getting deals done, there’s still a lot of demand for our product,” Mike said. “But we are seeing, especially on some of the bigger ticket items, deals take a little bit longer, with more scrutiny where there’s yet another level of signatures.”
Battery Ventures recently released its State of Cloud Software Spend Report and found that the majority of the CXOs they surveyed procure software through Cloud Marketplaces, with standardized onboarding and integrations as their leading drivers. This echoes Tackle’s data from our annual State of Cloud Marketplaces Report where buyers identified draw down on committed cloud spend, simplified vendor management (onboarding), ease of contracting, and several other benefits as key to their decisions to purchase via the Cloud Marketplaces.
Create a “mission critical” story for buyers
Sellers must think more strategically about how their product solves problems for buyers, and how that product can be positioned as a “must-have.”
“If you’re in the ‘nice to have’ or ‘luxury spend’ category going into a downturn, you’ve got to figure out how to convert your current positioning to something else in order to be successful,” said David. “You have to associate yourself with a mission critical activity, that’s your job as a software technology provider. It really is important for you to link to something that’s important.”
That kind of insight into the buyer’s priorities requires targeted questions about the buyer’s needs. “Asking those questions — whether in a good cycle or a bad cycle — is an opportunity for you and your sales team to think about where your product stands against other priorities,” said David. “Who’s driving it? What happens if buyers don’t purchase it? And what’s the best way for them to acquire it?”
This new era dictates that sellers must act with intentionality … today’s approach means relying on data to find the right customers.
As the Harvard Business Review notes, SaaS software sales are undergoing a seachange, driven in part by economic headwinds, and we’re in a new era of buying and selling software. This new era dictates that sellers must act with intentionality—gone are the days of setting up a website and hoping a customer finds you, or engaging with indiscriminate, mass marketing strategies to try to find buyers. Today’s approach means relying on data to find the right customers—which saves time and money, both important considerations in a turbulent economy.
Read more: Leveraging Tackle Prospect to Identify the Right Buyers
What’s more, in just a short amount of time, the approach to software purchasing has changed and the onus is on companies to prove the value of their products more quickly. “In 2021, money was just pouring into tech companies,” said Mike. “It was really about growing at all costs and investing for the future. For us, we were buying software with an eye on buying ahead of the curve. But one of the things that we look at now is what do we need right now?”
Despite economic unpredictability, Cloud Marketplace benefits outshine the anxiety and uncertainty
The economy may be in flux, but “cloud transformation” — taking advantage of cloud-based technologies to boost efficiencies and scale business — continues. “Every company is still moving their workloads to the cloud,” said Mike. “The economy is giving people pause but the mega trend is clear: the cloud transformation is happening.”
Read More: Why Cloud Marketplaces Might Save Your Business
Although some of that transition to the cloud may not be progressing as rapidly as it was, the momentum is still moving in that direction. As companies continue to migrate to the cloud, making software purchases via Cloud Marketplaces are expected to ramp up, as buyers begin to see the benefits (such as simplified procurement) of purchasing software through a consolidated cloud budget.
More buyers are coming to Marketplace, more budget is being allocated to the clouds, and more sellers are following the money.
More buyers are coming to Marketplace, more budget is being allocated to the clouds, and more sellers are following the money, evident in the fact that 83% plan to put more or significantly more focus and investment on Marketplace as part of a Cloud go-to-market strategy this year, according to Tackle’s State of Cloud Marketplaces Report. “We’re really seeing things start to accelerate,” said John Jahnke, Tackle CEO. “Over the next five years, you’ll continue to see the lines between cloud budget and enterprise software budgets start to blur, and that will turn into a trillion dollar super budget.”
Despite some apparent caution around software spending, companies still intend to make the most of Cloud Marketplaces. “Even though there is more ‘thoughtfulness’ going into purchases, we’re still going to invest a whole lot more with the Cloud Providers this year than last,” said Mike. “Overall, our spend is significantly higher this year with the Cloud Providers and the Marketplace.”
Unlock committed spend
For ISV’s, one of the best ways to unlock new revenue sources is by tapping into committed cloud spend, which is the amount a company agrees to spend with a Cloud Provider on cloud services, and can be used on third-party software purchases through the major Cloud Marketplaces. If there’s an additional $90B being added to cloud budgets around the globe, sellers have to find a way to attach themselves to that.
Accessing that budget is the top reason why buyers choose to purchase software via Cloud Marketplaces: Tackle’s State of Cloud Marketplaces Report says that 48% of respondents cite drawing down on committed cloud spend with Cloud Providers as the number one reason to make software purchases via Cloud Marketplaces.
Taking advantage of this rapidly growing budget can provide some degree of revenue support during an economic downturn. ISVs that emphasize the value proposition of burning down committed cloud spend have a better chance of closing deals faster — an important consideration in an era of extended purchase cycles.
The option for buyers to burn down that cloud spend through Marketplaces removes an additional barrier to sales. In other words, if a buyer has committed $5 million to the cloud over two years, it’s far easier for that buyer to say “yes” to a software deal in order to help reach that commitment and avoid leaving money on the table.
In the months ahead, it will be increasingly important to remove friction for buyers who have become accustomed to saying “no” as the default. “I think it’s about focus, keeping it really simple and thinking about the majority of buyers and where their wallet is,” said John. “Just start asking your buyers, ‘Would it be easier to buy from us on your cloud bill? Do you have a strategic relationship with a Cloud Provider?’”
Think of Cloud Marketplaces and cloud budgets as a “speed ramp” to a deal: it doesn’t guarantee that a deal will close, but it does give software sellers the opportunity to tap into sources of revenue that may already be contractually obligated.
Cloud GTM and Marketplaces: An effective insulator
Although SaaS companies may be facing some challenges in the coming months, there’s certainly reason for optimism. Cloud Marketplaces aren’t a silver bullet against uncertainty, but they can be an effective insulator against economic turmoil. With increased cloud budgets and continued enthusiasm for Cloud Marketplaces as an efficient and cost-effective channel for software sales, ISVs can create more ways to win during a tumultuous time.
Frequently asked questions (FAQs)
How can businesses leverage Cloud Marketplaces to streamline their processes and save costs?
Cloud Marketplaces deliver access to millions of new buyers with pre-committed cloud spend and contracts. Cloud Marketplaces help companies accelerate deal velocity, unlock co-sell opportunities, get reliable payments, and reduce overhead.
What are some common roadblocks that businesses face when using Cloud Marketplaces, and how can they be overcome?
Some common roadblocks to using Cloud Marketplaces include: (1) technical barriers making listing in Marketplaces (and maintaining the listing) time-consuming and resource-intensive; (2) lack of software integration between ISV systems and Marketplace systems; (3) lack of reporting and insights on Marketplace performance; (4) lack of revenue visibility for sales teams and CROs; (5) difficulty managing and maintaining crucial relationships and communication with Cloud Providers and their respective Marketplaces. However, all of these hurdles can be overcome through solutions such as the Tackle Platform.
How do Cloud Marketplaces fit into the broader landscape of cloud computing and digital transformation?
Digital transformation and cloud computing are growing for software companies, especially for SaaS and as legacy organizations modernize. Because of this, companies are spending more with the Cloud Providers and therefore they have committed spend they can leverage efficiently through Marketplace purchases.
Interested in seeing what a seamless solution uniting co-selling, buyer intent data, and Marketplace solutions can do for you? Schedule a demo today.
