Jay McBain of Forrester on Channels, Partners & the Role of Marketplace

Nicole Smith:
All right. Hi, everyone. Happy Tuesday. I’m Nicole Smith and I’m the VP of Marketing at Tackle. Welcome to our webinar, Channels Partners and the role of Marketplace. Before we kick off the discussion today, just a few housekeeping items to take care of. We’re recording the webinar and we’ll be sharing it with everyone afterwards. If you have any questions for John or Jay, you can ask them in the Q&A area and we’re going to cover them as they come in during the discussion. With that, I’m going to turn it over to John to give some background on why we’re doing this webinar and we’ll go from there.

John Jahnke:
Hey. Thanks Nicole. And thanks everybody for joining. It’s great to see so many customers, partners, friends of Tackle, friends of Jay, I’m sure, join the webinar. I’m excited to welcome Jay McBain from Forrester to this webinar. Jay is a Principal Analyst at Forrester covering channels, partnerships and ecosystems. He’s really the driving force behind the… I’m sure there’s many people involved with behind Channel Software Tech Stack, which got released earlier this year, and does a lot of research around B2B channels and partnerships. Welcome, Jay. Thanks for joining us.

Jay McBain:
Thank you so much for having me. Excited to be here.

John Jahnke:
For those that follow along with Tackle content, we spend most of our life as a company partnering with software companies, helping them find pathways revenue via the cloud marketplaces. We get to share a lot of stories of successes, as well as the challenges that software companies are having. And I think we find ourselves in a lot of partnership discussions, both with cloud providers, as well as how cloud marketplaces in our sector channels, which is really the idea behind this discussion. Jay’s a expert in that domain and we thought it’d be an interesting conversation just to bring to the audience. Jay, I’d love for you to just share a little bit about yourself and how you found your way into this role at Forrester.

Jay McBain:
That’s great. I’ve been in channels, and partnerships, and alliances, and ecosystems for 26 years. I ran partnerships at big companies like IBM and Lenovo. I was actually the owner of a software company and CEO of a channel software company for six years after that, and built channel-based software. It’s very meta, but kind of did both at the same time. And three years ago joined Forrester as the practice lead for study and partnerships. 75% of the world… $86 trillion, 75% of it goes indirectly. I’m just fascinated by industry, by geography, by buyer type. Looking at sectors and segment and size of customers. Looking at the different types of business models, solution areas. All these types of things are rapidly changing. COVID has put accelerators on even that, and we’re in a space here where 76% of CEOs think their current business model will be unrecognizable in five years, and ecosystems are now the number one reason why. It’s a really interesting time to be in this space and looking forward to this conversation.

John Jahnke:
Awesome. Maybe just to start the discussion at a higher level, it’d be interesting to hear, as you look at the ecosystem and how it’s evolving, what’s really driving that evolution or what would be the top things driving the evolution?

Jay McBain:
I think at a CEO level, at a business level, every business around the world in every industry is getting disrupted. And we know the stories almost industry by industry. We could almost retell some of the stories of disruption. But the fact of the matter is, one of the outputs of disruption is, every company is becoming closer to a tech company. They’re doing more integrations, they’re understanding the power of software eating the world. They’re understanding the power of partnerships and things like that as a key change in their company. That’s number one.

Jay McBain:
Number two is, we see in our personal lives and our professional lives, every company we interact with are quickly becoming subscription businesses. Instead of one time sales, everybody’s rethinking as a service and all of the different elements of as a service to re-earn our trust every 30 days. That’s the second element.

Jay McBain:
The third element we’ve seen recently is, companies are getting obsessed over their customers. They’re understanding more about the customer journey than ever. Every moment in that consumer or customer’s time, from the point they have a pain, or the point they think they need something to the point of transaction then to the point of renewal. They’re inspecting these moments. There’s great tools out there to quantify these moments and they’re understanding these new spheres of influence that happen.

Jay McBain:
If I look backwards, we’ve gone through three phases wrapped around software. 20 years ago, a small company in San Francisco called Salesforce got their start. We spent the next 10 years taking sales from really, an art to a science. If you interviewed for a VP of sales job in 1999, it would be a very different interview five years later. They would ask about CRM, they would ask about your sales stack, they would ask about your processes and your workflows, repeatable and scalable, and how you do from a technology perspective. They’re not all that interested in hearing about your gut feel or how you got to be born to be a salesperson. It became scientific.

Jay McBain:
10 years ago, the same thing happened in marketing where before that you’d have interview for a VP in marketing position and you’d be waxing poetic about 50% of your marketing dollars are wasted, you just don’t know which 50%. Ha, ha, ha. Five years later, it locked down with marketing automation and the 8,000 companies that are on the MarTech stack today. As you’re interviewing for a job as a CMO or a VP in marketing, you’re going to be talking to the seventh decimal point about the science of marketing. What was left out of that equation for the last 20 years is the 75% of the world that goes indirectly.

Jay McBain:
So where is the partnership executive, the channel chief, in that conversation at the seventh decimal point, talking about how partnerships drive the business? And so I think this third phase now, and the reason behind my Channel Software Tech Stack, is the elements of what’s going to carry us forward for the next 10 years, which is really this partnership economy or the ecosystem that’s going to drive companies forward. And interviewing for a job yesterday versus interviewing for a job five years from now as the head of alliances, head of ecosystems, head of partnerships or channel chief, is going to look so much different as you’re talking about the science of partnerships, as opposed to wining and dining people in warm locations and kind of the hoogie booge, that’s got along with the channel reputation for 20 plus years.

John Jahnke:
Yeah. Definitely. I’ll circle back to a question there. Since you talked about the Channel Software Tech Stack, I’d love to hear the origin story. Where did the idea come from and how have your thoughts about that over the last three or four years as you publish it evolved?

Jay McBain:
The origin story is, I was one of them. I was a CEO of a channel software company. As I was out raising money with venture capitalists in New York and down Silicon Valley. One of the key things I did is, you build as part of your pitch deck, where you fit in the equation. We know today that the average software buyer will buy seven different things to solve their problem. When you’re buying Salesforce, as we mentioned, there’s six other things that you are going to be bought as part of the stack. I knew as a channel software company that I didn’t, for example, do partner relationship management. I didn’t connect the dots between the 100 things you need to do to recruit and manage partners. From recruitment onboarding, education training, incentives, motivation, loyalty, sales enablement, co-selling, co-marketing, all the 100 elements of the standard program. That’s not what my software did. So who was I going to be partnered with and who did I need to be integrated with and who needed to be part of my ecosystem? I was really fascinated with the 25 to 30 companies that do PRM.

Jay McBain:
Then the next layer, through channel marketing. There’s 40 companies that specialize in marketing to, through, and with partners. Taking this last 20 years, like talked about and moving that expertise to, through, and with your channel partners is the next 10 years. I’m fascinated with that layer, but that’s not what we did. Then I started looking at incentives, I started looking at channel data, I started looking at ecosystems. I started looking at all the other things you would possibly plug in and I ended up finding 159 companies that plug into different elements of the stack, but no one company did it all.

Jay McBain:
The argument was, and the rightful one was, we fit and solve a really big problem. Of these 159 companies, 155 of them were non-competitive with us. Like Tackle, same thing. This idea of you fit within a stack. You fit almost at every client could use your platform, but they use it in and around others. It’s not a competitive map. It’s a map of the people you need to be partnered with, need to be integrated with. In the end, they’re in front of your buyers at scale. If you look at it that way, they have a chance and you have a chance with, and through them, to become one of those seven layers of that stack, as a company that solves a big problem.

Jay McBain:
That was my origination story. The fact that I go way back and I had an accountant as a father, and I account everything in my life. I’ve tracked every penny I’ve ever spent since I’ve been 11 years old. I do have a lot of lists and I do publish a lot of lists around the industry and stuff like that. I tend to quantify more than the average person does.

John Jahnke:
Do you keep lists at home too? You live in Florida, right?

Jay McBain:
I do. Yeah.

John Jahnke:
Are you a list keeper at home as well?

Jay McBain:
It’s all automated now. I don’t write lists but every heartbeat is tracked and every step I take is tracked, every calorie I eat is tracked, and every dollar I spend. Everything in my life, has an app or has a piece of software that integrates together, that tells the story of my life. From that first piece… I built a Quicken program when I was 11 years old on my Apple II computer. Became Quicken and money and things like that but it was a trifecta. I started scanning every document.

Jay McBain:
So in my life, right back to my first book report to my last visa statement, it’s all electronic and it creates a background to the financial elements. And then every picture of my life, and my parents’ life, and my grandparent’s life, has been digitized back since the 40s. Every day of my life, I have a kind of a triple story of, here’s where I spent money, here’s the documents to prove it and here’s the pictures of where I was. And now I’ve got underneath that, everything I ate, everything I did, everything I walked. It’s becoming this quantified life, which is just an interesting way of using software.

John Jahnke:
Yeah. It’s amazing how our consumer… I think it’s been… For so long tech was very B2B focused and then over the last 20 years, it’s kind of been the raging consumer and now we’re at this point where B2B is almost behind. You can do more from a consumer standpoint in some ways. I think it’s a great transition into our conversation about marketplace. We just think about our experiences on our phone and getting software we want when we want it, and expanding that experience over time to just make our lives easier. But still today, the process of acquiring software is difficult and fraught with friction. People don’t like buying, people don’t like selling and enter these marketplaces. We’d just love to hear your point of view on the bigger marketplace movement, even beyond software. Any direction you want to take marketplace.

Jay McBain:
This is a trend we’ve been watching closely for years, and there’s a bunch of converging things that are happening that are driving this. And I think COVID has been kind of the cherry on top. But as you go way back and start to look at the buyer, start to look at things I just mentioned, like they buy on average seven things. If you look at the global technology industry, for example, it’s $3.6 trillion with a T. $2.26 trillion of that goes through the channel, so 64%, almost two thirds of every dollar flows through Larry and the white van. That’s fine when you’re buying a PC, or you’re buying a server, or you’re buying a hardware, a one time purchase thing. That agent or dealer or manage service provider whoever that is in the channel can actually bring together your solution and give you a single bill and allow you to connect that with your procurement and whether it’s an RFP. That process was great for the 90s, 80s, even in the 2000s.

Jay McBain:
Software today, there’s 175,000 software companies, and that’s growing to a million, 10 years from now. By the way, there was only 10,000 10 years ago so we’re in hyper growth. When you look at emerging technology, you look at IoT, Internet of Things, you look at AI and automation, or blockchain and drones, and quantum computing, and everything else down the line. There’s 800,000 companies we’re watching at Forrester. On top of that, is you’ve got every company and every industry becoming a tech services or tech company.

Jay McBain:
There are just millions and millions and millions of variables. I think it’s somewhat unfair for this new buyer, who’s very digital and very advanced to think that Larry and the white van is going to go strike up a relationship with seven vendors, become a partner, be able to get the product at the discount level you need it, stitch it all together and give you a single bill. That whole concept, just logically, doesn’t fit this world of permutations we’re going into. That’s one, the buyer is changing things, as everybody’s turning into as of service and more subscription businesses, you want a central place where not only can you procure those seven things, but you may want to provision those things in one place. Add or remove users, you want to measure and monitor and report on those things and you want the control to be able to leverage all of that in a single console.

Jay McBain:
From a consumer perspective, people bought into the Amazon concept, they bought into the Alibaba concept in other regions, this idea that a marketplace really works. And the corporate growth that we’ve seen over the last 10 years in e-commerce, Web Direct and marketplaces, which is significant, has now been eclipsed in the last three months because of COVID. We had 10 years of e-commerce growth and marketplace growth in the last three months, which is amazing. We basically doubled from 17% of the world going e-commerce to 35%, in a very short amount of time. The fact is, this is not going to bounce back. The economy is going to bounce back, everything else is probably going to return to some future state, different than today but probably more like it was before COVID, but that’s the one thing that’s not going to snap back. As consumers getting our groceries, getting our six Amazon boxes at the front door every day, that isn’t going to change because the value that it drives in so many different ways.

Jay McBain:
We know that B2B buyers who buy software look more like consumers from a demographic perspective, from a action, from a psychology, from a behavior. The journey they’re on is becoming more consumer led and these trends all come together. That’s why we made a pretty stark forecast on marketplaces before COVID. Forrester said, “17% of B2B transactions would go via e-commerce, Web Direct marketplaces by 2023. COVID is going to pull that back to… Either late this year or early next year, we’re going to hit that number. It doesn’t sound like a lot when 73% of the buyers prefer it and only 17% of the dollars flow that way, until you look at the $13 trillion B2B market.

Jay McBain:
And whether you’re buying paperclips, a forklift or a piece of software, that is a movement of $2 trillion from Larry and the white van, or from the retailer franchisee, agent, dealer, whatever network you bought up from third party, and it moves those dollars back into a marketplace. That’s the big change that’s happening here. And we know it’s been growing every year, it’s just been put on a hockey stick. And we’re under this tipping point now that the future looks very different for the thousands upon thousands of vendors that I talked about that are looking to sell software.

John Jahnke:
That’s super interesting. We had a couple questions come in and one’s related to a topic I was going to go to next, which is really the evolution of channel expense as a software company. How you see marketplaces playing into channel expense. And really, this specific question was around, will the marketplaces drive that expense down to zero or will there always be some expense? Any thoughts around that?

Jay McBain:
Yeah. We know for sure it won’t go to zero. We know today and we’re watching the 20 winning marketplaces out there. If I go to Salesforce, for example, they charge a 15% tax. What’s interesting is, if they bring you a client and they transact via the AppExchange and you don’t as a brand, invest any engineering sales or marketing, any SGNA at all, that 15% tax is going to be your lowest cost to acquire a customer. What’s interesting is, it’s beneficial on both sides. However, if you do spend a lot of engineering time, sales and marketing efforts to close that deal and then it just transacts on the marketplace, that 15% may lead to double payments. You may have to pay a partner that brought it in. You may have to pay Salesforce for the ability to sell through the marketplace.

Jay McBain:
That’s where you’re looking at your gross to nets. Your program today as a software provider is somewhere between 20% to 40%, front end margin that you’re paying, and somewhere between 3% to 5% back end margin for a traditional channel. That’s for volume rebates, that’s for market development funds, that’s for any kinds of spiffs. You look at that, and that’s somewhere between 25% and 45% of your revenue is getting reduced via the channel. If you continue to spend that and then you have to additionally spend a 15% tax to sell on Microsoft, or AWS, or Google’s marketplace, then it becomes an expense problem. And you have to look at your program and look at the different elements of your program to be able to reduce that and get it into an acceptable range to drive your own profitability.

John Jahnke:
You’ve mentioned a few different kinds of marketplaces and obvious, we focus on the Cloud Marketplaces, AWS, Azure, GCP, very heavily, you’ve mentioned Salesforce. What other kinds of marketplaces fall into those top 20 as you look at it? And how do you think… I’ve heard you say there’ll be potentially 100s but they’ll be 20 that really win. How do you stratify those out?

Jay McBain:
If you were to have me predict 10 years from now, who the winning marketplaces are, I could probably label them and I would be probably 80% accurate. We know Microsoft’s going to be a winner. Just by their valuation and just by their ability to interact in all parts of technology. We know that AWS will be a winner. We know that Google will be a winner. The top three that you work on are going to be three of the biggest winners. Why? Azure grew by 59% before COVID, grew by 47% after a quarter of COVID. Unbelievable growth rates and orders of magnitude higher than any other company in any other industry.

Jay McBain:
The Cloud Marketplace in the overall cloud opportunity is resilient to pandemics and pandemonium. When I look at others, AWS grew by 54% before COVID, they’re growing by 41%. I think Google grew by 51% and now they’re growing still in the 40%. These are very resilient to shutdown. Basically, everything shut down for three months and somehow they’re executing these levels of growth which, if you’ve been watching the stock market in the last couple of weeks are getting the benefits of that. What we thought were highly valued, maybe overvalued companies, without a lot of headroom in their valuation, now we have $1 trillion valuations hitting 1.5 and now they’re going to start… I think Apple’s going to hit 2 trillion within the next week or so. So they’ve got a lot of headroom ahead of them. This is really interesting when you compare it to other industries and other things.

Jay McBain:
Beyond that though, there is a SaaS set of marketplaces. Mentioned Salesforce. I could mention ServiceNow and Workday, I could mention Marketo inside Adobe. I could mention NetSuite inside Oracle. I can mention the top SaaS companies today who will be probably 10 of those winning 20.

Jay McBain:
On the other side, you’ve got more traditional marketplaces. Infrastructure marketplaces like IBM, SAP, Oracle, which will drive a lot of dollars because of their enterprise focus and a big, almost half of that $3 trillion goes into that enterprise spend big business spend, and those will start to flow more and more through their marketplaces as well. That makes up the majority. The last few will be more traditional marketplaces, buying technology on Amazon.com or Amazon for Business, buying technology on Alibaba. There’s going to be some consumer or business focused consumer marketplaces that will pick up the other winning formula here, mostly in SMB, but again, will make up the top 20.

John Jahnke:
Awesome. Super interesting. I know you mentioned Microsoft and Microsoft being a winner just based upon their channel focus. I know you keynoted the ISV segment of Inspire last week and they’ve made some pretty significant announcements just to accelerate their marketplace strategy. I’d be curious on your takeaways from that and steps they’re taking to continue to drive this movement.

Jay McBain:
I think we’re in the second inning of a long baseball game here and Microsoft would probably self admit that they’re probably in the second inning. They still have three business facing marketplaces. Azure, when you get into 365, when you get into Dynamics, when you get into Windows, when you get around to Teams and into security. All the different 16 divisions of Microsoft are clumsy right now in terms of how they execute on three different marketplaces. And in the end, it’ll probably become two. There’ll be a consumer based marketplace and… If they end up buying TikTok and if they end up… Obviously with LinkedIn and Xbox and their Microsoft stores, which I think they just shut down, and their consumer route to market will be covered.

Jay McBain:
Those will be the app stores for consumer devices like their tablets, that run on top of X-Box and their consumer platforms. And then you’re going to bring together Azure Dynamics 365 security team, you’re going to bring together their business focused under a larger set of capabilities. And it’s up to the marketplace then… When you look at AWS, they also have three marketplaces. There’s a pure AWS, there’s an Amazon for Business and an Amazon and you’ll probably see that break into two. Where AWS and Amazon for Business will be probably merged together in the next couple of years because it just makes sense. And then Google has multiple marketplaces, ad buys and obviously some of their products like Chrome, App Marketplaces and things like that. They probably have four or five marketplaces that need to come down into consumer facing and business facing.

Jay McBain:
When I go beyond the top 20, it gets more interesting. I’ve gone on record saying, and I’ve done the math, there’s 35 million potential marketplaces. The reason there’s 35 million potential marketplace, by the way, this is for a SaaS company. If you look at your buyer, today there’s 12 buyers and 65% of the cloud is bought outside of IT. The head of marketing in many companies spends more on tech than the head of IT. Serving that marketing buyer and the 8,000 companies on the MarTech stack that do that is its own market. There are marketplaces that have been formed around serving that marketing buyer, as well as sales and operations and finance and HR. There’s a number of maybe 12 areas there that marketplaces will serve the buyer.

Jay McBain:
The next layer or the vector of marketplaces will be serving the industry. It’s not just the 27 industries, it’s the 297 sub industries. A midsize clinic runs very different, from a software acquisition perspective, than a large dentist office or a small hospital. There’s a healthcare marketplace but there’s a midsize clinic with 50 doctor type marketplace that’s pre-vetted, if it happens to be in the US, it’s HIPAA and HITECH compliant, it’s taken 175,000 software companies down to the few hundred that serve that particular market.

Jay McBain:
Number three is geographic. If you serve a midsize clinic in upstate New York, very different than Florida, very different than Toronto, London, geographically by state, by province, by country, that shifts. And again, breaking down the geographic elements, like for example, serving GDPR in Europe, a very specific marketplace approach.

Jay McBain:
Fourth is you got sector, size and segment. Serving a Fortune 500 class customer to a 49 employee SMB customer is very different. We’re starting to see the emergence now of all kinds of SMB kind of marketplaces and even marketplaces that sit behind Larry and the white van. So the big distributors like Ingram and Synnex and Tech Data, virtual distributors like Pax8 and SherWeb. There’s a whole movement of marketplaces that serve a service provider who then serves the buyer that serves SMB. It’s somewhat convoluted but there’s a lot of opportunity by segment, by sector and size of customer to run successful marketplaces.

Jay McBain:
Down there to the solutions. There are 26 layers of the tech stack today, and 200 sublayers. In software, you can write towards all kinds of solutions. You could be a security ISV, you could be a compliance ISV, you could be a continuity ISV. Inside security, there’s seven layers of security, you can be web, application, data, physical security, endpoint security. It goes on and on and on how hyper specialized you can get within the technology stack. And inside of there, there are marketplaces opportunities. There is a security marketplace, there is a compliance marketplace, very specific to technologies themselves.

Jay McBain:
And then finally, we’re finding marketplaces, the sixth vector is by business model. We see marketplaces today that serve managed service providers, markets that serve for example, other solution providers, markets that serve, for example, accountants, ones that serve digital agencies, one that serve Cloud brokers and Cloud aggregator. Of the 16 different kind of business models that the average ISV may have as their ecosystem, there are marketplaces that are defined in that space. You multiply all that together, there’s 35 million potential marketplaces. We’re just figuring out now who should run them.

Jay McBain:
Should it be the association that covers that very specific part of the market midsize clinics in upstate New York? Should it be the media company who has the magazine and blog around that area, the podcast, everything else? Should it be a vendor that has a lot of strength in midsize clinics that runs the marketplace for everybody? Should it be the distributor behind the scenes, like I mentioned? The thought leader, the peer groups, social groups. All the different influencers in that very particular marketplace, all have the ability of using third party tools to build themselves and white label their own marketplace. They can curate, they can validate, they can qualify everybody who gets into that marketplace to serve that very particular buyer and not send them into the Wild Wild West of a Microsoft or an AWS style marketplace where they’re going to get lost in the shuffle perhaps.

John Jahnke:
Super interesting. 35 million’s a lot. I had not heard you say that number. I heard more of the narrow numbers but that’s super interesting.

Jay McBain:
By the way, every time I talk to a marketplace vendor who builds marketplace technology, their eyes go as big as saucers when I give that number.

John Jahnke:
Did mine when you said that? Probably.

Jay McBain:
And all the sales leaders cringe because I just gave them a new quota.

John Jahnke:
Yeah. Don is cringing, our CRO. We got a couple of questions rolling along the way. One was around doing business with one of the Clouds and advice you have for a seller as they think about moving to the other Cloud Marketplaces. Pros and cons of even if you were selling with AWS and wanting to go to Azure, GCP, what advice you give software companies around that?

Jay McBain:
The advice it’s always customer. If you’re customer obsessed as a company, your customer will always lead you. I always talk to… And I was a founder and CEO of a software company. If you always go back to your initial MVP, Minimum Viable Product, and compare it to where you are today, and look at the history of all the roadmap and all the changes you made, most of that was the customer dragged you into a certain part of the market. They were the ones that told you about the feature, and the function, and the benefit they needed from it. They took you in many cases to the opportunity and you as a company then expanded that to people that look like your customer and built a market around it.

Jay McBain:
99% of ISVs kind of start in that format. That’s why venture capitalists and private equity don’t get wrapped too hard around the axle on what your MVP is and what your initial take on the market is, because they know two years later sitting on your board, it’s going to look very, very different. The fact of the matter is, with that in mind, that’s how you look at the Cloud. So your initial take and we built on AWS, I think it was just the fact that they give us a bunch of free tools and the fact that my DevOps team had some previous history there. But as you grow as a company, you start to get into a multicloud, hybrid cloud environment. And the reason is as you acquire more customers and as you’re trying to build your market adjacently, you may have gone and got 80% market share with those midsize clinics in upstate New York and now you start looking one state over, one customer over, one industry over, and as you do that, the fact is, is they don’t all run on the same Cloud.

Jay McBain:
And for you to stand up… No company wants to sell anything twice. To go back to your CRO, who’s twinging right now, you never want to be put in a position as an ISV to sell something twice. It’s hard enough to sell your own product and to get that pilot and to get things going, it’s harder to go in and then try to sell the Cloud that you’ve gone exclusive on, on top of that. What you should be focusing your sales team time on is winning why your value proposition wins over some other course of action. If the customer doesn’t care, you run on your primary Cloud that is most comfortable and perhaps you have the most history with. But if your customer does care, if your customer’s bought into GCP, or if they’ve bought into Microsoft and you happen to be an AWS shop, that’s as a maturity as a company where you start to open up. And it’s customer choice in the end and you’ve got to be able to run your platform in your customer’s environment, and the data, the APIs, your friendliness to that is paramount importance.

John Jahnke:
We’d usually summarize that and just say, “Sellers want to sell where buyers want to buy.” And buyers typically want to buy where they run the majority of their applications and infrastructure. I think to your point around multi, hybrid, like those scenarios seem to be emerging more and more, and it’s just, while people may make a selection primarily for one, they oftentimes have a variety. Whether it’s at an application level where they’re not being specific about, I want the SaaS product, I don’t really care where it runs or they’re making decisions where they’re going to divide the workloads across the hyperscalers or even beyond the hyperscalers.

Jay McBain:
There’s a second really element to that as well, which I spent about a third of my time studying which is the community or the ecosystem value of spreading. When you look at an ecosystem, it’s really anchored on three tenants. The ability to drive intra-firm value, it is one. Second is leveraging each other’s networks. It’s number two. Number three is co-innovation. As you start to look beyond a single Cloud, and you’ve worked and you’ve perhaps built some innovative standalone products with AWS, for example, you may look over to Microsoft, they have a different ability to get you to market. Every business on the planet runs something from Microsoft. Every single business is running Microsoft Excel, at least one computer with Windows on it. The fact is, their ecosystem is completely without measure. They have 355,000 partners in their ecosystem and they have 7,500 new partners joining every month.

Jay McBain:
How to leverage that with your own business? If you’re trying to grow adjacently, again, different industry, different buyer, different geography, if you’re trying to look at those vectors and grow your business, there could be a likelihood that Microsoft, or Google, or AWS, could help you accelerate that via leveraging their network, their community, what people read, where they go, who they follow, the influencers, the super connectors. The way you do community marketing within these larger hyperscalers is the definition between winners and losers today across the big number of hundreds of thousands of ISVs.

John Jahnke:
Yeah. We see that co-sell dynamic inside the hyperscalers. If you want to trigger co-sell, you need a value prop that’s not only simple enough for your product, for their thousands of sellers and millions of partners, however many are out there to understand. But that also connects deeply with what’s important to them, which in almost all instances is driving core service consumption. If you can’t answer those couple of questions on locking, the power of co-sell can be difficult. Those are a couple places to start. Your core value prop that’s simplified for the Cloud provider and two, how do you help them meet their core metrics? [crosstalk 00:38:01]-

Jay McBain:
Just to cap that one off, finally, I think there’s two elements. When I talk about customer obsession and learning about your customer from the point they thought they had a problem to whether they did a Google search, from every moment then on, in the end they’re going to buy seven products, on average, to solve their problem. You’re trying to compete to be one or more of those layers of the cake. You got to fixate on who those six other layers are and be in those networks and make sure that you’re connected, your APIs are friendly, you’re integrated. That you’re part of that same cake. That’s number one. So think of the rule of seven.

Jay McBain:
The other rule is, the average buyer of software will surround themselves with, on average, five different influencers through the early parts of the journey to the point they get vendor selection. Your ability to build your own ecosystem, the influence the influencers. The chance that you’re going to be one of those five people around the table is pretty remote. You’re going to have your top [inaudible 00:39:08] activities you’re watching on. You’ve got everything engineered around winning your fair share of opportunities but you’re missing 90% plus of opportunities that you don’t never hit as an MQL. So are you influencing the influencer? In other words, how many of those five people around the table of that midsize clinic buyer in upstate New York know about you? Know enough to be dangerous and would endorse you at the right time.

Jay McBain:
As they’re moving through the journey and getting towards vendor selection, the majority of software buyers today will actually never call a salesperson. They’ll get highly influenced through the way of baking this cake. And all the flour, and sugar, and all the other elements and the icing and everything else get pretty formed through the whole early part of the journey. Your ability to influence the influencers to get at least one, but if not two, three, four, or five people around that table, to be talking nicely about you and get you connected, it means that you’re going to start winning deals that never hit your phone. And if you can do that at scale, that’s the point of acceleration via leveraging these ecosystems and these communities to really drive your business.

John Jahnke:
That leads to our next topic which is really around enterprise procurement. Marketplaces provide a new experience for procurement executives and even individual buyers. There was the question specifically around, when I’m embarking on a marketplace journey, how do I ensure I get new leads and I’m not just moving my existing customers to the Cloud Marketplaces? From our standpoint, it seems like the buyer continuum is going through a tech adoption lifecycle curve. You have the early adopters who maybe are departmental, and then they’re starting to move into more early majority where procurement’s getting engaged. I’d love to hear from your standpoint, procurement, that transformation, getting organic deals through Cloud, reef on that a little bit..

Jay McBain:
I spent 17 years working at IBM, calling on big clients with very powerful procurement arms and things like that and they tend to be slow moving. The thing that Cloud did is highly disrupted that. If I look over the history of technology, Microsoft was an SMB company, then it became a mid-market company, then it started knocking on the door of the big IBMs and HPs and Decks and others to get into enterprise. When I look 20 years ago, Salesforce was an SMB company that was looking for rogue buyers, looking for shadow IT buyers. I’m one of the ones that brought Salesforce into IBM after we just spent a billion dollars on Siebel. My department turned into two departments, turned into three departments, and now IBM and Lenovo are end-to-end Salesforce.

Jay McBain:
They didn’t win the global procurement RFP. They came in as product-led companies, which is the most popular thing in ISV land today, software land is to be product-led and they did the beachhead or the starburst or whatever you call it, and grew from a product-led. Every Dropbox, every box, every company today… That DocuSign and SurveyMonkey, all these companies have grown out of this product-led SMB departmental, basically, avoiding procurement.

Jay McBain:
Procurement, number one, has been pretty significantly downsized because 65% of Cloud decisions happen outside of IT. They happen outside of the normal process. The reason is because of the different economics. If you were to buy Siebel, like I mentioned, was over a billion dollars. If you were to buy any software from Oracle, or SAP, or IBM in the past, you’re signing a seven figure check. No company signs a seven figure check without procurement experts negotiating the heck out of it and making sure the terms and conditions and everything else. But when a department starts spending $19 on their departmental credit card per person per month, it floats in and that’s where hundreds of SaaS companies start coming into an organization.

Jay McBain:
And guess what? Procurement’s job, kind of like IT’s job has changed in the last few years. They are now more in charge of governance. They’re more in charge of compliance. They’re more in charge of security. They’re more in charge of playing a federal government role of making sure that, there’s going to be a lot of things happening at these line of businesses. We know just based on our networking folks that tell us that 100s and 100s, if not 1,000s and 1,000s of applications that are running across our network, we can’t police it at that level, but we can roll it up. If I see that at a certain level that we’re using this much Slack, it’s probably time to roll that up into an enterprise conversation with Slack.

Jay McBain:
I want additional governance and controls and security, and I want to give more benefit to those users who brought it in to solve a problem. And so when you roll that up, it becomes the second stage of product-led marketing, which is a procurement approach that then leads to bigger and bigger company wide enterprise contracts that may have seven figures to them or more. That’s really the movement of procurement into this federal government role of security, and protection, and scalability, and other things that are important to the organization. But don’t slow down that buyer, the 65% of buyers who need something… By the way, 29% of those buyers actually avoid IT. They’re buying technology without having IT as part of their buying [inaudible 00:45:00]. Because they don’t want the governance, they don’t want to be slowed down, they don’t want a two year IT project and be put last in line to get this done. They’re doing it rogue to solve problems because they’re going to get fired next Thursday for not bringing in new leads as a marketing. You can’t wait. That’s the new reality around procurement in this Cloud driven world.

John Jahnke:
You opened your remarks just touching on disruption and how so many companies are trying to evolve and more and more companies are becoming tech companies. I think, when you think about build versus buy, if we’re going to go from 175,000 software companies to a million buyers becoming the answer more and more and people are building what they absolutely need to, to differentiate themselves from they’re going to try to buy everything else. You kind of have this flip flop of this strategy every 10 or 20 years. But in that instance where you’re going to try to buy everything, you need velocity, you need procurement at the speed of innovation and that’s one of the pathways, I think. It’ll be a journey and no different like when I started buying on Amazon in 2001, I would buy a book and wouldn’t think twice about it, but I never would have bought a TV. Today, I wouldn’t buy a TV anywhere else. It’s just the evolution of the way you do business.

Jay McBain:
As a procurement agent for Amazon, the six boxes that show up at my front door every day, and when the doorbell rings, my kids go and rip them all open and stuff goes everywhere. That fact is that I can go back to Amazon as my marketplace, look at my orders, look at the chronology of the purchase. They now notify me when the truck is 10 minutes away. If it’s something important, I go intercept the truck so my kids don’t get at it. But the fact of the matter is, I’ve got a central location now and I’m not going to 50 different marketplaces to buy 50 different things.

Jay McBain:
And I can organize by the way their returns, by the way that you… Everything now is in a central location, which procurement is going to drive from a B2B perspective. The solution to every department buying on their department for credit card and then going into a singular marketplace where I can procure provision, measure, monitor, and report, all in one place. These estimates of 10% and 20% and 30% overpayments on SaaS, these fragments of SaaS payments that are going out on software that we’re no longer using, all of that becomes the domain of procurement. And they show their benefits back to the organization in that way, as opposed to the way they used to show it, which has taken a cut of all travel expenses and becoming a self funded organization. That’s no longer the case. Their ability to drive compliance is what’s going to drive their price center or their value center in the future.

John Jahnke:
Absolutely. Clarifying question around a statement you made, Amazon will combine AWS and Amazon business. That was a question, if that was an opinion or a statement or fact?

Jay McBain:
It’s a future based opinion that I make on my own. This isn’t a Forrester position. I’m just thinking logically over the next 10 years. Every buyer coming into Amazon.com will probably be split into the place that serves them the best. I can’t see Amazon.com serving an AWS or an Amazon for Business buyer, all that well. When you’re a B2B buyer and you’re spending today around the world, $13 trillion, will you buy your software on AWS, in the same place you buy your paperclips and your paper and your toner and things like that? The answer is probably yes. Because as it comes back to procurement, as I mentioned, they’re not looking for multiple panes of glass and they’re looking to get much more efficient in spent.

Jay McBain:
So when I’m buying paper, I want a company that has AI driven marketplace that predicts my paper usage and would prescribe, based on COVID, that my paper usage is down by 70%, stops filling in my loading dock with paper refills. I want that to be an automated, predictive and prescriptive marketplace on every part of my business, including software that drives those elements of a subscription recurring consumption-based economy.

John Jahnke:
That’s interesting. I can only imagine the complexity of that problem in a remote workforce world. Like when you used to buy all those things in one place, now they’re distributed across everyone’s homes. That’ll be-

Jay McBain:
Think of the underlying technology though. Amazon came out with that famous prediction model, people who bought this also bought this. People who were looking at that also looked at that. This idea when you’re buying software, you’re going to buy six other things. I want that prediction model. Hey, you’re in a midsize clinic in upstate New York, and you’ve got HIPAA and HITECH, and you’ve got all this other stuff going on but somebody in your position across the street considered this as part of their seven layer stack. That would help me as a customer. But when I’m buying toner, the same thing exists. Customers who bought this toner, I already know the printer you’re buying it for because of the toner. I know the paper that goes into that printer. I know the accessories. I know everything else about your purchase based on this mountain of data. The same elements that go into buying software, go into buying everything in a B2B and the technology that goes into that recommendation engine it’s pretty similar.

John Jahnke:
We have about nine minutes left, so maybe couple closing topics. One, we talk to a lot of startups and startups are trying to find a way to navigate in where do they make their go-to-market investments and oftentimes they’re starting with, well, I have to hire my first sales people and VP of Sales. They think about channels and they look at the Clouds. It’s a lot. It’s a lot to consume. How do you advice or what advice do you give a startup on where to start these days?

Jay McBain:
Yeah. I’m fascinated with startups. First and foremost, you shouldn’t be considering a channel or an ecosystem or any kind of partnerships until you get to a point of what I call, the franchise point. When you build your hamburger or you build your cup of coffee and you get it to be a repeatable process, you’ve got a direct sales and marketing, you’ve got an engine that works. You shouldn’t consider franchising until you’ve got something that works. A lot of companies make the mistake of getting too far down the path of building out all these roads and then they haven’t actually got a product that solves a real problem in a real repeatable way with high retention rates. You have to build a good business first and it has to be based on direct principles.

Jay McBain:
You may integrate with AWS or Microsoft or Google, but the fact is you’re not relying on that ecosystem perhaps out of the gate. Once you’ve built something that’s franchisable like McDonald’s or Dunkin’ donuts and things like that, then you start to look at several things. One is like a brand new job I call marketplace SEO. You’ve known people for 20 years now who can get you on the page you want to Google for that midsize clinic that’s doing that search. How do you get on page one of AWS and Google and Microsoft? There you have Tackle, you have people that understand the technology, people that understand how all the elements work. A marketplace looks simple but behind the scenes there are tens of thousands of moving parts and you want to leverage the expertise to be able to maneuver those algorithms to get on page one. This literal page one of the marketplace. Whether you’re a service provider, whether you’re a software company, whether you’re anyone within that ecosystem, you’re fighting to get into that buyer that you serve.

Jay McBain:
Just in the last couple of years, we’ve got some really interesting expertise in how you do that at scale. Instead of just, trying to experiment and fail and fail fast and fail cheap, we now start to understand these algorithms like we started to understand Google from decades ago. Now, that’s a level of expertise, there’s a level of help you can get to start to generate these strategies into tactics that they could get you to market more successfully and learn the mistakes from the 90% of things that don’t work.

John Jahnke:
Yeah, let’s see. [inaudible 00:53:59] if you don’t have product market fit, marketplaces are difficult, but once you have product market fit, they can be like paving roads for your sales people to drive on because there’s budget, there’s contracts, makes growing as a startup far easier. A lot of similarity and points of views there. Last question, just around thought leadership more at a channel executive. I love the comment you made about evolution towards ecosystem. I think last time we talked, you said, “An ecosystem executive will be in a boardroom.” Channel executives aren’t often in the boardroom today and that’s going to require an evolution. I’d love to hear, we probably have a lot of channel leaders on this call, what advice do you have for them to find their way to ecosystem executive in the boardroom?

Jay McBain:
I led channels for most of my career and I got to impress my kids by being on the front cover of a magazine and stuff. I’m sure there was people out there in these events and stuff that thought I was more senior than I was, but I would tell them at IBM running channels which ran almost 80% of IBM’s revenue, I was like six layers below Lou Gerstner at the time. I was not in the boardroom. I didn’t even know where the boardroom was. Because that’s just the elements of where we are. But with those 76% of CEOs that think ecosystems are going to drive the future of their business model, that’s going to earn a seat at the table, but it’s not going to be the skills we have today.

Jay McBain:
The people that run channels for… And the way I ran channels, for 39 years was built on transactions, was built on a gold silver bronze program and was built on this linear model of getting people recruited, getting people time to revenue, and getting people out there selling your stuff. Those skills still exist but it’s a trifurcated model. You need the skills of influencers, which isn’t a transacting model but it’s an attribution model. Most of your attribution skills are probably sitting in marketing today, figuring out which of the people there have the most influence where you should be spending your money. It’s not hard and fast numbers like you get when people resell and you can count the transactions, and there’s no revenue reduction. You can’t pay front and back end margins because it’s a capital expense, much like marketing is. You need to mix channel skills with marketing skills.

Jay McBain:
Every company becoming a subscription business now, after the point of transaction, you’ve only earned that customer trust for 30 days. Now you’ve got to re-earn it each 30 days and do the renewals and retention rate. Who’s out there driving adoption of your product? Who’s out there driving integrations to make it more sticky so they can’t unplug it? Who’s out there driving upsell and cross-sell? There’s a whole new set of non-transacting partners that are with your client forever. And how do you continue to work with them in the ecosystem, different than influencers and different than transaction channels, that’s a different skillset for an ecosystem executive. Maybe it looks a little bit more like an alliance manager today than a transactional channel chief. Again, we’re in the second inning, by about the third, fourth, fifth inning, that individual who builds the capacity to run a trifurcated channel model and learn and execute marketplaces at the same time as all the other transactional modes, is the person that’s going to earn the seat. It’s the go-to-market routes to market executive that’s going to be basically the pillar of that business strategy going into the next generation.

John Jahnke:
Awesome. All right. We’re coming up on bottom of the hour, Jay. Can’t thank you enough for joining us today and really appreciate the time and the insight. Nicole, I’ll turn it over to you just to bring us home.

Nicole Smith:
Awesome. Thank you. That was a great conversation and lots of insights. We’ll be sending out the recording to everyone and also doing a recap blog next week. I just posted this in the chat, we launched a survey today to benchmark the state of B2B marketplaces and what we can expect going forward. So if you have a chance, we would love for you to take the survey and provide us with your insights. That’s all for today. Thank you, Jay, so much. We really appreciate having you on. Thanks, John. Hope everyone has a great rest of your day.

John Jahnke:
Thanks everybody. Have a great one. See you.