Mastering Cloud Marketplace Maturity with Nima Badiey

How cloud marketplaces are influencing commercial enablement for software ISVs

(03:44) “The superpower of a marketplace isn't just discovery and deployment; it's actually the commercial transaction of getting software and selling software to your end customers and being a conduit for partners as a way to sell into these accounts.”

On April 19, 2012 AWS launched the first-ever cloud marketplace as – ‘an online store where customers can find, buy, and quickly deploy software that runs on AWS.’

The value proposition was simple: AWS customers who needed to plug a solution gap could purchase and immediately deploy software from the AWS marketplace with a single click. The promise: faster procurement, and no need to engage a sales vendor

That was perfect for highly agile, early-stage businesses, but Nima Badiey knew that enterprises didn’t “like buying that way. They actually want to have a relationship. They want to be able to negotiate discounts.”.

Cloud hyperscalers also caught onto this idea, and as a result, marketplaces went from a discovery and deployment platform to a complete commercial ecosystem supporting demand (for buyers), supply (for sellers and channel partners), and services (systems integrators, third-party services, etc.).

But this wasn’t the only value add they brought to software commerce.

Traditional procurement systems are broken. When McKinsey & Co. evaluated software-buying patterns since 2011, they found that business procurement functions were dealing with a labyrinth of systems and automation to make procurement frugal and free of supply-chain risks.

At the same time, the traditional software buying flow is fragmented. Even after a business user has evaluated and selected a vendor of choice, multiple teams get involved to complete deal mechanics: engineering and development ensure deployability, IT governance handles compliance, legal signs off on the sales contract, and finance approves the agreement.

“What if you could do the whole thing in just a few hours? What if you could significantly increase the velocity of your business?” asks Nima.

• Is immediately deployable inside the buyer’s preferred cloud infrastructure
• Is pre-approved for compliance and governance standards
• Has a standard EULA for faster legal approvals
• Can be evaluated against similar offerings through reviews and ratings
• Can be negotiated before purchase (through custom offer building)
• Can be procured via cloud commits, and
• Is charged in a unified bill alongside other hyperscaler services and products already in use by the company

For sellers, this also reduces the need for disparate solutions across the board, from account management software and payment gateways to contract management.

All of this, coupled with new incentives (both for buyers and sellers) and reduced transaction fees (from 20% down to an upper cap of 3%) making marketplace charges equitable to credit card fees, is making cloud marketplaces a “commerce-enabled capability that will become the default way that every customer is going to buy software going forward. You could almost call it cloud-native software procurement.”

Why the cloud marketplace ecosystem needs Cloud GTM vendors

While a significant $45 billion in third-party software and services sales is routed through Cloud GTM sales, it still accounts for <5% of the total global software and cybersecurity market. In fact, despite 10+ years of existence, G2 only recognized Cloud GTM as a category in January 2024.

Nima understands that there is an inherent white space, not just in the awareness of Cloud GTM as a route-to-market but also in a lack of automation that is so entrenched across traditional GTM routes (e.g., CRM for direct sales, PRMs for channel-partner sales, etc.).

“We're probably at the five-mile mark of a 26-mile race… what you're seeing right now is that everything is pretty much manual. The listing process, integration, testing, reporting, even the remuneration process with accounting and billing is manual and sometimes even painful.”

In addition, as hyperscalers continue to add features, build more integrations, and support seller, reseller, and channel ecosystems, ISV sales systems are forced into an endless loop of maintenance work just to ensure backward compatibility with the marketplace.

“Changes that are not backward compatible cause an enormous amount of pain for partners who now have to rejigger their policies or do additional integrations and technical changes just to be able to catch up with the APIs.

At the same time, modern sales solutions (like CRMs, ERPs, and analytics tools) are multi-threading to support a relatively uncharted GTM motion for business deal desks, straight from opportunity handling to deal tracking and closure.

“Integrations with some of the keystone technologies, like your CRM systems – such as Salesforce, or your backend ERP – such as Oracle, Zuora, SAP, and/or Freshworks, are going to be more in demand because now you have to connect and thread these sources of truth with your transaction system and your marketplace systems.”

To function better and accurately measure ROI from the cloud channel, business deal desks need an easy-to-use home for all the disparate data generated across partnerships, sales, and marketplaces. Automation plays a key role in making it “easier to manage the overall lifecycle of the order and the process of the marketplaces.”

How to incentivize your GTM teams to drive more deals through the cloud marketplace

(15:18) “If your marketplace fees are 3%, that's probably in line with the overhead that you already have going direct. So it becomes kind of a non-issue. Removing it from the order calculus and that order arithmetic is important because it sets marketplaces at an even footing of going direct.”

AWS’s January 2024 reduction of marketplace listing fees placed all three hyperscalers on an even keel. In exchange for having – the entire nine yards of commerce, from co-selling and opportunity handling to billing and payment disbursements, automated – hyperscalers charge up to 3% of every deal.

For some businesses, this is a source of discomfort.

“Any route that doesn't have an equivalency with a direct selling route is still considered a burden or a tax from the sales-reps perspective.”

Yet, they overlook the savings through efficiency that cloud marketplaces as a route drive for the business. What hyperscalers charge in deal commissions, they save for ISVs by driving deal-cycle agility, providing access to high-intent and low-CAC buyers, and automating the entire commercial process.

This is why, for most parts, passing over the 3% transaction to the value of contracts closed on marketplaces is inequitable. Instead, Nima recommends passing the 3% charge onto C.O.G.S. to make marketplace-driven revenue a contemporary of direct sales revenue, not its affiliate.

“Burdening individual deals creates this effective tax disincentive to work with partners, through the channel, or through a marketplace.”

The other half of building an unbiased channel strategy is building a reasonable compensation and attribution plan. Indirect sales is complicated as it is, without adding SPIFF inequality and having your sales and partnership teams compete over deals.

Instead, Nima recommends building a strong alignment between partner and sales functions

“If I sell something for $100 and I have to give $20 to my partner as a finder's fee or a discount, then technically, I'm only getting $80 back. Now, does my sales rep get the $100 worth of credit or the $80 worth of credit?

Be aware that if your sales rep doesn't get full attainment or comp neutrality, … they're more likely to bias against going through partners unless it's absolutely necessary. And that's what I think it's the most important conversation that the sales leadership has to have after you've done your goal setting.”

Building the right organizational structure for Cloud GTM success

“If you don't remove the cost of doing business with partners, that route will always be colored with the burden of giving up points on the deal to the partner. Then the conversation degenerates into, ‘What have partners done for me lately?’ As opposed to - ‘How much more can I do because a partner is involved?’ If you can flip the script a bit, you'll be able to capitalize on having this indirect selling channel on top of your direct sellers.”

(22:57) “If you don't remove the cost of doing business with partners, that route will always be colored with the burden of giving up points on the deal to the partner. Then the conversation degenerates into, ‘What have partners done for me lately?’ As opposed to - ‘How much more can I do because a partner is involved?’ If you can flip the script a bit, you'll be able to capitalize on having this indirect selling channel on top of your direct sellers.”

A recurring theme in many of our conversations with GTM leaders is that many Cloud GTM motions tank not because of a lack of execution but because of a lack of awareness.

The ones that succeed do so because they realize that a typical cloud marketplace listing is somewhat like a marketing website. If you don’t expect the latter to bring you more customers automatically, you shouldn’t expect the same of the former.

To map the right people to the right process, Nima recommends two steps:

a. Build a partnership insertion point in the usual sales cycle

Modern software businesses now recognize selling as a cross-functional, collaborative process than a project owned strictly by the sales team. This has gone on to impact not just the philosophy around selling, but also the roles that businesses are increasingly hiring for.

For an ISV, this means either onboarding more leaders who understand collaboration or building early alignment between sales and partnerships.

Nima recommends identifying how your existing revenue organization is structured, and then taking a resolved, organizational call on being more partner-compliant.

While ecosystem-minded revenue leaders understand the value of working with partners, leaders with a strictly direct selling experience need to train themselves and the team on creating natural entry-points for partners in a deal.

b. Think through responsibility segmentation to avoid sales friction

The second lever of integrating partnership with sales, especially for enterprise businesses, is to analyze existing targettable accounts and segment them based on account size.

While smaller accounts can be owned solely by direct sellers, mid-to-larger accounts with a potentially larger pipeline number can be worked upon by a team of sales reps aligned with a partner rep. This is particularly effective because enterprise deals typically have drawn-out deal mechanics (contracting, negotiating, and agreeing on pricing and/or terms) that partners can help accelerate.

This does two things:

1. Increases coverage spread through effective resource allocation
2. Reduces channel friction between direct and indirect by streamlining approach

“If you add up all the channel partners in the world, there are probably between two and three million sellers out there who could be your indirect channel.”

Driving deal-efficiency through cloud marketplaces

(41:33) “Private offers have actually become the easy route. But for the enterprise customers who don't buy off the shelf, this is still not a regimented, easily identifiable, first-order principle for them. I think where we are right now is - putting the investment in making the private offer process a lot easier.”

Even as a growing pool of digital-native buyers prefers self-serve buying experiences, high-ticket/enterprise deals still continue to be highly negotiated.

This means ISVs with a larger addressable market need to employ two different strategies to cater to an increasingly diverse customer base.

First, the smaller, self-serve deals will require sustained development effort in first building open or public offers and then continuously maintaining them against changing cloud marketplace guidelines. Here, deal mechanics (i.e., contracting, EULAs, taxation, disbursements, and more) are largely standardized by the hyperscalers themselves, helping ISVs close these deals faster.

Second, enterprise AEs need to be trained around using marketplace partner portals, or Cloud GTM tools to create customizable private offers directly. While private offers can have custom terms, pricing, and payability periods, they also generate unpredictability.

“The reporting is done differently. The remuneration is done differently, and it is hard to track. Let’s say I have an agreement with a hyperscaler, and they had a net-30 payback period. So they'll pay me within 30 days. But for every offer that goes through private offers, I have no idea what the end customers' net payment terms are with my CSP.”

To drive more value on enterprise deals through cloud marketplaces, ISVs need to check through the following four action items:

Asking these questions can help ISVs unlock critical insights into the customers’ preferences while leaving enough legroom to upsell or co-sell partner solutions and drive up contract value through the marketplace.

Ultimately, it shifts the philosophy of software selling from a transactional exercise to a relationship-based experience.