How cloud marketplaces became the most vital software sales channel

From lengthy contract negotiations to complicated licensing models, enterprise software is notoriously difficult to buy. But by aggregating third-party software, consolidating cloud spend, and standardizing contract terms, cloud marketplaces from Salesforce, Microsoft, Amazon, and others are promising to change that.

Cloud marketplaces aren’t new, but the increasing proliferation of software and need for digital sales channels have accelerated their prominence. Last year alone, sales through cloud marketplaces grew 70% to $4 billion, which was three times the growth of the public cloud, according to Bessemer’s 2022 State of the Cloud report.

But marketplaces are also tricky to navigate, with stringent review processes for listing software, requirements around pricing and packaging, transaction fees, and more. That, plus the nuances between the different cloud marketplaces, can make it challenging to build an effective go-to-market strategy.

“Ultimately, no one wants to build software to sell software, and that's why we exist,” said John Jahnke, CEO of cloud marketplace platform Tackle.io.

Tackle.io acts as an intermediary between enterprises and the cloud marketplaces run by Amazon, Microsoft, Google Cloud, and Red Hat. The company’s software handles the entire go-to-market process, from marketplace listing to financial management and reporting.

In a conversation with Protocol, Jahnke spoke about the evolution of cloud marketplaces, how software purchasing is changing, and more.

This interview has been lightly edited for clarity and length.

How have you seen cloud marketplaces evolve?

We got started as a company in 2016, and had our first customers in late 2017. AWS started their marketplace in 2012. Microsoft had a marketplace but really evolved it for Azure, I'd say with more acceleration in 2018, 2019. So they have been around for a while, but really what we've seen is, the pandemic accelerated everything online. Like the Satya [Nadella] quote, “10 years of digital transformation in two months” kind of thing. The pandemic no longer allowed sellers to meet with their buyers, and they had to figure out ways to engage with their buyers to let their buyers buy where they wanted to buy. And with all things moving to cloud, the cloud marketplaces accelerated in prominence as being part of the solution.

There’s a few [reasons] behind that beyond just the pandemic. One, the cloud budget tends to be one of the fastest-growing budget line items in a lot of companies. The cloud providers were really smart in saying, “If I can find a way that's good for buyers, good for sellers, and good for us to make cloud budget available for marketplace purchases, that should only allow people to buy more things that are going to run on our platforms,” which make workloads more sticky but they also help buyers get access to the tools they need to accelerate. So they designed the incentives to say, “You can make a long-term commitment to us [and] you can use some percentage of that commitment in order to buy third-party software through the marketplace.”

We're also in this era of Moore's law for software where the number of software companies is growing massively. It's probably not quite exactly at the pace of Moore's law, but Forrester said there's 200,000 software companies today; there will be 1 million by 2027. So a lot of expansion, and that puts a lot of pressure on buyers of software because now there's so many more titles, there's more empowered buyers, there's a lot of user-based software. Procurement teams who once used to govern and protect the software process really closely no longer can do that; they have to find ways to enable buyers to consume more software. Marketplaces also become a pretty interesting avenue to enable them to get access to what they need when they need it, but still have some form of governance around it, where everything's landing on the same bill and the same contract.

How important is discovery? I imagine that [discovery] is going to become more and more prominent as more and more software is listed.

Discovery today, I would say, is still not via marketplaces. The majority of times software products are discovered, they’re discovered the same way we discover products in our consumer life. You go to Google, you search for a problem, you look at the results, you read some content, that content helps you navigate to a place, likely that place ends up being a software company's website where you can read more about the product, you can look at customer case studies and see: Does this identify with me? You can then go to their pricing page and figure out how to engage. Marketplace sometimes shows up in that journey, but oftentimes it doesn't.

John Jahnke, CEO of Tackle.io.Photo: Tackle.io

I do think that will change tremendously as more and more buyers in the future are buying this way. I almost think back to the early days of Amazon.com. You went to Amazon to buy a book, you didn't think about buying a TV. Fast forward to 2005, you buy just about anything there. I think that's the style of transformation that we'll see with shoppers shopping on marketplaces. But today, discovery happens outside.

There's this concept called a private offer with marketplace, where you can use the budget infrastructure and contract vehicle of the marketplace to do a custom deal, and these are the most prominent deals. The majority of deals happening through the marketplace today follow this private-offer motion where someone discovers a product and decides that they want to buy it, but then determines that marketplace is the most efficient way to do it, and they construct a deal that ends up being a private offer and uses the marketplace infrastructure.

Why in those cases do companies feel like going to the marketplace would be better than going direct?

I think budget is a big thing, budget consolidation and vendor consolidation. A lot of it comes back to that Moore's law for software theme: They don't want to maintain contracts with 1,000 different suppliers; they'd much rather have an enterprise agreement with Microsoft or an enterprise agreement with Amazon or Google and then a lot of sub-agreements underneath that, but it's still governed under the same budget. The cloud providers also all have terms that make it easy for a buyer to just say, “Hey, I can use the Microsoft or Amazon contract.” So it's standard contracts versus having to negotiate one-off contracts.

There’s some stats in the market around how fast you can sell via marketplace and marketplace being 50% faster than doing a direct contract, and I think we're still in the earliest days of seeing that happen. We think being easy to buy for a software company is actually a killer feature. In a lot of industries, security as an example, there's so many security companies — and I'm not a security expert, but I struggle to interpret who does what. There's five different versions, they all sound about the same, and not being an expert, you look at it and you're like, “I don't know, they all sound like they do the exact same thing to me.” In that instance, the person who is easiest to buy or easiest to do business with may win.

In what ways do you think this might shift the balance of power in the industry? If you have Amazon, Microsoft, and Google, and everyone's buying software through them, does that give them additional power, additional levers?

We’re in this era of the ecosystem, and you think about the clouds, the clouds end up being these big ecosystems and all the cloud providers have many, many services they provide natively, but they're never going to be able to provide hyper-specialized versions of all those services. If you look at a lot of the at-scale SaaS winners today, they are multicloud equivalents of a native cloud service. But what the combination ends up being is people use core infrastructure services from the cloud in combination with third-party software to make up their solutions.

Where I do think the cloud providers have a potential advantage in the future is just by capturing the [cloud] budget. I think IDC says the cloud budget at the end of 2022 will be $490 billion, it’ll add $90 billion in incremental budget this year. The enterprise software budget is $500 billion and I think that's growing — between 13% and 19% — percentagewise year-over-year. The marketplace actually starts to bring those two budgets together, and that's where I think there's an opportunity.

I don't think it gives the clouds a chance to be all things to all people because there's a lot of momentum around multicloud. Maybe not, “I’m not going to run one thing in three places,” but “I'm going to use the appropriate services from the appropriate places and put them together to deliver the best solution.” There is tremendous momentum around that, which I do think keeps the differentiation of why independent software companies and the hyperscale cloud providers will work together.

What are the benefits to independent software companies in listing on one of these, or maybe multiple marketplaces?

The main benefits are one access to the cloud budget, being able to ask your buyer, “Hey, would it be easier to buy from us on your cloud bill?” That is a huge value. Beyond access to budget, the use of their contracts is very beneficial. Then the third benefit is the ability to co-sell with the cloud providers.

What co-sell means is, we have a joint target customer, and they use Microsoft, for example, and I want to register a deal with Microsoft and be able to work together on that opportunity because if my software lands on Azure, it drives consumption for Microsoft, it delivers value to the buyer, so everyone wins. The cloud providers have very large teams of people supporting companies, they have very large budgets associated with them and tapping into that, not just from a software company-driven standpoint but in collaboration, is a huge benefit. But that does take some skill to get to. The clouds have, say, 200 or so services natively that their sellers are responsible to sell, and if there's 200,000 software companies, they can't sell 220,000 things or whatever that math works out to you, so you have to have a unique value proposition.

Why would the cloud buyer want to consume my software in this way? Why is it beneficial for them on their digital transformation journey with cloud? If you have good answers to those questions, co-selling becomes really powerful.

What are some of the areas you see companies struggle with when they're trying to [list] on the marketplace, and then how does Tackle help?

The marketplace is a sneaky, complicated problem, because it's a business model problem and a technology problem. What Tackle does is we built a no-code SaaS platform that allows people to make listing on a marketplace a business decision instead of a product and engineering decision. On top of our platform, we have the expertise to guide you through the journey to be able to initiate a cloud go-to-market [strategy] with success, because listing on a marketplace is not like this easy button of revenue where you list and magically money comes to you. You have to integrate it into your go-to-market system, you have to teach your sellers how to take advantage of it, you have to teach your buyers that it's available to them as an option. Our team partners with our customers to understand how to use our platform in order to build this cloud go-to-market system.

Listing is the starting line, not the finish line. Listing really is the first step, and then we work with teams to figure out who are the best targets for them, how can they position in the appropriate way, how do they think about pricing and packaging for the cloud — because there’s a lot of nuances there — in order to get them to launch, sell, and then sell repeatedly over time. So we look at that journey holistically, and then we give people one way to do it across clouds. Because if you try to go build this yourself, you have to build it once for one cloud, build it another time for a second, another time for a third, then you have to build tooling for finance and tooling for sales operations, figure out how to integrate it with Salesforce, it's just this layered engineering problem. Ultimately, no one wants to build software to sell software, and that's why we exist.