Cloud Marketplaces: Providing Less Glamorous, but Valuable Services You Can’t Touch and Feel

Every day we interact with a variety of online marketplaces that impact how we travel, shop and dine. Companies like Uber, Airbnb and Netflix have redefined how we interact with the people around us to procure the services we need in our everyday lives. The importance of these marketplaces has not been lost on us: Battery Ventures recently introduced the Battery Marketplace Index to showcase the now-large pool of public companies that are connecting buyers and sellers online.

But there are increasingly powerful marketplaces in the enterprise-computing world, too. Major cloud-computing vendors such as Amazon Web Services, Microsoft, Google (via its acquisition of Orbitera) and Salesforce have in the last few years introduced online marketplaces of their own to sell supplementary wares to their cloud customers. These products range from big-data to security to speech-recognition services, and more—all of which can be added onto a customer’s cloud-computing package and put on the same bill in a relatively frictionless sales process.

Just like you can search for shoes on, say, by using drop-down menus organized by color, size and brand, you can use cloud marketplaces to shop for software and DevOps tools by vendor, pricing plan and delivery model. (Your purchase just may not be as fashionable as those Ferragamo pumps you bought last week.)

These less glamorous cloud marketplaces have quickly become a legitimate sales tools for startups hoping to sell their software and services to a broader audience that might otherwise be difficult to reach. Right now, the AWS Marketplace, for example, boasts over 4,000 products on offer from 1,000 startups. So what can you, as a startup, do to navigate this new ecosystem and use it to grow your business?

1. Align marketplace compensation to internal go-to-market

Selling through a marketplace can be very efficient. But many startups that use cloud marketplaces already have a separate go-to-market (GTM) operation to drive sales—and, unfortunately, sometimes these two channels can be at odds with each other. It’s important to align incentives across your GTM engine so customers are directed to the best/right channels for them, and your sales reps aren’t purposefully avoiding selling through the marketplace, in order to fulfill their own quotas. It can be a delicate, internal balancing act, but one that will ultimately lead to more sales and happier customers for you.

Remember, also, that the big cloud providers may allow sales reps to retire quota by selling your product on the marketplace as well—and doing that also helps those reps sell more of their own company’s cloud services. One cloud marketplace partnering with a large data-science company recently saw sales of its own cloud service increase by three times for every dollar of product the data-science company sold through its marketplace. What’s more, the specific way cloud-provider sales reps are often paid can aid startups trying to sell through their marketplaces: The cloud reps often now get compensated on a “commit to consume” model, through which they get paid as a customer actually consumes a cloud service, and not when they pay upfront for it. This incentivizes the re-sale of startups’ products in the marketplace, as more consumption equals more comp.

Clearly, selling on a cloud marketplace can be mutually beneficial for both parties.

2. Institute proper tooling to gain visibility into install base

Once you get up and running on a cloud marketplace, customers (hopefully) will begin to flow in. But as this happens, you should immediately start trying to gain visibility into who these customers actually are so you can provide support to them and get them to use more features of your product. We have learned from various independent software vendors (ISVs) that individual users from large enterprises might want to make a sizable purchase of your product through a marketplace, but you can sometimes lose the sales lead because of lack of visibility into who the buyer actually is. Sometimes this happens because a customer uses a personal email address, as opposed to a company address, for example.

More broadly, you should be building out analytics tooling in house ahead of time, or leveraging services from third parties, to figure out the specific personas of the customers you’re acquiring through marketplaces. The more you know about your marketplace installed base, the better equipped you are to serve customers better and tailor offerings to maximize sales.

3. Find your product/market (place) fit

A cloud marketplace can serve as a key platform through which customers procure your services—but it shouldn’t be the only way you interact with a big cloud provider. As you use a cloud marketplace, you should be developing relationships with product executives at that company to more deeply understand the cloud provider’s own product roadmaps. Understanding how your product or service could fit into the company’s future plans helps you fine-tune your offering and develop services that have a better chance of ultimately being used by customers.

The cloud providers can sometimes also hawk competitive services themselves, which you should know about to protect your business. (I wrote about this trend in this column in April.) At times, the marketplace and product groups at the cloud providers are not entirely aligned, so you can serve as the connective tissue between them in order to reap maximum benefit for all parties. Working with these teams early enough could position you as the product of choice to fill gaps in their portfolios prior to competitive product releases.

4. Understand cloud-marketplace pricing

Major cloud providers have increasingly recognized the success and power of their marketplaces and have worked with ISVs to draw more of them to their online forums. What you may not realize, though, is that the more you sell on a given marketplace, the more revenue you may eventually get to keep for yourself; the cut of each transaction (technically a listing fee) that you pay back to the marketplace goes down as you sell more and move into a higher “tier” of partners.

We know of one large cloud data integration company, for example, that has generated so much volume on a major cloud marketplace that its listing fees could fall significantly below the standard 20%. For smaller ISVs who sell less on these platforms, the pricing elasticity will likely be more limited.

That said, the big cloud marketplaces can offer other pricing perks, or at least flexibility, to smaller startups not yet generating huge volumes. AWS, for example, allows startups on its platform to sell their services on a metered basis—where customers pay only for what they use—or through an annual contract. This can allow you to tailor pricing to individual customers.

5. Establish relationships with partners and leverage opportunities for collaboration

While it’s important to forge relationships with the product teams at the big cloud providers, getting to know other executives at these companies—specifically, those that might be responsible for collaborating with you on marketing or sales programs—is also a good idea. Ultimately, volume and revenue talk, and the cloud providers will be more incentivized to help you with marketing programs if you’re driving significant sales to their marketplace. We have heard from the marketplaces that the best ISVs participate in activities such as regional summits and other events put on the large cloud providers. Whether you are working with AWS, Microsoft, Google or Salesforce, or emerging marketplaces such as Snowflake and RapidAPI, these organizations all have dedicated teams to help identify and grow marketplace vendors. Establishing a steady and productive dialogue with these groups will go a long way to enabling your success!

We have seen many emerging and established players such as Databricks* (one of the early, first-party services offered through Microsoft Azure), Snowflake, Matillion* (which sells through several marketplaces, including  AWS, Azure and Google Cloud) and Datadog, use cloud marketplaces as a significant distribution channel. We expect that trend to continue as marketplaces continue to reduce friction in the ISV buying process while creating further alignment with major cloud vendors. Take active steps now to see how you, too, can benefit.

This article originally appeared on Forbes.

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*Denotes a Battery portfolio company. For a full list of all Battery investments, please click here.