CXpose.tech summarizes a Canalys report that analyzes where hyperscaler marketplaces are going, and how they change among other things, procurement behaviors and strategies.

A recent Canalys Special Report titled “Now and next for hyperscaler marketplaces” provides a comprehensive analysis of the rapidly evolving hyperscaler marketplace ecosystem. The report, published in August 2024, offers valuable insights into how these platforms are fundamentally changing enterprise procurement behavior, vendor go-to-market strategies, and channel models in the software and SaaS industry.

The explosive growth of hyperscaler marketplaces, led by AWS Marketplace, Microsoft Azure Marketplace, and Google Cloud Marketplace, is reshaping the software industry landscape. In 2023, worldwide sales of third-party vendor products through these marketplaces more than doubled to $16 billion.

Canalys forecasts this figure to skyrocket to $45 billion by 2025 and reach an astounding $85 billion by 2028.

  • Cloud commitments fuelling marketplace growth.

    One of the primary drivers of this growth is the ability for customers to use marketplace purchases to “burn down” their cloud commitments with hyperscalers. This allows enterprises to maintain lucrative discounts on cloud spending while sourcing a wide array of software and cybersecurity products. By the end of Q1 2024, total customer commitments across AWS, Microsoft Azure, and Google Cloud reached nearly $360 billion, creating a vast pool of pre-approved budget for vendors to target.

  • Changing customer buying behavior

    Enterprises are increasingly shifting large software deals to marketplaces, attracted by simplified purchasing, consolidated billing, and faster procurement. The growth of private marketplace offers, allowing customized pricing and terms, is further driving adoption. However, some customers remain resistant due to internal culture, lock-in concerns, or compliance requirements.

  • Vendor strategies and adoption

    Vendors across the technology spectrum are racing to capitalize on the hyperscaler marketplace opportunity. Motivations include access to cloud commitments, co-sell resources, and new customer segments. However, vendors face operational challenges in adapting to the marketplace model and balancing it with existing channel relationships. The report highlights strategies from major players like Cisco, CrowdStrike, IBM, Nutanix, and Salesforce.

  • The evolving role of channel partners

    While hyperscaler marketplaces present challenges for channel partners, including potential disintermediation and margin pressure, they also offer new opportunities. Partners are increasingly playing a crucial role in managing cloud commitments, multi-cloud sourcing, and providing value-added services. Hyperscalers are investing heavily in partner programs, such as AWS’s CPPO, Microsoft’s MPO, and Google’s MCPO. Canalys predicts that by 2027, over 50% of marketplace business will flow through partners.

  • Impact on distribution

    Distributors face a significant competitive threat from hyperscaler marketplaces. However, they continue to play an important role in managing second-tier partners and handling operational complexities. AWS is leading the way in involving distributors through its DSOR program, although challenges remain in terms of profitability and resource requirements.

  • The Future: Integrated Platforms

    The report predicts that the next phase of hyperscaler marketplaces will see increased API integrations across distributor, partner, and hyperscaler platforms. This could lead to a more seamless end-to-end platform approach, simplifying the procurement process for customers.

Takeaways

The Canalys report concludes that hyperscaler marketplaces are becoming a major force in the software industry, comparable to the impact of app stores in the consumer world a decade ago. The “cloud commit economy” is driving vendors to flock to these marketplaces, further strengthening the hyperscalers’ value proposition.

Enterprises are increasingly shifting large software deals to marketplaces, attracted by simplified purchasing, consolidated billing, and faster procurement.

However, the report also raises questions about the long-term sustainability of this model, particularly if it remains heavily dependent on cloud commitments as the primary driver. The success of these marketplaces will hinge on effective collaboration between hyperscalers, vendors, and channel partners, as well as continued innovation in digital integration and platform development.

An example of digital integration is AWS allowing channel partners to make marketplace offers to customers within a customized, private instance of the AWS Marketplace – on their own websites. Rather than the end customer being given a link to the private offer in the AWS Marketplace, this remains within the partner’s (or for the channel, the distributor’s) digital estate. This would be incredibly valuable for keeping the customer on a partner’s website for the entire buying journey.

As the marketplace landscape continues to evolve, it will undoubtedly have profound impacts on the IT industry. Stakeholders across the ecosystem – from vendors and channel partners to distributors and end customers – will need to adapt their strategies to thrive in this new paradigm of software procurement and distribution.

This article is based on Canalys’ report which can be found here).

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