Market Report

Disruption and opportunity

MSPs Cloud
Comms Business examines the growth of online marketplaces and what this means for the channel ecosystem.

The popularity of online marketplaces has soared throughout the pandemic and, whilst the Channel is no stranger to e-commerce, the growth of marketplaces over the past few years has been a source of concern for some partners.

This poses risk and opportunity for those within the channel ecosystem. Adrian Sunderland CTO, Jola, explained, “Marketplaces offer the opportunity for the channel to sell products in a different way. AWS Marketplace has a mechanism built-in where an AWS partner can earn revenue from directing their customers to buy products via AWS Marketplace.

“If the Channel is going to earn advantages by selling through marketplaces, there is quite a steep learning curve in understanding how each marketplace works commercially; how do partners fit into this if they are not the vendor on the marketplace? Similarly, to be a vendor you will need to consider all the required integration to get your products listed.

Sunderland cautioned that channel companies need to be wary of the worst-case scenario when it comes to marketplace adoption. He said, “The main risk of marketplaces is that suppliers could bypass the channel and deal direct!” This is a real threat and channel companies need to be smart about how they engage with marketplaces and shifting purchasing behaviours.

Ian Briffett, director, sales process optimisation, Tech Data, highlighted the way in which marketplaces can open doors for channel partners. He said, “Marketplaces represent an incredible opportunity for the channel. To be successful, at the very least, the channel needs to stay relevant to their customers. That is not as easy as it sounds because, most organisations have technology needs that have evolved to become very broad and complex. Information technology, operational technology, internet of things, hybrid cloud, security and so on, means organisations need channel partners with access to these technologies.

“Channel partners plugged into the right marketplaces can do this, at a fraction of the cost and complexity. Marketplaces also allows channel partners to collaborate with other organisations and become a key component in the local technology ecosystem. This is a great way for a channel partner to build a strong name for themselves and become the default go-to for a particular business solution. The risk is simply for an organisation to think they can go it alone, and still be as competitive.”

Success via marketplaces is not necessarily easy to achieve. Channel companies are skilled at customer centricity, which can be difficult to deliver at scale or within what can be an almost nameless online transaction. Jeff May, UK sales director, Konftel, discussed the risks posed by marketplaces to the businesses procuring devices or services. He said, “As vendors ever simplify their solutions from an installation and operational point of view, online marketplaces can promote more and more solutions, but they need to have both pre- and post-sales support to be able to ensure a positive customer experience. Most do not.

“In today’s drive for plug and play solutions there is still no one size that fits all and so the need for consultancy and advice is as key as ever. Without it the risk of buying the cheapest but wrong items is too high.”

Transitioning business models

Partners that decide to bring marketplaces into their strategy will need to make some adjustment to their business model. This could take several forms.

Briffett, from Tech Data, said, “There are many different types of marketplaces. At Tech Data, we have marketplaces that focus on cybersecurity solutions. We have others focus on IoT and software. We also have a marketplace that helps partners supply their customers with consumption-based solutions delivered through the cloud. If you are moving from a traditional VAR business, to one that delivers solutions and services in this way, you should be looking to your distributor or the provider of the marketplace to support you in transitioning your business. Good, quality marketplaces will help you do this.”

Add-on services remain essential for many channel businesses that adopt a marketplace-first strategy. Briffett added, “Most marketplace solutions are not a straitjacket. The channel is excellent at taking a solution and layering in additional value for their customers. This is still true with a marketplace-first strategy.”

Self-service has been a priority for many channel businesses over the last decade, and marketplaces offer numerous self-service tools. That could include initial research, partner selection, product stack configuration and pricing, final vendor selection, contracts, purchase, and renewal. In addition, longer-term benefits of marketplaces could include provisioning, deployment, integrations, monitoring, and reporting. Channel partners could achieve major success if they take advantage of these opportunities.

These sales made within marketplaces could also have knock-on benefits for the channel ecosystem. Jay McBain, principal analyst, Forrester, explained, “The average cloud deal creates a 5 times multiplier for partners. [For] every dollar that is collected by the vendor for the product, around $5 goes to the ecosystem for services and add-on hardware and software.”

He said that Salesforce is predicting this number will be $5.80 by 2025, Google Cloud is forecasting $7.54, and Microsoft has some products that stretch this upward of $9. These are US-centric figures, but they could indicate a similar picture might emerge in the UK.

McBain has determined that “more options for buyers means more options for sellers”. He added, “The key question for vendors, distributors, and channel partners is should they: double down on their own e-store, look at how to launch their own marketplace, work with partners to see how they can support digital selling, or test out niche marketplaces [or] super marketplaces?”. He expects many channel businesses will take a gradual approach and adopt elements of all four options.

Similarly, Alastair Edwards, chief analyst, Canalys, explained that the recent surge in public cloud adoption has had a knock-on impact on how businesses are procuring technology. He said, “Cloud marketplaces have been a hype topic in the IT industry for several years. But the continuing surge in public cloud adoption during the pandemic has spurred the rise of hyperscaler cloud marketplaces, led by AWS, Microsoft and Google Cloud, and created one of the fastest growing routes to market for software and cybersecurity.

“A relatively small yet rapidly expanding share of software and software-defined technologies is now being purchased by businesses via these three cloud marketplaces, across storage, backup, data analytics, AI/ML, networking, cybersecurity and a wide range of applications.”

Edwards pointed to research that illustrates the scale of the market potential. He said, “Canalys estimates that in 2021, US$4.1 billion of sales will flow through these cloud marketplaces, up 71 per cent on 2020. By 2025 they will account for approximately US$25 billion, 59 per cent CAGR from 2020. In specific software segments and geographies this growth will be even higher.”

Long-term success

Channel partners can still deliver long-term success without getting involved in marketplaces. Yet many businesses will need to respond to shifting market conditions to remain competitive.

Jola’s Sunderland spotlighted the reality that a large fraction of B2B selling remains firmly in the physical world. He explained, “Partners can have long-term success without getting involved in marketplaces. A large proportion of current B2B selling isn’t transacted through marketplaces. Consultative selling is at the forefront of the channel, there is no role for consultative selling in a marketplace!

“To remain competitive, it is crucial to fully focus on the value-added elements of services by promoting this as part of their overall offer. Marketplaces will never be able to match this.”

Resellers and MSPs also offer businesses a consultancy that does not always translate to the online world. Konftel’s May explained, “Higher value sales will still be championed by quality, professional channel players who can give best advice for the preferred solutions. The challenge is then to ensure customers value this service and buy from the same company who provides it, rather than going online to compare and potentially order cheaper.”

May added that choosing not to engage with marketplaces does not necessarily mean a steer away from e-commerce. He said, “Partners will increasingly have their own e-site to sell and linking it to their consultative approach will be both a challenge and opportunity for them.”

Distributors have a role to play in making marketplaces viable for their reseller and MSP partners. Briffett, from Tech Data, explained, “There are many, many factors that determine success. What we would say is, if you are not working with your distributor to explore their marketplaces, eventually it will be like pushing water up hill.”

The role of the Channel

Another important aspect in terms of the long-term growth of marketplaces is that resellers and MSPs offer clear value to their customers. Resellers and MSPs have a rich heritage in providing businesses with the expertise and support they require. A technology ecosystem that includes marketplaces will still require channel partners.

Edwards, from Canalys, explained, “Most supporters of cloud marketplace models failed to anticipate one key factor: the critical role that channel partners will play in their success. The vision of marketplaces as self-service discovery and click-to-buy platforms has largely not materialised. Many customers still want to negotiate contracts, access discounts and integrate technologies. As end-user organisations embrace multicloud models, and seek to source increasingly complex technologies via marketplaces, they are turning to trusted channel partners to simplify, manage, secure and support their ongoing marketplace use.”

Put simply, channel partners will play the role they always have – making technology accessible to businesses. Edwards pointed out the increasing connection between ISVs and channel partners. He said, “The hyperscalers themselves are rapidly recognising the importance of indirect partners, particularly as they seek to expand global reach. They are actively recruiting and developing growth plans with channel players across the globe, as well as building features within their marketplaces to support indirect models.

“As the focus of the hyperscalers shifts to ISVs, this is allowing them to position their marketplaces as full-service channels-to-market for these ISVs to help them expand globally, including connecting them to channel partners. Equally, vendors selling through marketplaces will need channel partners to deliver professional services, and manage and support their end users.

“At the same time, resellers, SIs and MSPs are now recognising the opportunity to expand their reach to customers by creating their own marketplace offers within the hyperscaler marketplaces.” Edwards explained that those marketplace offers could include tailored solutions, subscriptions or services.

Edwards expects the role of the Channel within cloud marketplaces to be significant. Canalys predicts that nearly a third of all marketplace purchases will flow through partners by 2025. That piece of the pie could increase over time.

The channel knows it needs to evolve and adapt to continue to be relevant to customers. Marketplaces are a growing opportunity that can open the doors for channel partners to collaborate with new organisations and new customers.

Of course, resellers and MSPs can have long-term success without getting involved in marketplaces, and only those within the company will know the right path to take. What is clear is that consultancy and value-added services will remain at the heart of channel success for years to come.

This feature appeared in our February 2022 print issue. You can read the magazine in full here.