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March 8, 2022
Cloud marketplaces are curated digital catalogs that make it easy for organizations to find, buy, deploy and manage the third-party (3P) software, datasets and professional services they need in order to build solutions, modernize applications and run their businesses. The selection and diversity of products offered is growing as more software vendors, data providers and channel partners list their solutions in these marketplaces. Continued innovation by cloud marketplace operators makes it easier for partners to sell the products customers want in a growing variety of delivery formats, which include traditional virtual machine images, software packaged in containers, SaaS offerings, machine learning models, software bundled with infrastructure-as-Code (IaC) files to automate deployment and 3P-curated datasets.
Most cloud marketplace operators provide their service globally, so if you have an international business or you’re designing highly available architecture that has redundancy across multiple geographic areas, the products you subscribe to can go where you need them.
A critical capability provided by a cloud marketplace is the ability for an organization to balance speed and agility in the procurement of software, data and services with appropriate governance and control mechanisms to manage costs and mitigate risk. These capabilities taken together help modernize the cloud software, data and services supply chain, which is the end-to-end process of procurement, provisioning, monitoring and governance.
Speed and agility are the main value propositions of cloud and a fundamental enabler of digital transformation. A cloud marketplace enables speed and agility by helping developers quickly search for, evaluate, select, buy and deploy third-party (3P) software and data products, bringing a retail eCommerce-like buying experience. This enables innovation and creativity in the development and launch of new products and services.
However, Procurement, Finance and Legal executives want the “speed and agility” capabilities to be balanced with visibility, compliance to policy, governance and cost control. Cloud marketplaces provide a number of features that enable better governance and control, such as the ability to personalize the catalog and integrate with various ITSM (IT service management) tools, such as Service Catalog and others, where users are limited to subscribing only those products that have been approved for subscription and have the right policy guardrails in place. A curated marketplace catalog is customized to meet the needs of the organization. Other governance and control features include integration with existing procurement approval workflows based on eProcurement solutions offered by companies such as Coupa, SAP Ariba and various ERP systems. Cloud cost management features such as budget management, cost analytics and dashboards and cost tagging help organizations manage and optimize software and data costs.
The drivers of economic value via cloud marketplaces are shown below (see Figure 1):
1: Improved Procurement Productivity
This captures the productivity improvement realized by the procurement function when they use a cloud marketplace’s capabilities on flexible purchasing options and standard contract templates to accelerate time-to-contract for renewing a contract with existing vendors or onboarding new ones.
2: Operational Efficiency
Reducing the procurement cycle time also enables developers and analysts to get access to various 3P software tools and datasets faster, accelerating and enabling internal operational efficiency improvement and digital transformation projects.
3: Accelerated Time-to-Market for New Innovations
Streamlined search, selection, free trials, BYOL (bring your own license) and free datasets available for selected products enable learning, experimentation and rapid prototyping. Timely access to new 3P software and curated datasets accelerates cloud innovation and new product launches that depend on software and analytics.
4: Shift From On-Premise Perpetual License To Consumption-based PAYG (Pay-as-You-Go) License Purchasing
A cloud marketplace may facilitate the shift from in-perpetuity, flat-fee licensing to subscription based, elastic pricing for selected software products (where software vendors have adopted elastic pricing and custom metering by using APIs built for them). Over time, organizations can reduce costs, only buying what they need when they need it.
5: Improved Management and Centralization of Shadow IT Software Spend
Analysts estimate that ~30% of total spend on IT at an organization is shadow IT. This is spending that is not managed by IT or Procurement, and may not be under a negotiated contract with the best commercial terms in place. Although shadow IT sometimes enables business agility and innovation, it also represent increased costs, business and security risk for the company. A cloud marketplace can help an organization centralize the procurement of software and data and extend self-service subscription of approved, contracted products to developers. This way more shadow IT spend can be brought under procurement’s discipline and additional cost savings can be captured.
6: Volume Discounts Based on Software Spend Consolidation and Rationalization
The shift to procurement of software from a cloud marketplace may surface an opportunity for software and vendor rationalization on a category-by-category basis. Companies can leverage marketplace capabilities in combination with other cloud services and software solutions to centrally manage software spend and standardize vendor, products and contracts. This enables them to consolidate and rationalize spending to capture additional volume discounts. Furthermore, companies are able to capture productivity savings via reduced vendor management efforts, especially for tail-spend suppliers.
7: Reduction in Invoice Transaction Volume
An important benefit provided by cloud marketplaces is consolidated billing. Customers also may not need to onboard their software vendors into their Account Payables systems since the marketplace operator may handle the back-end invoicing. The cost of processing an invoice can range from $12-40 per transaction. A reduction in invoice transaction volume presents a cost savings opportunity.
8: Improved Developer Productivity
Developers realize productivity savings from faster time-to-deployment of 3P software using IaC templates, container services and BYOL features. Similarly, capabilities to subscribe to third-party datasets using standard APIs improves productivity of data engineers and data scientists by streamlining and automating the end-to-end data supply chain.
The value levers described above can help Procurement and IT executives meet their objectives measured via KPIs, as shown in Figure 2, and build a business case for modernization of the cloud software, data and services supply chain.
The estimated economic value for a company can be significant. For example, the potential value for a $9B in annual revenues company is $4.5M in the first year (see Figure 3) and ~$90M over five years.
In conclusion, cloud marketplaces, along with native cloud services, provide capabilities for organizations to streamline and modernize their cloud software, data and services supply chain and realize economic benefits with scaled adoption. Executives should begin the adoption journey by understanding and quantifying the value-at-stake to develop a business case and a phased adoption plan.
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