Cloud Platforms, Marketplaces, and Startups

One of the most exciting recent developments in the cloud software business is the proliferation of partner ecosystems, with large public and late-stage private cloud companies creating their own marketplaces to offer ready-to-install, pre-integrated partner solutions.

Salesforce, of course, started the movement about 14 years ago when it unveiled Salesforce AppExchange, the first and leading enterprise cloud marketplace. But now many other business cloud companies, including ServiceNow, CrowdStrike and Okta, are launching their own partner platforms and marketplaces. Even some of the biggest technology companies in the world like Google, Microsoft and Amazon have followed in Salesforces’ footsteps with their own cloud ecosystems and marketplaces.

It makes sense. When cloud companies become well-established brands, they naturally attract partners in the market that want to work with them directly and leverage their customer base.

These ecosystems tend to be a huge win for both the established cloud vendors and the many independent software vendors (ISVs) that partner with them. Cloud ecosystems and partner platforms are also near and dear to my heart, because I helped create the very first cloud partner ecosystem when I worked at Salesforce.

Specifically, I was responsible for launching the AppExchange ISV partner ecosystem and bringing the first 1,000 applications to the platform, developing the commercial and technical processes for ISVs, and facilitating the relationship between external partners and internal marketing, sales, and service teams at Salesforce. To accomplish this, I built an incredible team from scratch, and a number of those exceptionally talented people on the original AppExchange team are now leading ISV and marketplace strategies at today’s top public and late stage cloud companies.

What’s more, at Cloud Apps Capital Partners, we continue to help some of the largest cloud companies with their ecosystem strategies. We also work with cloud startups as they determine who they should partner with and decide which ecosystem relationships will be most beneficial to their business.

Salesforce showed the way for partner ecosystems

First, a little background on cloud ecosystems and platforms. In 2005, Salesforce.com launched the original cloud platform as a way to better compete against Siebel Systems, which at the time was the leading On-Premises salesforce-automation vendor.

Salesforce wanted to expand its capabilities in terms of features and functionality, so it developed a scalable API and actively recruited ISVs like email-marketing and product-configuration companies to join its platform and round out its product offering.

Thanks to Salesforce’s cloud-based API, partners could integrate seamlessly and scalably with the Salesforce platform in a way they never could with on-premises vendors like Siebel. As a result, Salesforce was able to quickly fill in its product gaps and compete against more full-featured vendors on level terms.

For example, when I worked at Salesforce, we discovered that about a quarter of our customers wanted the ability to do product configuration, pricing and quoting with our software. So we developed an integration partnership with BigMachines, the first cloud-based configure, price and quote (CPQ) vendor. The relationship proved to be highly rewarding for both companies. BigMachines, for its part, was ultimately acquired for about $500 million. And Salesforce was able to offer its customers a deeply integrated CPQ experience they could not find anywhere else.

“One of the main things that really made BigMachines successful is that we partnered with Salesforce early on,” Godard Abel, the co-founder of BigMachines, recently told me. Godard is a legend in business cloud software. After BigMachines, he went on to start SteelBrick, which was acquired by Salesforce, and he is currently the CEO of G2 Crowd.

“It took a few years to really get going with Salesforce,” he said. “But ultimately BigMachines became the number one partner for Salesforce in the cloud. And as they grew, we grew. We were able to ride this much bigger wave and, for an emerging startup like ours, that really made all the difference in the world.”

Partner platforms offer many benefits

Salesforce quickly discovered that its platform strategy came with numerous benefits. For Instance, it found it could provide end customers with almost infinite future-proofing. Customers were going directly to Salesforce AppExchange to find the solutions they needed to grow their business.

And it wasn’t long before the Salesforce sales team embraced the AppExchange. Why? Because they understood it was a competitive advantage against on-premises vendors, which could not offer the same kind of integration at scale. “Infinite future-proofing” was the phrase used by many of the highest performing sales executives.

What’s more, if end customers were using four or five integrated applications on AppExchange, the likelihood that they would churn and stop using the platform decreased. Instead, retention improved.

Additionally, the more partner applications a customer uses, the more money it’s likely to pay. Finally, Salesforce discovered that partners in its ecosystem love to amplify via Salesforce marketing collateral in addition to their own. Basically, the sales and service people at these partner companies become an extended army that is out there educating new customers about your platform and helping you generate more business. The classic win-win.

In my next piece, Cloud Platforms, Marketplaces and Startups Part Two, we’ll provide insight into considerations for startups and other small cloud companies as they navigate the various partner ecosystems available to them.

By Matt Holleran, General Partner, Cloud Apps Capital Partners