Cloud marketplaces are small in revenue impact but mighty in market impact

Cloud marketplaces are more of a slow burn compared to pronounced market impacts in books, retail and music

To predict the impact of cloud marketplaces, it is worth evaluating how similar changes in go-to-market strategies have impacted other markets. Sears (Nasdaq: SHLDQ), Amazon (Nasdaq: AMZN) and Apple (Nasdaq: AAPL) are three very different companies that illustrate just how profound an impact sales motions can have. Sears rode the impact of its mail-order catalog for nearly 100 years in a wave of success that only recently petered out. Amazon and Apple have much broader business strategies, but both owe a considerable amount of their success — which has them jockeying for the title of the world’s largest company in terms of market capitalization — to their selling methods. Both Amazon and Apple entered well-established markets and disrupted them, not by competing on the merits of their offerings but by challenging the existing sales motion with a marketplace approach. Amazon’s online approach to the book market is a very pronounced example of marketplace disruption, as Figure 1 illustrates. Amazon began selling books online in mid-1995, overtook traditional market leader Barnes & Noble less than eight years later, and subsequently expanded and dominated the market. Today, Amazon controls over 50% of the total book market in the U.S., including both physical and digital titles.

Market overview: Online marketplaces, where customers can browse, search and then buy or subscribe to software titles, have been around for quite some time. Salesforce (NYSE: CRM) rolled out the first cloud app store in 2005, and a wide variety of new options have been introduced since. Despite their longevity, the impact of these marketplaces is still uncertain. Salesforce AppExchange is a standout success, but the impact is more nuanced for most other marketplaces and the industry overall. Marketplaces have not yet become a prominent distribution model for software and cloud services, but they play a niche role in overall go-to-market strategies that include traditional direct sales, partner-driven sales and customer self-service sales. Although marketplaces currently hold a small portion of overall cloud and software revenue share, trends could bolster their role in the market moving forward.