Pricing it right
Successful participation in cloud marketplaces calls for a continuing evolution in sales and marketing approaches, and ISVs are feeling increasing pressure to provide greater transparency in pricing. In fact, the marketplaces themselves are a sort of forcing mechanism for price transparency, and this trend may result in implications for other channels.
The relative lack of discounting when selling through marketplaces requires ISVs to put extra focus on getting their list price in a sweet spot, since sales rep negotiations are not part of the process. This creates an opportunity to evaluate which products will be sold through marketplaces and which will go through direct channels, as well as to improve discounting governance in direct channels.
ISVs have other tools at their disposal to increase traffic in cloud marketplaces, including improving search engine optimization (SEO), writing compelling product descriptions, and actively soliciting and monitoring ratings and reviews to guide product optimization efforts. Attention to factors such as these should raise discovery of ISV solutions amid the noise of a large-scale marketplace.
Evaluating pricing models
As more ISVs list their products on cloud marketplaces, the intricacies of the impact this model has on pricing and selection become more identifiable (see Figure 2).
L.E.K. Consulting’s analysis of software solutions sold via marketplaces shows that ISVs are continuing to shift away from fixed fee models like annual licenses, with only about 1% of solutions using this model. In contrast, the consumption-based model is becoming more prevalent, accounting for approximately 70% of products. A consumption-based model better aligns to growth in operating cost as customer deployment grows (cloud computer usage is the most common usage metric for cloud-based solutions offered by ISVs in marketplaces).
Pricing models that include trials or demo periods can help customers evaluate solutions on a self-guided timeline; L.E.K. found that about 40% of ISVs offer both trials and demos within the analyzed marketplaces.