Marketplaces Understood: Pax8’s move analyzed

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Marketplaces Understood: Pax8’s move

Growing weary of the neverending AI talk? You’re in luck – this week, we’re pivoting back to business as usual. Well, as usual as we can get, considering last month’s announcement of yet another big change sure to shake up our industry: Pax8’s new cloud marketplace.

If you haven’t yet heard the news, Pax8 shared in June at its annual conference that they’re planning to release a “next-generation cloud distribution marketplace.” As Channel E2E put it:

“SaaS vendors typically have contact forms on their websites to capture information from potential direct SMB end-customers. But it’s not normally cost-effective for vendors to work directly with SMBs. Pax8 will work with vendors to replace those fill forms with a “Buy Now” button that will enable Pax8 to collect customer information. Then, an AI-driven matching system on the back end will match customer buyers to MSPs. Both customers and MSPs will have the ability to swipe left or right to choose or reject a potential match.”

Though a clear solution to a convolution problem, it also brings up a few questions from the MSP side of things: what friction will this add to the buying process? What happens when a vendor starts analyzing the spending flow? Why wasn’t the buy now button placed on providers’ sites first?

To answer these questions and more, I welcomed a certified marketplace expert onto a bonus episode of The Business of Tech: Shirish Nadkarni, the author of the new book Winner Takes All.

Keep reading to hear what Nadkarni thinks of the up-and-coming Pax8 marketplace.

Defining a Marketplace

Before we get too far, let’s establish a consistent definition of a marketplace. According to Nadkarni, a marketplace is a meeting ground between consumers and suppliers to exchange products and services, but in most cases, the marketplace isn’t a provider of products itself. Instead, it’s simply a connector between other suppliers and consumers and/or businesses.

Now, where I think this gets interesting is when a marketplace moves beyond consumers directly buying from vendors, and more into an influencer model or intermediary relationship. This is especially true in our space, where we – the technology advisors – guide the consumer through the process.

So, does our presence change the marketplace dynamic? Nadkarni agrees that it certainly adds complication and barriers to entry. He used the example of Instacart, which is a four-sided marketplace bringing together consumers, grocery stores, drivers, and retail advertisers. So there’s a lot more for the marketplace to manage, and it becomes difficult for anyone to step in and replace it.

Achieving Critical Mass

As we track the potential rise of Pax8’s marketplace, I’m curious to know when we’ll be able to crown it a success. I asked Nadkarni what to measure to see if a marketplace has achieved that critical mass, and he recommended keeping an eye on organic growth. In his words:

“Generally, if you find that consumers and suppliers are organically coming to your marketplace – meaning that you’re not doing advertising – then that means that the marketplace has a flywheel going where consumers are hearing about it from other consumers, and they’re finding lots of suppliers, and therefore, they’re attracted to that marketplace. And similarly, suppliers are hearing from other suppliers that, ‘Hey, this is a good marketplace to be on. Let me go join that marketplace.’”

This is certainly applicable to marketplaces that have been around for quite some time, but when one is just getting started, how much does the marketing element matter? In Nadkarni’s view, it matters a lot, because it’s actually quite difficult to get one off the ground. In many ways, it’s a bit of a chicken or egg situation.

In his book, Nadkarni outlines that to jumpstart a marketplace, it’s essential to focus on suppliers first (hence Pax8’s decision to leave MSPs out of the launch so far). He used DoorDash as an example, which got started by placing orders with restaurants on behalf of the customer to collect data, then later used that evidence to approach restaurants with a business proposition to join the platform. By focusing on the suppliers at the onset of launching, they were able to grow their marketplace enough to then attract more customers.

In short, a true marketplace is able to organically drive participants to participate in the marketplace.

Analyzing Pax8

To focus this on our industry’s newest marketplace, I asked Nadkarni what dynamics we should be thinking about to understand if it’s a successful venture or not.

Nadkarni believes that in order for Pax8 to stand out against big-name marketplaces like AWS, Azure, and Google Cloud, they should focus on small businesses that aren’t tech-savvy. If they make the buying and set-up process extremely simple for these types of customers with a one-click experience, they might stand a chance.

If you, like me, assumed that only larger companies can pull off a marketplace launch, think again. Nadkarni pointed out that though the examples he’s shared are now massive organizations, they were both started by solo founders.

The Monopoly Factor

I asked Nadkarni for a taste of one of the ideas in his new book Winner Takes All, and he shared his take on a major risk in the marketplace space: becoming, and abusing the powers of, a monopoly. Specifically, the potential temptation to compete with your own suppliers (cough cough, Amazon leveraging its own data to prioritize AmazonBasics in the shopping algorithm).

Like me, Nadkarni is pro-regulation for this type of concern. I like to think of good regulation as guardrails, and he agrees that something must be done at a regulatory level to keep monopolies in check. Marketplaces themselves don’t have the incentive to do it, so the guardrails have to come from Congress.

If you want to learn more about the ins and outs of marketplaces of every size (and tips for starting your own), be sure to check out Winner Takes All by Shirish Nadkarni.

I’ll continue keeping an eye on Pax8’s attempt at joining the space and share anything new on The Business of Tech.

Enjoy your week! As always, feel free to share any thoughts at [email protected]

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