Lessons from Informatica Marketplace

As cloud adoption gains steam, will enterprise software sales transact through online marketplaces? Experience from Informatica suggests some aspects might. The company’s six-month old marketplace has drawn a steady stream of visits from customers and partners. Yet, Informatica’s experiences have differed from better-known online players such as Apple or Salesforce in several major respects. First, Informatica Marketplace has functioned more like an extension to its practitioner communities. Customers are using it as a place to make connections for unique, complex data integration solutions where the sales process remains consultative. Secondly, the complex nature of solutions required by Informatica customers requires that the company carefully vet and target the products and services that make the list, in order to avoid doing a token job of addressing all needs with a few solutions.

An abundance of online marketplaces

It seems that barely a week goes by without an announcement of a new online portal or marketplace for software going live. Most large software vendors have run user community sites that provide members with the opportunity to test-drive alpha or beta versions of features or applications that have just come out of their labs.

The market’s fascination with, and growing adoption of, cloud computing has driven home the notion that online is a logical place to shop for software. The temptation is that what Amazon did for books and other solid goods, Amazon and others could do for software. Indeed Amazon has recently announced its answer to the Google Android Marketplace, rolling out a rival online destination where Android users could get their apps.

Apple’s App Store provides an example of how this idea has taken the mass consumer marketplace by storm. Salesforce.com popularized the idea on the enterprise side, with the AppExchange providing a hub for third parties whose apps leverage Salesforce’s CRM application or underlying SaaS (software-as-a-service) platform. In Ovum’s view, the common thread is that both marketplaces sell products that are suited for quick, “yes or no” decisions such as a barcode scanning shopping application for your smartphone, or an invoicing add-on to the Salesforce CRM application. Of course, the popularity of these sites with customers and sellers means that they become overwhelmed by their success. The result is a phenomenon often described as the dark side of the ‘long tail,” where there are so many offerings that a customer can easily get lost once past the top two or three listings.

Informatica’s Marketplace has had a promising start

Informatica introduced its own marketplace last year with the goal of providing a lead generation engine for partners that devise useful fixes that could be productized. It also serves as an informal focus group for new product ideas coming out of its own labs. In its first six months, Informatica Marketplace has generated decent traffic, with approximately 85% of its 130,000 user community members making regular weekly visits as the catalog of solutions has roughly doubled.

But the model was a departure

We originally characterized Informatica Marketplace as a “loss leader”, where the goal was to stimulate the partner ecosystem, as opposed to making big profits for Informatica. Although that notion is valid, Informatica is hardly running an online discount store. In contrast to Apple or Salesforce, Informatica’s marketplace sells products that are very different, requiring a very different sales process.

Informatica Marketplace features data integration related solutions. Although there are some off-the-shelf products, in our view the main appeal is for solutions not otherwise addressed by commercial software. They would encompass the results of partners productizing some of their most repeatable best practices, or innovations originating from Informatica’s or its partners’ labs. However, these solutions often tend to be complex, targeting sophisticated data management and transformation processes, many of which were industry-specific. In most cases, these are not the types of solutions where customers can make quick cut-and-dry decisions, because in many instances, the problems they address might be addressed in those or other ways.

Ovum believes that Informatica Marketplace has less in common with Apple or Salesforce exchanges and more in common with user or practitioner groups whose interests are deep, not wide. Informatica Marketplace customers are often the people who frequent user groups and forums to address highly vexing business problems involving data, for which the industry has no easy answers. They are not simply surfing for solutions that might be useful. Informatica learned that most marketplace customers were looking for connections rather than quickly clicking the “buy” button.

Look to the user group model

The message for enterprise software vendors is that online marketplaces are not a universal panacea for selling their products to a broader audience. They only work when the user and partner base is large enough to draw more than a handful of solutions. Beyond that, the type of marketplace depends on the complexity and universality of the solution. Our view is that the simpler and broader, the more suited for the Salesforce model. The more complex, the better suited for the user group-driven model, but with one caveat. As forums for informal discussion of implementation issues, users groups work best when they are unfettered and not distracted by commercial pitches. The trick for vendors is positioning the marketplace as the place where users can turn insights gained from online forums into the action of choosing solutions, without the crass commercialism. Informatica has dealt with the issue by adding a widget that people browsing user groups can click on to jump into the marketplace. Kept at arms length, online marketplaces can serve as logical extensions of user groups or forums that allow users to make the answers actionable.

Don’t try to be all things to all people

The user group model of Marketplace demands active management to protect vendor brand reputation and to make it a useful place for customers to frequent. Vendors might not be legally responsible for products listed on their site, but in the eyes of customers they become morally responsible. That drives the need for vendors not to adopt the loose Google model which opens its marketplace to almost all comers, but to use the Apple model and vet what products make the cut. More to the point for solution-driven marketplaces such as Informatica’s is the need to deliver the depth of functionality so customers have a reason to return to the site. Lacking huge margins, vendors managing such marketplace or solution portals won’t have infinite management bandwidth and must therefore cherry pick their targets. Informatica has addressed this with a strategy tweak in 2011: focusing its marketplace, not on all things data integration, but on the biggest hot spot for activity: customer-centric solutions for financial services and healthcare industries.