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If you are not familiar with AWS Marketplace Private Offers, it is a system where OEM software companies can directly negotiate custom pricing with their end users, while still selling at a fixed price through the AWS Marketplace. The option officially rolled out a year ago, but it’s only now picking up steam. As usual, it takes a while before unintended consequences start to show themselves.
First, the flexibility allowed by Private Offers is a good thing. It benefits consumers as they can potentially earn a better discount, and sellers can choose to reward larger or strategic customers. However, there is at least one outstanding issue, namely how Private Offers impacts those who have a consolidated bill that contains a multiple unrelated customers. This applies to any MSP, ISV, Distributor, or Reseller who maintains a single payer account that contains dozens if not hundreds of different customer linked accounts. If a customer under a payer account negotiates directly with a Marketplace Seller for special pricing on an offering, two things happen. One, the Payer account must agree to the special pricing. Second, and most concerning, this special pricing will become the pricing for ALL customers within that account.
Let’s take a fictional payer account that owns 50 unique customers. One of those customers is a heavy user of Datadog. That customer negotiates with Datadog to get a 30% discount off of the standard Marketplace price due to the high volume of their usage. Before that takes effect, the Owner of the Payer account must sign on to the private offer. Once that offer is accepted in that payer account, not only does the customer who negotiated with Datadog get the 30% discount, but the other 49 customers would automatically receive that discount as well if they were to buy Datadog using the AWS Marketplace, without having to negotiate for a private offer.
So what does this mean? It means that Datadog is losing revenue for the other 49 customers, of whom, if they were to use Datadog, are now automatically getting a discount that they did not ‘earn’ through their own volume usage or their own negotiating talents. In addition, it means that if the owner has another big customer who wants to negotiate a different deal, perhaps with a tiered usage discount instead of a flat 30% discount with Datadog, there is no way for that to happen while remaining in the existing payer account.
There is a manual work around to this issue if you’ve got the time. You can reach out to the Marketplace Customer Service team and have them manually modify the existing order to show as expired. After that happens, the other customers can buy Data Dog at the standard Marketplace rates and not have access to the discounted rate. However, there are three issues with this. First, and most importantly, this is not a solution that will scale if many customers are doing private negotiations with Marketplace partners. Second, this will not allow for a different private offer to be created for the same vendor, meaning that Data Dog can’t have two unique private offers within the same payer account. And finally, if the original customer who negotiated the private offer creates another linked account that needs access to the original private offer, you will have to reach back out to the Marketplace team to re-activate the program within the console.
Why not split in to separate payer accounts and solve the whole problem that way? Well for starters, one of the main sources of profit margin for MSPs and the like is from the volume discounts that comes from having more usage within a single payer account. Everytime a payer account is split to create a second or tenth payer account, the cumulative margin goes down since each payer accounts has the volume discounts for everything from S3 and Data Transfer to Support, recalculated from the beginning. This can easily be more than a $250k decrease in annual margin for a reseller. That isn’t loose change!
None of this means that Marketplace Private Offers are a bad idea! In fact, if you, as the MSP negotiate yourself, you could create additional margin by selling that offering to your customers at the regular retail price. Or you could pass on the discounted pricing as a benefit for your customers. But, be aware, if your customers negotiate directly with the Marketplace seller without talking to you first, you could end up having an awkward conversation about creating a new payer account to fulfill that request.
AWS is planning on making some improvements to this process so that Private Offers will be easier for MSP’s, so keep an eye out for updates from the Marketplace team in 2019!