Public Cloud Marketplaces : Cloud Shadow Procurement Is Becoming Mainstream

I joined Amazon Web Services (AWS) in 2010. AWS in those days was a much smaller business compared to the $20B+ run rate business that it is now. One common objection my sales team would receive was that many corporate IT teams didn’t want to buy their IT services “from a bookseller.” These potential clients would claim that they already had a process of providing IT infrastructure to their internal clients and that they didn’t see the point of treating their IT services as a utility. What was interesting is that many of the companies we were speaking with that were pushing back on public cloud already had other groups at their company using AWS.

Instead of going through centralized IT to get resources in the company data center, software development teams would procure cloud resources directly. At that time this concept was referred to as “Shadow IT.” These cloud resources were deployed directly on Amazon’s cloud with a credit card and some API calls. This idea that teams were deploying their own resources outside of central IT’s control was commonly referred to as “Shadow IT.” It was considered a risk because centralized IT was also responsible for things like security and compliance. The trade-off was that teams could run faster and experiment in minutes vs. the months or years prior to obtain similar resources through central IT.

Shadow IT may be gone, but please welcome Shadow Procurement

Now in 2018, the debate of central IT vs. shadow IT has been mostly settled. Centralized IT teams usually now have a Cloud Center of Excellence (COE) that provides cloud operational support at a pace that enables agility across the business. Security and compliance are integrated into the Cloud COE approaches but they are still infrastructure-acquisition-specific. While shadow IT fades into history, we are likely seeing a parallel trend emerge that has huge implications for Independent Software Vendors (ISVs) and their respective applications.

While public cloud has managed to disrupt the traditional infrastructure acquisition process, it has not made a huge impact (YET) on the software acquisition process. Many enterprise software acquisition cycles led by client procurement teams will have comments like “we aren’t looking to change how we procure software” or “the line of business must work with procurement to buy any software at this company.” The phrases are nearly identical to the push back from central IT when public cloud first broke into the enterprise. What a lot of these procurement teams don’t know is that their colleagues are already buying software without them. And instead of issuing a PO to pay for it, the charges are going directly to on the public cloud bill. Shadow IT has transitioned into Shadow Procurement via the public cloud marketplaces.

Shadow Procurement may be a thing, so what?

Migrating to public cloud, or building new applications, is not easy. Rarely do companies have all of the people or tools, or resources in general, to go as fast as they would like. If getting a certain piece of software can speed up your cloud project, do you want to wait a couple of months to go through a procurement cycle? If you are in charge of a multi-million dollar a month public cloud budget would procurement know if you added a software tool you needed via the public cloud providers marketplaces? The answer is generally No to both questions.

Today AWS Marketplace, Azure Marketplace and Google Cloud Launcher provide their respective cloud clients thousands of software offerings that can be added directly to the bill. If you are a software company that is relying and/or hoping to invest in a traditional reseller channel as your client base moves more of their infrastructure to public cloud you may be in for a rude surprise. If you are investing in a software company that doesn’t have a strategy for growing their public cloud marketplace revenue, that could be a real problem.

Don’t be surprised when Shadow Procurement becomes Cloud Procurement and everyone is doing it. It’s 2010 all over again.

Matthew Scott