Understanding Pax8’s Would-Be Product-Led Growth Killer

Explore the cloud distributor’s plan for protecting itself and MSPs from direct-to-buyer SaaS sales, then keep reading for an inside look at Barracuda’s forthcoming global partner program.

Listening to Pax8 lay out the sprawling, ambitious vision behind the next-generation marketplace it unveiled this week at its inaugural partner conference in Denver, I couldn’t help but think back to an Ingram Micro conference a year ago at which cloud exec Victor Baez devoted part of his keynote to a looming danger: SaaS vendors selling their wares directly to SMBs.

“We’re quite comfortable in referring to direct, non-channel go-to-market routes as potentially our largest competitor,” Baez said.

He then explained why Ingram didn’t fear that competition, but still. You don’t raise an issue like that in front of a big, live audience of partners unless it’s at least a little bit on your mind.

Turns out it’s been on their mind at Pax8 too. “We see that as a threat, and obviously our partners do as well,” says CTO Scott Chasin (pictured) of so-called “product-led growth,” the self-serve, direct-to-buyer sales model that propelled Zoom, Slack, and others to fame and fortune.

Indeed, Pax8 has spent the last two years and a non-trivial hunk of the $96 million in funding it raised in 2021 and the $185 million more it raised last April developing what Chasin describes as nothing less than “the future of B2B commerce.” It’s an all-new, free to use marketplace designed to blend AI, analytics, and automation so seamlessly that SMBs, MSPs, and vendors alike eventually forget that product-led growth was ever a thing.

“We want to provide the orchestration layer for all three of those constituents, and we want to do it at scale,” Chasin says.

The big plan for realizing that goal begins with something deceptively small: a button labeled “Buy Now” that vendors can embed in their websites. Here, in extremely broad brushstrokes, is what happens when someone clicks it:

1. An automated process (using either a turnkey, white-label web app from Pax8 or custom code linked by APIs to Pax8’s infrastructure) asks the user a few prospecting questions—including whether or not they already have an MSP. If they do, that’s where the lead flows. If they don’t, an AI-based “matchmaking” process directs the user to an appropriate Pax8 partner based on variables like what they’re buying and where they’re located plus the partner’s competencies, target customer profile, and vendor preferences.

“We’ll give [MSPs] a UI that allows them to swipe right on a prospect, and we will manage the introduction for the partner to that customer,” Chasin says. 

2. Using a customer-facing storefront, the MSP quotes a solution (versus stand-alone product) containing multiple cloud apps, hardware, and the MSP’s own services. If the client likes it, they can purchase and provision the whole thing on a self-serve basis and then manage their ongoing relationship with the MSP through the same customizable site.

“We want to create a customer portal out of that storefront that allows end customers to get support, pay their bill, and see how the MSP is guiding them on their path to maturity,” Chasin says.

The upshot, according to Nick Heddy (pictured), Pax8’s chief commerce officer, is a win-win-win scenario for everyone, starting with the MSP. “They obviously get to lower their customer acquisition costs, they get to grow faster, and they get to gain efficiencies,” he says.

Buyers win as well, Heddy contends. “They get a better customer experience because a trusted MSP who’s been vetted is going to ensure that those solutions are being delivered as a great experience.”

Finally, the vendor wins too, Heddy continues. The lifetime value of new SaaS customers is five times greater for vendors when an MSP is involved, he says. Customers who buy direct, conversely, are less profitable and less reliable.

“They churn at a higher rate, don’t deploy all the technology, and don’t turn on all the security features and some of the premium SKUs,” Heddy explains.

Heck, Pax8’s new sales motion is arguably a win-win-win-win proposition. Unlike other distributors with cloud marketplaces, Pax8 doesn’t sell hardware, so MSPs who do will need to bundle those devices into deals through a third-party supplier. Which is to say that TD SYNNEX could end up sharing some of the revenue generated through Pax8’s marketplace.

“A rising tide raises all boats,” observes a grinning Heddy.

The vendor value prop

Pax8 expects two kinds of vendor to find its new marketplace especially attractive. Enterprise-oriented SaaS makers, the company predicts, will like the sound of adding SMB revenue without hiring an SMB salesforce, or burdening their enterprise salesforce with penny ante leads.

“Those reps do not want to call out on those SMB customers,” Heddy says. “The customer acquisition cost is too high.”

For startups, meanwhile, tapping into Pax8’s ready-made pool of nearly 30,000 MSPs is a swift alternative to building an indirect sales channel one partner at a time.

“You can just start going to trade shows with a popup banner, but it’s going to take years before you actually find a route to profitability,” says Rob Rae, the distributor’s corporate vice president of community and ecosystems. “Or you can leverage somebody who’s already got a community like Pax8.”

The value proposition for vendors that already have MSPs and SMB customers is murkier. Acronis, one of a handful of vendors collaborating with Pax8 on the marketplace project behind the scenes, is bought into the “Buy Now” button anyway.

“Our CEO, Patrick Pulvermueller, came from GoDaddy,” says Pat Hurley, Acronis’s vice president and general manager for the Americas. “We’re very familiar with the seamless process of getting people to actually buy stuff online.” It’s not easy, he notes, but can be extremely profitable when fine-tuned with the kind of sophisticated tech Pax8 is constructing.

Don’t overlook the data-driven insights

Everyone loves sales leads so much that media types like me have devoted much less attention to the part of the new Pax8 marketplace that Pax8 itself is arguably most excited about: a sales tool called the Opportunity Explorer that draws on AI, analytics, and data from an MSPs business systems to identify which products a given customer is statistically most likely to buy next based on the products they already have.

“We want to use those AI insights from the data to show our partners the unrealized revenue potential that exists in all of their customers based off of where that customer is in their maturity lifecycle,” Chasin says. “That does not exist today.”

Less noted even by Pax8 but appreciated by Hurley, of Acronis, is that vendors will have access to similar reporting.

“We’ll get insights that we might not have necessarily gotten before,” he says. “It’s almost like a vulnerability assessment to the marketplace to say, ‘here’s some areas where you should strengthen the portfolio or here are some areas where you might have some overlap.’”

Of course, anything that requires partners to share information about their customers with a distributor that could then use that data for other purposes makes some MSPs nervous, so the Opportunity Explorer is an explicitly opt-in service. Ryan Walsh, Pax8’s chief strategy officer, says the tool won’t push users toward favored vendors with back-channel profit sharing deals either.

“They have choice,” he says of MSPs. “They can turn off anything they don’t want. And if you turn off [a vendor] you don’t want, then you’re not going to get matched to that one.”

Even so, Rae, who’s as good an MSP empath as there is in the channel, concedes that it’ll probably be a while before Pax8 partners are familiar enough with both the Opportunity Explorer and the marketplace’s lead engine to decide if they’re comfortable using them.

“I think it’s going to take some time for people to understand the power of what it is that we’re actually launching here, why it’s trustworthy, and how they can actually make money or save money by doing it,” he says.

Fortunately for all concerned, there’s no shortage of time. Pax8 is still finalizing the marketplace, and won’t launch the invite-only early access program it’s planning until late this year. General availability will arrive in 2024.

And meanwhile, here’s a look at Barracuda’s forthcoming new partner program

A true channelholic isn’t content to attend one event in Denver when he can attend two instead. Hence my dash across town Tuesday from the Pax8 conference to the Four Seasons hotel (where, eyewitnesses tell me, the Miami Heat stayed before losing the NBA championship Monday night to the hometown Denver Nuggets) for a brief stop at a Barracuda Networks partner conference.

By the time I arrived, Jason Beal, Barracuda’s global channel chief since last November had already shared a new study showing that while the company’s average partner collects $3 for every dollar’s worth of Barracuda products they sell, best-in-class partners pocket $5.57.

“Our message to the partners in the room was there’s an incremental billion-dollar opportunity in the next 12 months for our partner community [if they] go from the $3 of partner multiplier to the five and a half,” Beal says.

The keys to doing so, the new research shows, are selling a wider range of Barracuda solutions, providing more professional services, and mixing old school product sales with recurring revenue managed services.

To help with that last part, as we told you here at Channelholic all the way back in April, Barracuda will roll out a new partner program this fall. In addition to being the vendor’s first truly global program with a single worldwide set of rewards and requirements, the new offering will consolidate previously separate programs for resellers, MSPs, and cloud partners, a change that will make life easier for the growing body of partners who fit in more than one of those categories.

“It’s always hard to have to navigate through two different organizations,” says Larry Fulop (pictured), senior vice president of marketing and technology at MicroAge, a longtime Barracuda VAR headquartered in Phoenix that makes about 20% of its money as an MSP.

Better yet, from Fulop’s perspective, members of the new program will get credit toward revenue thresholds for everything they sell regardless of whether they sell it as a product, a managed service, or through a cloud marketplace. “That way we can go to our clients and sell what’s the right product for them, versus only being able to do one or the other,” he says.

New, additional requirements will measure partners against customer success metrics in areas like activation, retention, and renewal.

Designed to offer what Beal calls a “low barrier for entry, but high benefit for commitment,” the new program will offer tools and perks for landing new customers and cross-selling new solutions, along with MDF access and new sales rebates. It will also feature three tiers versus the previous six.

The revamped partner program is far from the first change Beal, a veteran of earlier stints at Ingram Micro and AvePoint, has put in place since joining Barracuda. He’s also recently reorganized account manager relationships so that partners like MicroAge with multiple sales models no longer have to work with multiple reps.

Beal is staffing up as well. In addition to naming Maria Martinez Barracuda’s new vice president of channels for the Americas in April, he’s added field-based and inside channel salespeople and hired a new team of channel sales engineers to help with technical training and enablement.

“You definitely feel the difference of having the support that you may not have felt years ago,” Fulop says.

Credit for investments like those belongs partly to KKR, the private equity firm that acquired Barracuda from Thoma Bravo last April, according to CEO Hatem Naguib (pictured left).

“They’ve been instrumental in helping us get to what we call the acceleration phase,” he says.

A “disproportionate” share of that elevated spending is flowing to Barracuda’s MSP unit, Naguib adds. “It continues to be a very fast-growing part of our business,” he says, noting that while revenue is currently growing 12% year over year for the company as a whole, MSP revenue is climbing about 15%.

What about the Email Security Gateway incident?

That’s the ugly zero day reported last month that let threat actors with suspected links to China turn some of Barracuda’s Email Security Gateway (ESG) appliances into espionage tools. The company posted an update on the still unfolding incident with new details yesterday. Here’s what Naguib told me about it on Tuesday:

“I think we’ve been very transparent and communicated very deliberately with [partners] in terms of what we found. We’ve notified and identified with our customers those small number of boxes that have been impacted by it. We’ve reached out to them directly. We’ve been working with them to make sure that they know and understand the details of what we’ve found and to replace their systems in order to make sure out of an abundance of caution that they don’t have any remnants left of that.”

Also worth noting

• Trend Micro has beefed up the XDR portion of its Vision One platform, and added a generative AI-powered cybersecurity assistant named Companion.

• Addigy has made the MDM watchdog utility it shipped in May, which helps resolve macOS management issues, free to everyone, including people who don’t use its own MDM software.

• Speaking of Apple, Keeper Security has a new password and passkey management extension for Safari users.

• MSP consultancy Eureka Process has spun off its MSP Hire recruiting and hiring unit as a stand-alone company.

• Data erasure vendor Blancco has revamped its global partner program.

• Action1 will invest $20 million not raised from venture capital or private equity firms in its patch management software.