Many VC’s and other practitioners of the Art of Startup view consolidation as a normal part of the evolution of a market. At first there are lots of companies founded in a space and lots of hype. Over time, a handful emerge as leaders. Once the handful is obviously head and shoulders above the rest, they start to have an unfair advantage. They get all the capital, they get the PR attention, and ultimately, they get the customers. Then the next round of consolidation hits as much larger companies introduce competitive functionality and their peers respond by acquiring the startups.
There’s been talk and fear of impending consolidation for Marketing Automation companies for at least a year. It’s a hotly contested space with lots of players. David Raab has a good roundup post, but here is his list:
Eloqua, Silverpop, True Influence, LeadLife, Infusionsoft, Genius.com, LeadForce1, Marketo, and Loopfuse.
There are many more that are at least peripherally connected. This is a lot of players in a space, and they all wait with baited breath every Dreamforce to see whether Salesforce will announce they’re jumping into the market or whether they will acquire one of these players. That sort of thing undeniably signals that consolidation has begun with a vengeance. It’s a game of musical chairs and everyone knows the music has to stop at some point and there will be too few chairs.
What got me started thinking again about this market is Loopfuse’s announcement of a free version of their product (same thing that got David Raab writing, it seems). They, along with a number of other players in the space, were customers of Helpstream’s, so I am pretty familiar with their offerings. Loopfuse has some very cool technology, and the idea of a free version is fascinating. Raab sees it as a clear sign of consolidation, but it got me thinking about the pricing and capabilities of this category in general.
First, what does the software do? Lots of things, and the vendors will take me to task for over simplifying, but essentially, they manage your email marketing campaigns. They let you manage your list and send emails that direct people to your landing pages. These pages, often created with the Marketing Automation software and always managed by it, allow the prospect to sign up for something–a webinar, white paper, or downloadable demo, for example. In the process of signing up, they hand over information about themselves that goes into the database. SEO and PPC (pay per click) may also direct prospects to these pages, in which case you get new names to mail to. This whole mailing business starts a “drip feed” marketing campaign where your prospects get new information every so often to prod them along the buying cycle, a process called “lead nurturing.” FWIW, various sources I have read indicate it takes something like 7 mailings to convert someone to be ready to sell to.
Lastly, they have a capability called “Lead Scoring” that attempts to monitor which leads are hotter based on how much content they have consumed and how proactive versus inactive they may be. The hope is that Lead Scoring can predict the magical moment when the customer is ready to buy and a sales person should reach out to them.
Second, how are these companies differentiated? It gets harder and harder to tell over time, which is another consolidation signal. They all do the basics. There don’t seem to be any “killer features” separating one from another, and it has been a while since something new was introduced that really set one of the players above the others. Differentiation is starting to come from the market segments being targeted (that one is for bigger companies that need more features at some cost of ease of use, this one is for medium sized companies that need some of the power features but that have to hit the ground running quickly, and this third one is for small companies that need the cheap solution).
Back to pricing, which has been interesting for the category. Many of the players have steadily worked at moving up-market. VC’s hate the SMB markets. They’ve lost a lot of money selling there, and they are frankly skeptical about the market. With some notable exceptions (Infusionsoft is totally dedicated to the low end), they don’t want to hear about it. So, these vendors pushed to get $10K annual deal sizes, then $15K, and so on.
I have several problems with the market, after watching all this. At the risk of an overly long post, let me run through them:
There is too much friction
The move up-market inevitably forces more services, more features, more complexity, and more friction. It also forces these products to be adjunct modules for CRM. I know the vendors hate to think of it that way, but the leads have to get handed over to the SFA system, and these products are squarely in the middle of the VP of Sales vs VP of Marketing conflict:
– I don’t have enough leads!
– You don’t call the leads I give you!
The need to integrate with SFA together with this back and forth, sure makes this category feel like a module on somebody’s suite rather than a category. Funny how SFA/CRM didn’t succumb to that. But worse, the pricing, the integration complexity, and the complexity of the user experience for most of these products makes for too much friction in the buying cycle.
These products are not differentiated and the value is out of whack with the price
For what the products actually deliver, drip feed marketing, they are also really expensive. I’ve talked to a lot of smaller startups who really agonize over whether these products are worth their time. Larger firms wind up creating mini-orgs of consultants and others to keep the Marketing Automation engine running, but it’s just a piece of what they need to get done, and they want more. Marketing people in general have a hard time justifying their various investments, and a lot of folks just aren’t sure these products do the trick.
They know they need to do some drip feed. That’s a given. They are very skeptical about Lead Scoring, and I confess, having worked with it, I am too. The salient question is whether a thirst for more collateral is a reliable indicator of who to talk to. The answer from all I talk to is that it helps, but is nowhere close to being a reliable indicator. For one thing, it can’t tell you whether there is a project and budget or not. For another, it can’t tell you whether the customer that isn’t asking for much content is not interested, or just feels underserved by the experience you’ve served up around content.
In short, Lead Scoring doesn’t qualify the lead.
Another thing I have seen is the desire by marketing departments to turn this software on and off as they go through the roller coaster of spending to get leads and then cutting back to work the leads. Many of the packages charge based on how large your database is, and many marketers are used to feast or famine budgeting. These packages need more functionality that benefits from being “always on” to offset that.
These products are incomplete, siloed, and Old School about marketing
If I look at what my vision for a Marketer’s Online Central Nervous System should be, today’s “Marketing Automation” falls way short. I use the quotes because it just doesn’t automate enough. This is ironic, since the category is badly in need of some more innovation to stave off consolidation.
I will be writing more over time about that Marketer’s Online Central Nervous System (and hopefully I can get a better name!), but let me give you the short form.
At 100,000 feet, CRM is often described as providing a 360 degree view of the customer. From that perspective, Marketing Automation should provide a 360 degree of the Lead (a lead is totally in Marketing’s hands) and Prospects (a prospect is in both Marketing’s and Sales’ hands).
What does that mean?
Marketing Automation today only gives us a view to the web landing pages and drip marketing via email. A 360 degree view must add:
– SEO
– PPC and other online advertising
– Social Marketing programs of all kinds
– PR
– Partner/Affiliate and other “networked” kinds of marketing
– “Widget” marketing via mobile or otherwise.
Are you starting to get the picture? The lead funnel needs to be extended both earlier, later, and to cover the whole breadth of the funnel and not just what’s happening around email and landing pages.
To realize all that is a big vision, but isn’t it a necessary vision, whether you’re talking about consolidation, competition, or just what “Marketing Automation” should really mean? C’mon guys, there is more to Marketing than a Landing Page!
(Okay, now I’ll duck and wait for the inevitable feature lists and press releases that contradict what I’ve said.)
Wow – Bob – I think you are channeling the Inbound Marketing mindset that we espouse at HubSpot!
Couple of additional thoughts:
-So many of these marketing automation solutions start halfway through the problem –> automating a dearth of leads is awfully silly. Very few of the mid-sized companies we work with come to us with purely an automation problem. They have a LEADS problem … AND a yield problem. You’ve got to solve starting with the top of the funnel before you automate anything in the middle.
-Your point that there still has to be a human element is spot on – we can apply artificial intel and pattern analysis to all leads … but regardless, most companies that can afford marketing automation tools today sell products and services that require a bit more consultative selling. Now – what may change – is that as freemium and other downmarket options arise, folks in B2C or smaller ticket B2B companies may see the value of the tools and be able to automate almost all of the sale in a less complex sales cycle. Do you believe that, despite lesser VC interest in the SMB space, that bringing these modern concepts to the SMB marketplace can drive value for the entrepreneurs and small business owners that make up a large part of the US economy?
-RE: Consolidation – Oracle’s recent purchase of Market2Lead’s assets is the first step and I am continually placing bets on who will be next.
Great post!
Kirsten, I read the HubSpot blog along with a number of others with similar viewpoints, so no surprise some “channeling” is happening.
RE the Leads problems: Most of these firms believe in just firing up more mailings to more lists they’ve purchased. There is definitely value in that, but it isn’t exactly a holistic view of the problem. HubSpot brings some more ammunition to the table. Personally, I also prefer the Inbound mindset. I’d much rather my customers self-select rather than being dragged into the discussion. Inbound are higher quality leads.
For Yield, I think the MA players have a decent answer in Drip Marketing. It is again, not the only answer, and I’m not convinced it is even the best answer. I prefer to bring leads into a Community where there is more active participation rather than purely bombarding them with a Drip Feed.
RE the low end, I think that market is actually much more lively than many of the VC’s suspect. The VC issue is how to reach them cost effectively coupled with worries about churn. They’re just more comfortable with fewer bigger sales. I prefer the opposite, but that’s a whole other post. The thing that has really changed since VC’s made up their minds about SMB is the Internet. I think that really changes the cost of acquisition versus the days of Direct Mail and Print Advertising.
Thanks for joining the discussion,
Best,
Bob Warfield
Great article, really got me thinking.
On the topic of the lack of VC interest in the SMB space, I think you are right — too many VCs have burned too much capital in the past in that market, and so they are jaded.
However, we’re seeing an increasingly strong interest from the investment community in the SMB space. Not only are some of the folks that made money in enterprise software getting clueful about the distribution efficiency available now with the Internet, but some consumer-oriented VCs are seeing the combination of potential scale and monetization that makes the SMB opportunity so interesting.
Success stories like Salesforce.com, ConstantContact, VistaPrint and others also helps a lot.
Bob,
First, I completely agree with the idea that the funnel needs to be extended earlier. There are some outbound components that need to be integrated too in order to close the loop, namely tweets, facebook et al posts, blog posts, sms. Some already inegrate direct mail. Even easy integration with webinar tools would be a Good Thing.
The other inegration that could be improved is with back end financial and for retialers, POS software.
Secondly, there is absolutely friction in the buying process. I am certified with infusionsoft and let me tell you from first hand experience that the buying cycle/education process is Lo-o-o-ng and rare is the small business owner who “gets” the concept of fundamently changing they way they do marketing because new tools and media allow for greater efficency and effectiveness.
Part of the solution to the friction problem is for the MA vendors to develop a community of service providers that can economically build the “last mile” of the solution for a small business. You see this same model at a larger scale with Enterprise CRM — Siebel sells the system and Deloitte does the customization, data coinversion and training. To some degree this also adresses churn as the “stickyness” is in the complete solution (software + integration into business processes + ongoing optimization) that produces an ROI for the small business.
I completely rosonate with you vision. My question is will realizing it come from extending the current generation of MA tools by exisitng players or by the creation of next generation tools by a start up?
[…] This post is in response to Bob Warfield’s excellent article Marketing Automation Consolidation […]
Hi Bob,
Great post. I fully agree that outbound email + landing pages + lead nurturing + lead scoring isn’t a complete solution, although you and I may differ on whether they are enough to justify the cost of a marketing automation product. In practice, the alternative isn’t the One Great Marketing Solution In the Sky but separate systems for each of these functions. So just consolidating them, and in particular giving marketing the ability to create its own landing pages without relying on IT, adds considerable value.
That said, Hubspot has the right idea of adding inbound marketing as well, and Infusionsoft takes it a step further by integrating CRM functions as well. There’s no doubt that Marketing Automation will expand to include all those. In fact, the leading vendors have already moved well beyond the core email + landing page functionality. That sort of expansion is utterly typical of a maturing market and, as you point out, typically accompanies consolidation.
I also fundamentally agree that Marketing Automation may not survive as a stand-alone category, at least in the business-to-business world. (Business-to-consumer marketing automation is quite separate and has a long history; see Unica, Aprimo, Alterian, etc.) CRM vendors are one set of obvious owners. Web content management vendors are another.
The sole hope for independent Marketing Automation is that marketers in some firms will have enough clout to demand their own system, rather than being subject to a system selected by Sales (CRM) or IT (Web CMS). This will only happen in large companies. Small businesses simply can’t afford the overhead to run separate systems, so integrated solutions will surely dominate in that segment.
Sorry to be late to the party, but as both a HubSpot Small client and a SMB in search of more highly integrated automation I have a slightly different perspective.
HubSpot offers great inbound marketing and lead generation functionality. It’s certainly helped me generate more leads. But that’s where it stops. Unless I’m willing to move up to a higher price point, i don’t even get an API to let me craft a DIY solution.
I have cobbled together a series of automation products that relieve me of some of the follow up drudgery, but in reality I’ve exchanged 1 set of manual fixes for another. What I really need is a way to integrate the 2 worlds of lead generation and follow up, extending through the sell cycle and encompassing CRM for after the sale service.
Now that would make me happy. Thanks.
Howard