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:
– PPC and other online advertising
– Social Marketing programs of all kinds
– 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.)