0 Why Is B2B Marketing Automation Growing So Slowly?

Let me start by saying that the 50% revenue increase I’m projecting for B2B marketing automation in 2013 is a very healthy one. In actual dollars, the $250 million gain is much larger than the $175 million growth in 2012. So if you’re working in the industry, don’t circulate that resume just yet.

But still, as I noted last week, the growth rate is slowing – and for some vendors seems to have fallen considerably in the second half of 2012. The most notable is Eloqua, which as a public company has to report its results. Its year-on-year revenue was up 42% in first half of 2012 ($45 million vs. $31.7 million) but just 28% in the second half ($50.7 million vs. 39.6 million). That means even the absolute increase was down: $11.2 million vs. $13.3 million. Figures for other vendors are not publicly available but I've seen hints that several have slowed as well.

What really got me thinking about this was prepping for a Webinar I’ll be giving next Wednesday on the future of marketing automation (register here). I had figured to start off with my industry growth figures, but this led naturally to a question about long-term potential, which in turn leads to thoughts of market penetration rates.

We’ve recently been seeing surveys that suggest something close to 50% adoption of marketing automation.  For example, LoopFuse reported 42% of respondents had marketing automation in place, a Forrester study reported 45% use among B2B enterprise marketers, and the Lenskold Group found 70% marketing automation usage.*

If true, these figures would actually be bad news for marketing automation vendors.  They suggest the market is at least half way to saturation, after which growth would slow dramatically.

But most people in the industry are confident the potential is much larger than double the current market. The raw numbers suggest as much: according to data compiler Manta.com, there are nearly 1 million U.S. companies with $5 million or more revenue.** Of these, about 300,00 fall into B2B categories. Raab Associates' VEST report shows about 20,000 B2B marketing automation systems at those companies, yielding about 6% penetration. Not surprisingly, the rate is higher among larger firms.  I’ve excluded business under $5 million revenue from this analysis because that’s a very different market.

What accounts for the discrepancy between actual data and survey results? One answer is that people who answer surveys about marketing automation are disproportionately likely to be users.  So the untapped market is indeed much larger than surveys would suggest.

But here’s another, less comforting explanation. It’s a safe bet that at least half of current marketing automation users are in tech industries – call that 10,000 of the total. The Manta figures show 21,000 companies in the tech categories – computer hardware and software, ecommerce and IT outsourcing, electronics, and information technology. I know you can do this one in your head, but 10,000 clients among 21,000 companies means the tech sector is just under 50% penetrated.  This is pretty much what the surveys are telling us. And, yes, survey respondents do tend to be concentrated among tech companies.

Why is this worrisome?  Well, it suggests is that most B2B marketing automation growth is coming from mid-to-late adopters within the tech industry, not early adopters across a much larger universe.  That’s scary because everyone has expected a huge take-off when marketing automation finally transitions beyond the early stages of market development.  If the transition has already happened in tech and never gets started anywhere else, we'll never see that hyper growth.Quite the opposite: the tech pool will run dry in a year or two and growth will slow to a modest replacement rate.

A more tactical consideration is that  mid-to-late buyers have different purchasing styles (more risk averse, more support oriented, more price sensitive, more brand driven) than early adopters. There’s some evidence that B2B marketing automation vendors are moving their sales and marketing in this direction. This makes it even harder for them to sell to pioneers in other industries, who need the original missionary approach.

If you want another hint that the sky may be falling, how about this: a recent Econsultancy survey found that marketing automation is now lower priority among marketers than a year ago (top three for 11% vs. 15%). Since priority presumably translates to purchase intent, that seems to foreshadow a decline in new sales. I don’t want to make too much of this – the survey was among UK marketers and it also showed a sharp increase marketers who ranked marketing automation among their most exciting digital opportunities. Econsultancy’s explanation for the apparent contradiction was that most marketers already own a marketing automation system, so now they’re turning to exploiting it.  But while that's comforting on some levels, it still suggests lower future sales.

To be honest, I was less concerned about the year-to-year change in percentages than about marketing automation’s low rank in both years – next-to-last in 2012 and ninth of twelve in 2013. An IDC report from 2012 had similar results, ranking marketing automation seventh on a list of nine.

I have my own little theory about the low priority, which boils down to the fact that marketing automation only handles a fraction of marketers’ total activities.  Specifically, it supports email and online events, which a 2011 MarketingSherpa study found account for just 20% of program spending.  Even with direct mail and marketing automation itself, the total reaches only 37%. My theory is that marketing automation has a low priority because it is far from a complete customer management solution – or even a complete customer acquisition system.

There are other signs of early market maturity within my VEST data. One is greater concentration among the industry leaders.  My primary measure is employee counts, which are revealed by more vendors than revenue.  Last year, the top four industry vendors (Eloqua, Marketo, HubSpot, and Infusionsoft) added 49% more employees, compared with just 21% for the rest of the industry.  My revenue estimates show a similar gap although it's less pronounced. Revenue per employee is also about 20% higher for the top four vendors than all others combined; this is a sign of tight margins at smaller vendors, which make it hard for many to survive without outside funding. (That gap has actually shrunk since last year.)  Most tellingly, the past year hasn’t seen the rise of any fast-growing new challengers, in the way that Act-On and Pardot appeared in earlier years. This is yet another of industry stability and, perhaps, nascent consolidation.

So, is B2B marketing automation doomed to be no more than a niche application for tech marketers? Industry optimists would argue no, and point out that if half the clients are in tech, then the other half are not. Point taken. But it would be Panglossian to assume that other industries are simply waiting their turn to adopt marketing automation once the tech industry is saturated. In reality, I constantly discover new (to me) marketing automation products tailored to specific industries such as insurance, real estate, franchises, dentists, local retailers, and so on. I suspect the real reason the B2B marketing automation vendors haven’t had much success entering those territories is that they’re already occupied.

If that’s so, then the industry verticalization I’ve long expected has already happened and general purpose marketing automation vendors will have a much harder time than expected in selling to marketers outside of tech. As I suggested above, they’ll need a much more compelling story than one that leaves them at the bottom of priority lists even for tech marketers. Specifically, they’ll have to expand their scope to incorporate all marketing activities: a 20% solution just won’t be enough.
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* Of course, the minute I posted this blog, I started to see additional figures.  A ClickZ article quoted 25% use by 38 B2B companies within the Fortune 500.  An Aberdeen study reported 30% adoption.  A BuyerZone survey returned 13% usage, although it probably included mostly small businesses. 

** Here's the Manta data if you want to play along at home.

0 Salesforce.com and Oracle Buy Social Marketing Systems: Not the End of Marketing As We Know It

Salesforce.com yesterday announced agreement to buy social media publishing vendor Buddy Media for $689 million, thereby adding another big fluffy piece to its “marketing cloud”. Oracle followed suit this morning  with an acquisition of social media monitoring and semantic analysis vendor Collective Intellect. This followed Oracle’s $300 million acquisition last month  of social publishing system Vitrue. Just for symmetry, it’s worth pointing out that Salesforce.com acquired its own social monitoring system, Radian6, in March 2011.

What are marketers to make of all this activity, not to mention Marketo’s acquisition in April  of social marketing vendor Cloud Factory? Is this the death of marketing as we know it?

In a word, no. Social media are certainly a new way to hear what buyers are saying and send them marketing messages. But only the most besotted booster would argue that it will replace, rather than supplement, traditional methods. Every serious marketer already recognizes this, so I’m not even being boldly contrarian by saying it out loud.

The more interesting question is whether social media can be the foundation of a company’s marketing infrastructure. Both Marketo and Oracle already offer robust marketing platforms, so they presumably see social media as a supplement rather than a replacement. (It’s possible that Marketo hopes to reinvent itself as a social media specialist, which is surely more attractive to investors than marketing automation. The key positions taken by Cloud Factory executives might even support the theory.  But Marketo hasn’t hinted at this approach.)

Salesforce.com is another story.  They’ve always avoided traditional marketing automation, so perhaps they feel a complete “marketing cloud” can be built without it.

The gaps in this approach are obvious to anyone familiar with standard marketing automation systems: no Web behavior tracking, no multi-step nurture campaigns, no marketing resource management. But Salesforce.com could close those gaps by gradually extending its existing products. This might actually be easier than acquiring a separate marketing automation system and shoe horning it into other Salesforce.com components.

One thing I don’t see is social media systems themselves expanding to be marketing automation platforms. So far as I know, the data structures within the social media systems are simple contact profiles – little more than flat files – which can’t easily be extended to store and analyze detailed activity histories across multiple channels. Nor does a standard social media publishing or monitoring platform have the multi-step, branching campaign flows that are the heart of marketing automation. It’s probably easier to add social marketing functions to a marketing automation platform than the other way around. Indeed, many marketing automation vendors have already started.

So, back to the original question: what do these acquisitions mean? I’d say they’re good news for marketers, who will increasingly find social marketing functions available within core marketing platforms, ending the need to integrate separate products. The acquisitions are more problematic for marketing automation vendors, who now need to build, buy, or connect with social marketing systems to remain competitive. This will make it still harder for smaller vendors to compete, hastening the industry consolidation we all know is coming anyway. Nothing boldly contrarian about that prediction either, but it’s still worth bearing in mind.

0 Social and Mobile Features Head the List of New Marketing Automation Capabilities

I’m getting ready for the next edition of the B2B Marketing Automation Vendor Selection Tool (VEST). This is based on nearly 200 questions to vendors, mostly about product features. The first step in the process is to update the list of questions. This is based on a review of recent vendor announcements plus my own feeling for what’s important. What emerges is an interesting portrait of industry trends in product development.

You won’t be surprised to learn that most of the changes involve social and mobile marketing, today's two hottest areas in marketing in general. We’ll get back to those in a bit. But first, I’d argue the single most important result is just how few changes there really were. B2B marketing automation is far from mature in terms of market penetration, but the mix of product features is pretty well set. Most of vendor announcements I reviewed were about common features that particular vendors had been lacking or were enhancing.  Social and mobile are the exceptions, but both are still very small contributors to most B2B marketing programs. I saw much more activity around features that were new last year, such as dynamic content and integration with Webinar systems and with Microsoft Dynamics CRM.

So exactly what new social and mobile features are now on my list? The previous report already included basic social capabilities including sharing marketing content to social media, tracking responses generated from social media, and monitoring social media activity. The new VEST expands that list to include:

- track social media influence: individual-level tracking mechanism that can identify the number of times a recipient has shared a promotion to social media and the number of responses generated the shared promotions. This information is part of the contact profile of the individual.

- create social media posts: deliver messages through social media, such as Twitter posts and Facebook updates. These messages can be created and then scheduled for future delivery.

- create social forms: create forms that are delivered within a third-party social media system such as Facebook.

- create social promotions: create social promotions such as contests, polls, ratings, etc.

- social sign-on and data capture: recipients can register using third-party social credentials, such as their Facebook ID. This gives access to information stored within the third-party social media system and allows communication through that system.

- build social profile: capture information about a specified individual by searching public information across multiple social media systems. This information includes social media handles and social activity such as posts, comments, and questions answered. The information is added to the individual profile and activity history.

The broad range of these features represents both a maturation of B2B social marketing and uncertainty about what will ultimately prove useful. We can expect more social features in the near future, although I suspect some will later be abandoned when it turns out they’re not especially effective in a B2B context.

On to mobile.  My previous list of mobile features was limited to text messaging. I’ve expanded that to add:

- mobile formats: generate Web and email versions in formats tailored to delivery on mobile devices such as smartphones and tablets.

- mobile CRM: salespeople can access the system on mobile platforms such as smartphones and tablets.

- mobile reporting: users can access reports on mobile platforms such as smartphones and tablets.

- mobile administration: users can set up campaigns and create content on mobile platforms such as smartphones and tablets.

Only the first of these, mobile formats, is about delivering marketing messages. The others are all about marketers and salespeople accessing the system on their own mobile devices. That’s clearly the current focus on mobile marketing automation, although it’s safe to expect more mobile marketing in the future – such as location-based promotions, which are notably absent so far.

I also added three entries in other categories. These were:

- app marketplace: the vendor has a formal app marketplace that lets third party applications connect to its product without custom integration.

- real time recommendations: rules and/or predictive models can recommend the best treatment for a customer as an interaction takes place within system-managed content such as a Web page.

- real time interactions: rules and/or predictive models can recommend the best treatment for a customer as an interaction takes place within an external platform such as a call center or Web site. This requires features to collect information about the interaction from the external platform, to match this information against the system's own database of contacts profiles and history, to make recommendation using the available information, and to deliver the recommendation to the external platform. .

These features all expand the scope of B2B marketing automation, mostly be connecting it with other systems. In one sense that's the opposite of the previous new entries, which were about adding features to marketing automation itself.  But both approaches aim to place marketing automation at the center of a company’s customer management infrastructure. Since other products, including CRM and Web sites, are also reaching for that position, we’ll see how widely these features get adopted. My sense is they’ll be more successful at small companies, where the labor savings of a unified system are most important because technology resources are most constrained.

None of the features I’ve added are currently available in more than a handful of systems.  Some may not yet be present in any. Few marketers this year will choose a system primarily because these particular features are present.  But we'll find over time which are really important.