0 Raab Report: B2B Marketing Automation Revenues to Hit $525 Million in 2012

I’ve just released the latest edition of my B2B Marketing Automation Vendor Selection Tool (VEST), which contains detailed analysis of all 22 B2B marketing automation systems. Serious marketing of the new edition is yet to begin, but anyone considering purchase of a marketing automation system can buy the VEST now at the www.raabguide.com Web site.

The new report contains a rich trove of industry information. The one item that people usually find most interesting is the size of the industry. I put this at $325 million for 2011, a 50% increase from 2010. With 2012 half finished, I can now make a reasonably solid estimate for this year. I find the growth rate has actually accelerated to 60%, for a total of about $525 million.

I come at these figures in two ways.

Installations by industry sector. Vendors in the VEST are asked for estimates of their client counts by company size. We distinguish four segments: micro-business with under $5 million revenue; small business with $5 to $20 million revenue, mid-size business with $20 to $500 million revenue, and large business with over $500 million revenue. Most vendors do provide the sector breakdown, although some are pretty rough estimates.  For a couple of vendors, I’ve used my own estimate based on past data.

Using the sector counts plus estimated revenue per client for each sector, I can calculate the revenue by sector and for the industry as a whole. Since the client counts are mid-year figures, they should roughly equal the full-year average. I’ve only included figures for vendors who specialize in B2B systems; none of the other vendors (Neolane, Oracle, Silverpop, Aprimo, MarketingPilot) are provided estimates of the B2B portion of their client base.  The table below shows my calculations:

The total comes to $362 million estimated 2012 revenue. I estimate the non-B2B specialists and other marketing automation vendors (IBM, SAS, SAP, etc.) who are not listed in the VEST will have another $165 million in B2B revenue, for a total of $527 million.

Revenue estimates for individual vendors. The second approach starts with the four largest B2B specialists: Infusionsoft, HubSpot, Marketo, and Eloqua. Each has announced revenue for 2011 (formally or in press interviews) and two, Infusionsoft* and Marketo**, have made forecasts for 2012. I estimated 2012 revenues for HubSpot and Eloqua based on their client counts and revenue per client.  I then estimated revenue for the other specialist vendors by combining results from two methods: estimated revenue per employee and estimated revenue per client. Finally, I’ve added figures for the non-specialist vendors, using the same assumptions as before. The table below shows the results.

As you see – and I swear I didn’t cook these numbers – this gives $525 million, almost exactly matching the other method.  

Of course, there's more to these figures than just the industry size.  One interesting point is that the “other specialist” vendors are actually growing faster than the big four vendors. This is a bit of a surprise, since we’d expect the industry to consolidate and squeeze out the smaller players. Still, remember that the big four control 75% of the revenue. 

The difference is client growth actually larger than the revenue estimates suggest.  The table below shows that the client base of the “other specialists” grew by 80%, which is faster than any of the big four.

One caveat is that a number of the smaller vendors didn’t provide updated client counts, and they may be vendors who were not growing much. But the reality is that the next three largest vendors (Pardot, Act-On, and Net-Results) did provide data, and each grew by well over 100%.  So the missing vendors don't have enough volume to affect the big picture.


I’ll share one final set of data that also points to industry strength. The table below shows revenue per client for the big four vendors over the past two years. These are actuals except for the 2012 figures for HubSpot and Eloqua, and I consider those to be educated, conservative guesses.

This table shows a consistent increase in revenue per customer across all vendors and all years. Given the intense competition within the industry, that’s pretty impressive: it shows that the big four vendors are managing to increase their revenue per client, which all must do to become profitable.  I suspect the increase is less the result of firmer pricing than of broader product lines that let the vendors sell more to each customer.  Nor does this mean that industry prices are rising: it’s possible – in fact, likely – that the smaller vendors are selling for less than their larger competitors, and that the average price in the industry is still dropping.

All told, this paints the picture of a healthy industry: still growing rapidly, still open to competition, and supporting sustainable prices.   It's a cheery bit of news.

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*Infusionsoft "expected revenue of $40 million in 2012" (Customer Experience Matrix, April 14, 2012)

**Marketo "revenues last year grew 140% over the year to $35 million. Management expects revenues to double during this year" (Sramana Mitra blog interview with Phil Fernandez, July 21, 2012)

0 B2B Marketing Automation Industry Size and Segments

As I mentioned yesterday, our new B2B Marketing Automation Vendor Selection Tool (VEST) asks vendors to estimate the number of clients in each of four size categories.

This provides an interesting overview of the industry. The segments are defined based on revenue. Installation counts are:

Looking at the raw percentages doesn’t make much sense since businesses in each group are quite different. There’s a strong case to be made that micro-businesses in particular have such different needs that their vendors are not really part of the same industry as the rest of B2B marketing automation. I’ve described those differences in this post and go into them in our Vendor Selection Workbook (different from the VEST, and free on the Raab Guide site.)

But if you do want to consider all these vendors as one industry, the minimum adjustment to make is to account for differences in price. The table below calculates revenues using reasonable assumptions about revenue per client in each segment:

Combined with the previous chart, this shows the micro-business segment represents 61% of clients but just 17% of industry revenues. At the other extreme, large business represents just 6% of clients but 28% of revenue. The small- and mid-size companies are the heart of the industry , with 55% of the revenue from 33% of the clients.

The $257.5 million revenue estimate is reasonable but it excludes revenues from B2B marketing automation vendors not in the VEST report and the B2B revenues of B2C marketing automation firms. So I’d estimate total industry revenue at $325* million for 2011. This represents a 50% growth over my estimate for 2010. That is consistent with the growth rate I reported yesterday.

The figures also shed light on the ever-popular question of penetration rates. The table below shows company counts by revenue range from business list compiler Manta. But not all of these are B2B marketers. Looking at the industry categories, I'd put the estimated market at half the total.


The 26.7% figure for the large company category is clearly too high, but that's easy to explain: big companies have lots of divisions, so many vendors have sold to a little piece of those firms. There’s certainly still plenty of opportunity left. It’s possible the 3% figure for mid-size firms reflects some of this effect as well.

Figures for the first three categories are more intriguing. They're much lower than the usual estimates that 5% to 10% of companies have marketing automation. Either the surveys behind those estimates are incorrect or my market definition is too broad.

It’s probably a bit of each: surveys tend to reach people who have above-average interest in the topic, and my 50% figure is based on categories that could potentially use marketing automation, not the categories that have deployed it so far. A count of the pioneer companies, basically tech and manufacturing industries, would reduce the estimated market to anything from one quarter to one tenth the numbers shown. This would translate to penetration rates of 10% to 30%, which is more in line with current estimates.

But I’d argue that the market is already growing beyond this core group, so the long-term potential is considerably larger. That’s great news – so long as vendors don’t get stuck in the current niche and so long as competitors from the CRM, email, Web software, Web advertising or other industries don’t swoop in and snatch it all away.

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*The original version of this post estimated $300 million. On consideration, I raised the estimate to $325 million because
- my revised estimate for 2010 was $225
- the 52% growth rate in the previous post was in number of clients, but growth is faster in the higher-priced segments, so the revenue growth would be higher
- average prices are probably rising a bit in the mid-sized segment and big segments, so revenue would rise faster than client counts
- the client counts were gathered in May and June, so they are not quite mid-year figures

I would have gone higher, but the large-company figures are probably overstated in my estimates because many of the 1,200 installations are small, departmental systems that wouldn't generate anything near $60,000 per year.

0 B2B Marketing Automation Growth Slowed In First Half of 2011

You know that red-hot B2B marketing automation industry? Don’t look now, but growth is already slowing.

Our just-released update to the B2B Marketing Automation Vendor Selection Toolkit (VEST) shows that client counts grew just over 50% over the year ending in June, compared with nearly 100% growth for the year ending last December. That’s a marked decline, and the pattern is consistent across individual vendors: although some grew faster than others, each grew slower than during the previous period.*

You might think the slower rate is expected because each period starts from a larger base. But it turns out that even the absolute number of new clients fell: about 6,100 were added during the recent period, compared 7,000 during the earlier year. I’ll say that again: fewer new B2B marketing automation systems were sold during the past year than the year ending six months earlier. Ouch.

Here’s the actual data:

As of:	Client Count	Year-Earlier Client Count	Change in Client Count	Growth Rate
June 2011	17,215	11,098	6,117	55%
December 2011	14,177	7,212	6,965	97%

These figures come from eight vendors including all the industry heavyweights: Infusionsoft, OfficeAutoPilot, HubSpot, Pardot, Marketo, Eloqua, Manticore Technology, and Genius. The report actually covers 17 vendors, but the others either were not in the January edition or didn’t provide accurate year-earlier information. The eight companies account for more than 90% of the total installations, so the exclusions are statistically insignificant.**

One obvious question is whether different segments of the industry are growing at different rates. The new report sheds light on this as well. We now ask vendors to estimate their client counts based on four segments:

- micro-businesses, under $5 million in revenue;
- small businesses, $5 to $20 million revenue;
- mid-size business, $20 to $500 million revenue, and
- large business, $500 million or more revenue.

The micro-business segment is concentrated among three vendors: Infusionsoft and OfficeAutoPilot, which serve micro-businesses almost exclusively, and HubSpot, which estimates 50% of its clients are micro-businesses. The remaining five vendors in my data (Pardot, Marketo, Eloqua, Manticore Technology, and Genius) have 69% of their clients in the small and mid-size segments.

The slowdown in growth rates applies to the both sets of vendors, although the small and mid-size group is slightly stronger. Client counts show the same pattern: the absolute increase in the most recent period was lower for the micro-business vendors (4,777 vs. 5,650), while it was essentially flat for the small and mid-size business vendors (1,315 vs. 1,340).

Year-on-Year Growth Rate (Client Count)
Year Ending:	Infusionsoft, OfficeAutoPilot, HubSpot	Pardot, Marketo, Eloqua, Manticore Technology, Genius	All Vendors Combined
June 2011	52%	68%	55%
December 2011	97%	93%	97%

So, what does this mean? Is the marketing automation bubble about to burst?

Not necessarily. Year-on-year growth of 50% is nothing to sneeze at, and, as I mentioned earlier, some vendors are growing much faster. Also bear in mind that several vendors have recently received large infusions of funding, which they'll spend on sales and marketing to further accelerate growth.

But it’s still worth sounding a note of caution. Business plans predicated on the industry continuing to grow exponentially now look more dubious than ever. B2B marketing automation could still stall – as B2C marketing automation did – as a niche product for an elite group of sophisticated marketers. It's fine for vendors to expand their product scope, as several are. But they shouldn’t let this distract them from the more fundamental task of growing the base market through promotion, education, and training.

I like irony as much as anyone, but if the demand generation industry failed to generate demand for its own product, no one would be laughing.

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*As best we can tell. Some vendors provided partial information, so we had to do some interpolation. And the data flowed in over a two month period, so it doesn’t all align precisely with the January and December time-frames. But the pattern is so strong and so consistent that the general conclusions seem reliable.

**There a few mid-sized vendors who didn’t make the report at all, including Act-On Software and ActiveConversion, which have about 300 clients each. I’d guess these and other vendors add 1,000 to 2,000 to the total client count.