0 CallidusCloud Buys LeadFormix Marketing Automation for $9 Million Cash

The list of independent marketing automation systems shrank by one yesterday when Leadformix  was purchased by sales enablement vendor CallidusCloud for $9 million.

The price is surprisingly low for an established marketing automation vendor. In my VEST report from last July, LeadFormix reported 210 clients, concentrated among mid-size firms, and 82 employees. This would translate to around $7 million revenue, for a price of just over 1x revenue, compared with 4 to 5x revenue in other recent acquisitions.  I suspect the actual LeadFormix revenue was considerably lower than $7 million, but, even so, the price may give pause to investors in other marketing automation firms who are hoping for a great payout.  But bear in mind that LeadFormix was largely self-financed, so they may have sold at a bargain price because they couldn’t afford to compete with better-funded competitors.

Or maybe these comparisons are irrelevant because LeadFormix was never a standard marketing automation system to begin with. While its feature list covers all the usual marketing automation categories, the company's real focus was always on providing the most useful information to sales people. In particular, LeadFormix infers visitors' “intent” (i.e., interests) and sales stage from the Web contents they choose to view. This is a clever and largely unique approach, although Right-On Interactive does something broadly similar.

LeadFormix combines its behavior analysis with anonymous visitor identification (inferring their company from the IP address), access to external prospect lists and enhancement data, and collaboration with partners and affiliates to share lead access. Indeed, the LeadFormix tag line is “aligning marketing with sales” – something that’s important to all marketing automation vendors, but never their primary benefit statement.

This is why Callidus is a good buyer. Callidus isn’t a sales automation system like Salesforce.com, but it does provide a range of other systems that help sales departments. These include products for hiring, training, collaboration, content distribution, proposals, incentives, quota management, and analysis. LeadFormix will give Callidus another offering for its existing 900+ customers and access to 200 more companies now using LeadFormix.  I don’t know whether Callidus will also try to expand LeadFormix sales among "pure" marketers.  But even if they back away completely from “marketing automation”, the deal makes sense.

A bit of background on Callidus: it’s a public company with about $80 million annual revenue, no profits, and a $200 million market value. It made at least five acquisitions last year, all software-as-a-service companies selling some type of sales enablement. These include:

• Salesforce Assessments (salesperson hiring /assessment) 03/28/11
• Litmos (learning management) 06/10/2011
• iCentera (on-demand portal software for sales enablement) 07/06/2011
• Rapid Intake (collaborative rapid e-learning authoring) 09/08/2011
• Webcom Inc. (product configuration, pricing, quoting, and proposals management) 10/04/2011

In short, LeadFormix fits nicely with Callidus from strategic, financial and operational perspectives.  Because this is such a unique match,  I don’t think the acquisition says much about larger trends in the marketing automation industry.  At most, it could be part of the long-expected shakeout as the industry consolidates around a small number of winners. But, while that consolidation is inevitable, it will take more than one deal to show it has started in earnest.

0 Beyond Marketing Automation: Building a Complete Marketing Infrastructure

This started as a post about Empathy Logic, a company that merges data from marketing automation, CRM, Web tracking, order processing, social monitoring, and other systems; lets marketers segment and select from this more complete set of data; and sends the resulting lists back to message delivery systems such as email and Web sites.

You might think that Empathy Logic isn’t needed because a marketing automation system is supposed to build that integrated database. But B2B marketing automation products are largely limited to data they generate internally or import from CRM. The B2C marketing automation systems can usually attach to any data structure but rely on some other system to create it. So, yes, there’s a need for a company like Empathy Logic.  (Before I change topics, other key points about Empathy Logic are: product is about one year old; uses Pentaho open source software for data integration and business intelligence; runs on the Amazon EC2 cloud infrastructure; and charges $10,000 to $20,000 per month for its services.)  

Empathy Logic got me thinking about a topic that doesn’t get discussed much in B2B marketing automation circles: the place of marketing automation in the larger marketing system architecture. B2B marketing automation vendors generally position their systems as a replacement for separate applications including email, forms creation, Web analytics, content management, and reporting. This may leave the impression that marketing automation is the only system a marketing department needs.  Marketing automation vendors have little incentive to correct the error, since mentioning integration would only slow the sales cycle.  (For more about integration requirements, take a look at our recent workbook on the topic.)

Raab Associates does have its own model of a complete marketing architecture.  But before presenting it, let's look at some other opinions.   I found three surveys that address the issue.

The most intriguing was published last September by Adobe and Econsultancy.  The focus is online marketing (remember that Adobe owns Omniture, Day Software, Demdex and now Efficient Frontier) but the survey is especially interesting because it asked about adoption, value received, and effort required. The original report presented these separately but I’ve combined them in a bubble chart:

This is worth some exploration. You’ll see that marketing automation is at the bottom – meaning it’s the least resource intensive of the technologies listed. But it’s also farther left than most, meaning it’s also among the least effective at delivering profits. (I’m going to assume that “significant impact on the bottom line” meant significant positive impact.) I’m really feeling a bit disrespected here: marketing automation is easy AND ineffective? Maybe the survey-takers are getting poor results because they’re not putting in the necessary resources.  Or maybe they're mostly Web marketers who aren't really all that familiar with it.

Either way, the respondents still gave marketing automation a better effort / value ratio than attribution, buzz monitoring and social media management. Maybe they understand those better and see how much work is involved.  But campaign management, which I think is email campaigns but might be Web ad campaigns, also rates as harder than marketing automation. Doesn't marketing automation include email and a whole lot more?  I have a hard time understanding how email alone could be harder.

This survey also addresses the ever-popular question of adoption. This group reported that 38% were using marketing automation. That’s considerably higher than most estimates but it’s among the lowest rates on the chart.  In that sense, at least, it supports the general belief that marketing automation is still in its early stages.  I’ve provided the actual numbers below:

If you looked carefully at the previous survey, you probably noticed that a few important applications were missing, such as Webinars. Oops. A survey last February by Act-On Software had a more realistic range of applications. 

The Act-On survey isn't perfect for today's purpose: it was sent to small and mid-size business, listed several marketing automation components separately (email, lead nurturing, and lead scoring), lumped all of social media into a single category, and ignored Web analytics entirely. Still, it gives a pretty reasonable idea of the relative utilization of different methods, most of which would involve different marketing systems.

I found a one more survey that listed marketing systems, from the CMO Council  in July 2011.

This is by far the broadest list.  It includes CRM, call center, master data management, talent (staff) management, ecommerce, and product life cycle systems. That the question describes them all as “marketing automation solutions” gives some idea of how broadly the term is sometimes defined – which I still suspect is a major reason that many surveys show that “marketing automation” has such a high penetration rate.  Unfortunately, this survey didn't ask directly about usage.

If we look across all three surveys and add Raab Associates' own research, a reasonably complete set of components for a marketing architecture would include:

• marketing database management (data extraction, customer data integration, master data management, database updates)

• Web advertising (paid search, banner ads)

• Web site management (Web content creation and management, search engine optimization, ecommerce if relevant.

• Web analytics and optimization (could be part of Web site management but still largely done by separate systems.)

• social marketing (blogs, social media monitoring, social media posting, community management, advocate management)

• Webinars (it seems odd to make these their own category but they’re still separate systems and don’t easily fit with Web site management or social marketing)

• marketing automation (direct mail, email, mobile, landing pages, web behavior, nurture campaigns, lead scoring, reporting; includes batch, trigger, and event-driven campaigns and real-time interactions)

• media buying (for conventional media: TV, radio, newspaper, magazine, outdoor, etc.)

• marketing resource management (project management, workflow, content and digital asset management, budgets and forecasts, purchasing, staff management) 

• analytics (reporting, dashboards, attribution, marketing measurement, predictive modeling, mix optimization – this extends beyond the channel-specific applications like Web analytics)

• CRM (not usually run by marketing but so intimately connected with marketing systems that I'd consider it part of the architecture.  I'm using CRM as a catch-all term for sales automation, order processing, customer service, loyalty, call centers, and partner management.)

There are many ways to draw this architecture and perhaps I'll return to it another day.  My point for now is simply that marketing automation is just one piece of the larger marketing puzzle -- and marketers need to recognize that they'll need to pull data from multiple systems to do a thorough job of managing customer relationships.

0 Influitive Helps Marketers Build an Army of Advocates

Marketers recognize the potential reach of social media, but are rightly frightened that they can’t control the message. Most social marketing applications sidestep the issue by focusing on creating communities (Jive, Lithium), monitoring conversations (Radian6, Trackur) and running promotions (CrowdFactory, Nextbee). Marketing automation vendors have mostly worked on making it easy to post and share messages and to capture social data. (See my December 8 post for details.)

Influitive tackles the control issue head on.  It applies game-based motivational methods to company advocates. Marketers define “challenges”, such as sharing content, making a referral, creating case studies, or providing a reference, and the system issues points to advocates who perform them. Advocates can accumulate points and exchange them for rewards. Advocates can also earn badges, move through levels, and compare themselves to others on leader boards.  The system can also offer games, contests, and direct messages to advocates.  These features all give advocates a continuing stream of new reasons to stay active.

This is a strikingly simple concept – but I think it’s brilliant. An army of advocates can be a tremendous resource, but without a way to attract, nurture and direct them, they’re less an army than a random mob. Influitive lets marketers gradually strengthen advocate relationships by posing challenges that require increasing levels of commitment.

Influitive founder Mark Organ describes the process as an "advocate development funnel" whose ultimate goal is "social nurturing" by advocates who provide personal references to potential buyers who are also their professional peers.  While these ideas are intriguing, I suspect they're not really necessary.  The practical benefits of systematically managing advocates are probably obvious to marketers who have been struggling to regain control over their social media presence .  

My thumbnail description doesn’t cover the important technical features that make Influitive practical.  These include controls over how challenges are issued (who is eligible, date limits, quantity limits, etc.),  managing awards, and API-level integration to pull profile data (LinkedIn), record completed challenges (Quora, Twitter, Facebook, LinkedIn) and announce completed challenges (Salesforce.com Chatter). The company plans additional API connections with Jive, ZenDesk, and other systems.

One caveat in all this is the legal and ethical issues regarding rewards for advocates.  Ardath Albee wrote about this recently in some detail.  Since Eloqua is an Influitive client, I asked Eloqua VP of Content Marketing Joe Chernov (who also co-chairs the Word of Mouth Marketing Association's member ethics panel) how they use it without breaking any rules. His answer is worth printing in full:

We neither give rewards, nor have we ever given rewards, in our use of Influitive. We give badges and thank-you's … in other words, we show our appreciation in the form "social currency." But we give no cash, no prizes, no compensation. If the Influitive platform reaches a point that it can hardwire disclosure into the testimonial across all media channels, then we'd consider material incentives in certain circumstances. But it's my fundamental belief that marketers think they need to offer valuable perks, but if a client truly is an advocate, then the person is often entirely willing to help … for nothing in exchange but gratitude.

In other words, it's quite possible to use Influitive without violating disclosure standards.  The product supports this with automated disclosure options, which can be made mandatory if a company wants.  Naturally, this doesn't guarantee all clients will be equally scrupulous.  

Influitive is currently in beta. Pricing is free up to 20 active advocates, and then starts at $500 per month, growing at roughly $20 per advocate per month. It has 16 customers, about half above the 20 advocate minimum.

0 Marketing Automation Interface Should Focus on Customers, Not Campaigns

Several vendors have shown me their new campaign management interfaces recently. All were refined, attractive, and thoughtful. Each had subtle features that appeal to a connoisseur: floating tool pallets! Fly-over icon labels! Dynamic menus! Curved lines!  But they’re all still basically the same flow charts that Frank Gilbreth (of Cheaper by the Dozen fame) introduced in 1921 and we've seen in marketing systems for more than 20 years.

Now, I’m not saying marketing automation vendors should find a new approach just because I’m bored with the old one. But the truth is that the old way doesn’t work: every experienced developer I’ve ever spoken with has told me they’ve found users get confused when flow charts grow past a handful of branches. That’s true even though users themselves design campaigns by drawing a flow chart on a whiteboard. If you watch that process closely, you’ll see that (a) users themselves have trouble when their diagram gets too complex and (b) they can’t make much sense of it when they come back the next morning (assuming the whiteboard wasn’t erased).

Developers have taken two approaches to this challenge. One is to add features that help manage complexity – all those floating pallets and pop-up menus. These do help but it’s like Chaos Theory as explained in Jurassic Park: piling complexity on complexity eventually ends in a catastrophic collapse. The other approach is to simplify the experience by removing capabilities such as multiple branches and recursive loops. The extreme version of this is interfaces that define each campaign as a single sequence of steps, with no branching at all. This is certainly comprehensible but it can prevent marketers from doing what they want.

Something more radical is needed. Developers must think outside the flow chart. One way to start is to consider interfaces they’re already using in other systems.

• touch screen. Dragging and poking at a flow chart with your fingers instead of a mouse wouldn’t be much of an improvement, although it would help. Creating splits by stretching an icon until it breaks into pieces might be kinda fun. Scaling up or down the way you zoom into online maps – and having the level of detail adjust automatically – would definitely be an improvement. But I’m guessing there are some more dramatic alternatives that avoid the flow chart altogether.  Think about your favorite touch screen apps and see what comes to mind. How could you design a marketing campaign with Angry Birds?

• voice activation. I have no interest in speaking the same commands I could type. But a system that understands voice commands has natural language capabilities to infer what I need based on context and past experience, and thus save me the work of defining the details explicitly. (Think IBM Watson on Jeopardy or iPhone Siri.) If you think about the primal whiteboard scenario, what really happens is the marketers say “let’s add a split here” before drawing it – so a natural language approach could be a big time saver by skipping the drawing step altogether. Or the system might actually ask questions and make suggestions that lead the marketer through the design process: Who is your target market? How many reminder emails do you want? Might I suggest you add a reward: here are the best three to consider.

• virtual reality. The biggest problem with flow charts is they are inherently two dimensional.  This means that intersecting branches must visually overlap, which is very confusing.  Could a virtual reality interface let marketers follow each path independently, like walking down a street or flying through a forest? This comes closer to simulating the customer’s experience – perhaps the marketer could be pelted with messages as she passes through (I’m thinking of monkeys throwing fruit), and toss them back as a response.  Or, imagine a road map that traces the customer's physical journey through  both the real world and cyberspace, with marketing messages presented as billboards and interactions as conversations with passersby.  Or could you map the customer journey itself – a trip through the funnel – with a similar presentation of billboards and conversations?  Think of a child's board game like Candyland or, perhaps more appropriate, Alice's trip down the rabbit hole. 

• data visualization. Think of all those cool illustrations you’ve seen of social networks, molecular structures, Web behaviors, economic trends, geospatial data, manufacturing processes, and who knows what. Why can't marketing systems do better than flow charts and pie graphs? How about a three-dimensional campaign diagram that you can rotate and zoom on three axes? Or a six-dimensional view using height, width, depth, color, size, and shape, with a slider for time? Some of these might be hard to interpret but even a flow chart takes some training to understand. I'm certain that creative design can pack more information into a simpler package.

• games and simulation. Could a marketing campaign sprout like a tree, growing more complex over time and bearing customers as fruit? Simulation games use simple rules and a few user choices to create elaborate cities, empires, and organisms. Some already let users run model businesses. More advanced versions of those programs could use rules derived from your customers' actual behavior to test alternative campaign designs and pick the ones most likely to succeed. The campaign details would be built by the system, so the interface becomes less important, although marketers would still need to review everything before deployment. These designs would be inserted into the matrix of existing programs, so the system could model each program’s incremental impact on the full customer lifecycle and on other program results. This leads directly to the Holy Grail of Marketing Optimization (which might make a fine multi-player quest game, come to think of it).

• multiple views and viewpoints. Most of today's marketing automation systems already let administrators control which features are available to which users. But everyone with access to a given feature usually sees the same thing. The one exception is that salespeople are given wholly separate interfaces tailored to their needs. But this approach should be carried over to other personas within the marketing department – the CMO’s view of campaigns is radically different from the marketing operations person’s, and they should not be looking at the same flow chart. Even the same user might want different views at different times, depending on the task at hand.

• customer perspective. I’ve already touched on this but it’s worth more attention. There’s a strong argument that the fundamental notion of separate marketing campaigns should be replaced by integrated customer treatments across all channels and life stages. The flow chart interface is based on the individual campaigns, and becomes impractically complex precisely when campaigns are expanded to accommodate too many contingencies. A customer-centered approach would develop rules for each situation rather than stringing together rules for many different situations. Those rules would be simpler because they dealt with a narrower range of conditions. They could also be spread between campaign logic and dynamic content logic, and many might be replaced altogether by predictive models that choose the highest-value treatment. The explosion of channels and contacts has made integrated customer treatments essential. Marketers need a fundamentally new interface designed to provide them.

0 Marketing Automation Skills are Scarce: Vendor Strategies to Close the Gap

The marketing automation industry continues to grow quickly, with many vendors announcing their client bases have more than doubled in 2011. But there’s also a growing realization that many marketing automation systems are used for only simple tasks – often no more than email, landing pages, and CRM integration. For example, LoopFuse found that nearly twice as many used email and web landing pages as lead scoring.

Even more worrisome are increasing reports of user dissatisfaction – not enough to stop people from using the systems, but perhaps enough to prevent them from expanding their deployments or recommending marketing automation to their friends. Act-On Software recently reported that 40% of marketers are dissatisfied with their campaign management program.

Surveys, like this one from IBM, show many obstacles to successful deployment.  But the ultimate problem is staff skills: marketers who know how to use their systems and understand their benefits can make a compelling case for investments in programs, integration, technology, data, process change, and whatever else is required.

Marketing automation vendors are painfully aware of these issues. They've taken a range of approaches to addressing them. I've seen four distinct strategies:

• training. This is the most direct approach: if users don’t have enough skills, then teach them. I’m using “training” in a broad sense to include all types of preparation before deployment: these include marketing planning, process change, content development, metrics definition, and organizational realignment as well as actual training in system use.  This is the traditional strategy for B2C marketing automation and at B2B firms large enough to afford substantial pre-deployment investments.  It’s also the preferred option of most industry consultants (myself included) because it provides the strongest platform for future success. Among B2B vendors, Eloqua is the poster child for this approach. (And I should note that many vendors are supporting the Marketing Automation Institute's training program too.)

But not everyone can afford through training and preparation for a marketing automation deployment. The remaining strategies are designed to help those who cannot.

• ease of use. Simple systems let marketers get started with minimum preparation. This is by far the most popular strategy among vendors, presumably because it increases sales by placing the fewest demands on buyers.  It's applied by Marketo, Pardot, Act-On Software, Genius, Net-Results, and many others. It’s also the most popular strategy among buyers, judging by how many installations never grow past the basic functions. But the approach is also probably the reason for high dissatisfaction: marketers must find they face a much steeper learning curve than they expected to use their systems' fully. For long-term success, vendors who take this approach must ensure that their clients keep growing after the initial deployment.

• automation. Instead of training marketers to do hard things or making those things easier, automation has the system do them instead. This is a much less common strategy, in part because it's technically demanding and expensive to execute.   It's also a partial solution at best, since no one thinks marketing can be fully automated.  Still, it's being applied to lead scoring (creating the actual scoring formulas automatically, instead of asking users to define them); to content selection (letting the system predict which content a visitor is likely to want); and to contact frequency (letting the system determine how often a lead should be contacted). HubSpot is following this approach most aggressively although others are also applying it in places.

• full service. This strategy argues that it’s ultimately more efficient for the vendor to do complex marketing automation tasks than to teach marketers to do the tasks for themselves. That’s not as crazy as it sounds: marketing automation tasks like setting up a new program are often complex, rarely required, and quick for a well-practiced expert. So buying a couple of hours or days of service each month really does save time and money.  It also gives access to more expertise than a small marketing department could ever build internally. As you might expect, this approach is most common among at the small business end of the marketing automation spectrum: Genoo, MakesBridge, and OfficeAutoPilot are good examples. But it seems to be creeping upstream: LeadLife, Treehouse Interactive, and Manticore Technology apply it to larger customers.

Although I’ve associated specific vendors with each strategy, the reality is that most companies apply a mix of several. This violates the classic strategy rule to select one clear goal and focus all resources on reaching it.   But a mixed approach probably makes sense for marketing automation, where a tactical choice like making your system easier can support several strategies and where different buyers may need different treatments.

This doesn’t mean that vendors can get away with being sloppy.  The market is too competitive and marketing automation is too complex to succeed despite poor execution. It’s also likely that a dominant approach will emerge within each customer segment.

But even then, one size won’t fit everyone. Both vendors and buyers will still need to match the deployment strategy to the buyer’s situation.