Why the Marketing Automation Market Is Floundering & 5 Fixes to Fuel It

by Jeff Pedowitz

President and CEO,
The Pedowitz Group
2/1/2011

The Marketing Automation industry is approaching its 13th year. Originally pioneered by Epiphany and Pivotal in the late 1990’s as an On-Premise Module added on to key CRM functions, it took off when SaaS entered the scene in the early 2000’s. Today there are many vendors in this space competing for wallet share, with several pure-play vendors that just offer marketing automation. Here are five of the leading vendors:

ProductSizeNotes
MarketoDemo2 to 1,000 EmployeesA feature-rich marketing automation system designed for B2B marketers.
OptifyDemo2 to 1,000 EmployeesTrack and measure social media, SEO and other online marketing efforts in one central location.
EloquaDemo1 to 1,000 EmployeesA leader in marketing automation that supports both B2B and B2C marketing.
HubSpotDemo2 to 500 EmployeesHubSpot offers a comprehensive set of online marketing features from content management to SEO to email outreach.
GenooDemo1 to 500 EmployeesWeb-based system developed for small and mid-sized organizations.

The key business challenges that Marketing Automation addresses are marketing efficiency and effectiveness, marketing accountability for financial performance, lead generation, lead quality, and systematic revenue growth.

Currently, the industry has a combined annual revenue of under $150 million dollars. This is calculated by adding up all of the revenue from the 20 + competitors that are in the market, and looking at the revenue from email vendors that have a portion of their platform dedicated to these functions. Compared to other verticals, such as Sales Performance Management (over $1B), Customer Relationship Management (over $10B), Online Marketing (over $1B) and even Social Media (over $1B), this industry is struggling in its drive to gain broad-based market appeal and acceptance.

There are 5 primary reasons why this industry is underperforming:

  • Wrong Executive Target. The very person that Marketing Automation seeks to empower – the marketing executive – has the least power on the senior management team to buy. While marketing executives that have adopted these platforms have experienced great success in beating all kinds of performance benchmarks, their peers have been slow to drive the change needed and implement the technology.
  • Failure to Broaden Vertical Expansion. High concentration in software and technology and minimal penetration into other verticals has slowed overall industry growth. A high focus on B2B, which always lags B2C in technology adoption has also slowed grass-roots appeal.
  • Too Much Competition, Not Enough Education. For the size of the market, there are too many competitors (over 20 at last count), and not enough collective education. The market is brutally competitive, with high profile vendors frequently sparring both publicly and privately. While this may help their respective companies find focus, it has done little to help the market because no one is paying attention.
  • Too Complicated. The concepts and processes that drive successful adoption of marketing automation are often beyond the core skill sets of daily practitioners. To get it right, practitioners need to be highly logical, process driven, think like an engineer and a financial person all while trying to be creative. There aren’t too many people that can do all of those things simultaneously, let alone do them well.
  • Economic Pricing Model. The industry has largely adopted a subscription pricing model based upon contact database size, opting against a user license or usage approach. Customers that have adopted the platforms have seen a great ROI – in many cases over 10X. But to those who have not adopted, the model seems expensive and prospects struggle to articulate the value internally, regardless of what price band the vendor is selling at.

To successfully grow the market, maximize adoption and grow vendor shareholder value, we recommend the following course of action:

  • Expand target focus beyond the marketing department. Start selling to sales executives, CFO’s, CIO’s and even the CEO. Make this an enterprise play, not just a marketing one. After all, revenue performance effects the entire company, not just marketing. To connect the dots, the offering has to be more system driven. Business Intelligence around Revenue Performance, integration with Social Media and Search Engine Optimization (SEO), expanded focus of CRM application, and enabling the Sales organization will bring all parties to the table and make a more compelling business case.
  • Expand vertical offerings. Work with key partners and value added resellers (VARs) in additional market segments. Create true productization and differentiation for solving key vertical challenges.
  • Work collaboratively to educate but still compete aggressively. Vendors and partners need to work together to drive industry education and adoption of key principles. Knowledge and IP should be shared to grow the pie. Joint conferences, standardization around certification, and standard concepts should be adopted and driven. Competitors can still beat each other up at the table, but everyone wins when the pie is bigger.
  • Simplify the concepts and simplify how the software works. Best practice templates, pre-built programs, one-click activation – all this needs to drive adoption. Don’t give the customer too many choices. Simplify the process and do the thinking for them. As they grow in their knowledge and sophistication, expose deeper areas of the application that they can leverage.
  • Change the positioning of the pricing model. Aggressively offer buy-now pay later, trial, pilot and other types of offerings to get the software in the hands of the customer. Bundle in services to help drive adoption. Statistics show that payback can occur in as little as 3 months.

We live in a customer-driven economy and there is plenty of room for multiple vendors in this space. In fact, competition is good. It is the mother of invention, which ultimately benefits the customer.

The Pedowitz Group believes cooperation, focus on these 5 areas, and continued expansion of the partner ecosystem will successfully drive industry adoption and grow the market beyond the $1B mark by 2015.

 

7 Comments

As CEO of Marketo, a fast growing player in this space, I agree with many of Jeff’s points about how to grow our market, but I am fairly shocked by the assertion that the market is floundering.

At Marketo, we just crossed our 4-year anniversary, and over that time we have grown our GAAP revenue as fast or faster than any public comparable SaaS company has during the same period of their corporate development — as fast as Salesforce, NetSuite, SuccessFactors, Omniture, etc. And it’s clear that our best competitors are growing rapidly too. Very hard to see how this can be characterized as “floundering”! (I’d note that the original post confuses “market cap” with “revenue”, btw)

I also think that this comment reflects a curious trait of the marketing automation space, which is that we collectively seem to be self-defeatist all too frequently.

First, by defining the market only in terms of the newest generation of SaaS companies, it completely ignores such marketing automation companies as Unica (now part of IBM), Teradata, Aprimo (now part of Teradata), SAS, Alterian, NeoLane, Oracle, SAP, etc. Taken together, the Marketing Automation revenue of these companies combined is well over $1billion. This is the most fair comparison to the other market sizes that Jeff cites, which each combine a wide range of vendors.

Second, I was also struck by some of the comments I got back in November when Marketo announced that we had raised a new venture capital round of $25million. For every comment I got that said, “wow, congratulations” I got one from an MA industry insider that said, “gee, why would a marketing automation company ever want to do something like that?” Again, this weird self-deprecating tone we all set for ourselves.

I don’t buy into it. MA is an exploding category, particularly as it transforms into a new category called Revenue Performance Management. Virtually every company, big and small, needs a solution that helps them manage leads from the moment that they are originated online, in social media, and in traditional channels, on to the point where they become closed revenue.

pmf

Comment by Phil Fernandez
02/02/2011
 

Jeff, thank you for sharing your perspective on the marketing automation space. From our agency projects implementing marketing automation campaigns, I would say that the weighting on the factors you present is distributed unequally. The inherent sophistication of marketing automation is a barrier. It is far more complex than simple email marketing or managing a sales pipeline.

It is programming around the irrational and presenting logic sequences which connect in a predictable fashion. The talent to drive the system is a rarity. Both sides of the brain need to be strong. Our team has different talent to account for the logical and the creative. Success comes down to the talent. The systems work. The competition has been fantastic to drive innovation and quality offerings.

It’s the talent required to make success a reality. Feel free to read more http://blog.ascendworks.com/talent-is-required/

Comment by Don Dalrymple
02/03/2011
 

I couldn’t agree more with your comment about “not enough collective knowledge.” Each of the vendors has learned a tremedous amount about what it takes to be successful with marketing automation platforms, but there is little sharing of the knowledge…esp on the topics that might affect demand (e.g., it’s a lot of work, you’ll only succeed if you make some org changes, etc). New report from Patricia Seybold Group addresses this and some next steps: http://www.mckittrickassociates.com/b2bmarketingresources/marketingautomation.html

Comment by Sue McKittrick
02/04/2011
 

As a user, I can’t agree more with the fact that most marketing automation solutions are too sophisticated and therefore not used to their full potential (thus delivering limited ROI). Not every marketing organization will want to invest in a ‘Power User’.

Now what marketing organizations want is an end-to-end solution that that helps them 1) increase the number of inbound warm leads and 2) converting more qualified visitors into sales opportunities 3) provide closed loop reporting from lead generation to deal closure (a.k.a single source of truth between sales and marketing)

They also need a solution that is easy of use (no dependency on Power Users) and seamlessly integrated with most CRM solutions.

As the market consolidate, it also needs to evolve to meet the needs of leaner, faster and more accountable marketing teams.

Comment by Bertrand Hazard
02/08/2011
 

Certain elements of this article are spot on – though, I will agree with Phil that while marketing automation is highly competitive – I wouldn’t say floundering. Ripe for the consolidation that is already happening, yes, but not floundering.

What’s true:
-Not enough education: there are so many best practices around this concept but many of them are just starting to emerge in valuable content. More of the MA vendors are starting to open the vault, but the ones who do it most will prosper. At my company, HubSpot, we offer some of the elements of MA as part of our larger inbound marketing software that addresses all elements of marketing. We often find that our prospects struggle to figure out if they need ‘marketing automation’ or if they truly have a lead gen problem where MA isn’t going to really drive net new leads. Helping marketers think through which problem the tools are solving will make them more successful in selecting and thriving with a plan.
-Too complex: yes. Here’s where I’d like to see more stories about how things work and how they integrate with other in-house software. No one really needs to hear ‘how’ the API works – but what were the results and what is possible? Since MA only solves a piece of the puzzle, marketers & their IT partners should get a blueprint for marketing integration that is shared as public info before they even consider a solution set.
-Too expensive & not enough ‘try before you buy’: yes. Why should any company (especially those with SaaS offerings) not offer a free trial? You may not be able to achieve meaningful results in 30 days, but you will have a sense of capability, complexity and the ability to map capabilities to your business processes and goals. Heck – it might only take you 2 or 3 days of poking around instead of being shown a slide based or highly scripted demo. Marketers – ask for a trial or a pilot. MA vendors – many have gone this path and it will become the expectation, don’t be late to the party.

The trend around ‘Revenue Performance Management’ and other ‘revenue driving’ buzzwords by the MA vendors as a whole does seem to be a play to sell to the CXO Suite – I have to admit, I am not sure I buy it – but it’ll be interesting to watch.

All that said – tons more room for winners to emerge and HubSpot intends to lead the way for SMBs helping to both generate and nurture more leads and customers with a single, integrated suite.

Comment by Kirsten Knipp
02/10/2011
 

Brilliants thoughts on MA.

I would add a bit to your first point of “Wrong Executive Target”

In my experience, marketing executives are not real buyers because they are too busy marketing and selling their own companies’ products/services.

The MA process and the messages have to address those people who are proactively scanning the horizon for quantum leap improvements.

They are CEOs: Better brand, higher shareholder value, overall profitability

CFOs are concerned with costs and budgets

CIOs are concerned with top technology but don’t care
much about shareholder value

COOs are concerned with uninterrupted and effective production but don’t care too much about top technology.

So, each MA message that leaves the seller must be customised according to the position of the recipient.

So, for instance, all C officers receive their own white papers from the seller. The “big picture” theme of the white paper is the same, but there are slight differences according to the position, thus, the focus of interest, of the reader.

Comment by Tom 'Bald Dog' Varjan
02/11/2011
 

I think the original post addressed all the right issues even though I agree with Phil that the market is in the billions when you consider all of the players are coming from different spaces to the integrated model.

I would ask the community what they think of the issue of verticals. I believe, like the original post seems to say, that ultimately, buyers from any department, level or size of company will prefer a niche product that addresses the nuances and complexities of their industry vs. a non-industry specific platform.

Comment by David
07/15/2011
 

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