Now let’s not forget that inbound marketing isn’t free and there are costs associated not only with developing content, but also promoting content, and the technology that supports the efforts. So it’s not really a surprise that HubSpot reported net losses of $24.4 million in 2011, $18.8 million in 2012, $34.3 million in 2013, and what’s clocking in north of $40M for 2014. But what tech startup doesn’t have numbers like these? Transformational change is expensive, and HubSpot is responsible for some of the industry’s best thought leadership on the new age of B2B marketing. Plus, $78M in revenue is impressive.
HubSpot continues to capture the attention of new buyers in a market that is really just starting to enter the growth stage. Twelve thousand customers paying an average of $8k a year is an impressive stat considering HubSpot was largely a late entrant to the marketing automation platform landscape. The questions on everyone’s mind are (1) is continued traction sustainable for HubSpot and (2) what’s the competitive differentiator and end-game for HubSpot? I’ll tackle both of these in my reflections on the announcements at INBOUND 2014 and my time interfacing with their customers at the event. Special thanks to Katie Burke and Elijah Clark Ginsberg for helping coordinate time with clients and executives during the INBOUND 2014 conference.
I’m going to chop this up into categories I think are worthy of note for prospective HubSpot buyers and current HubSpot customers. If you prefer, you can also download the PDF Market Insight: HubSpot Unveils CRM at INBOUND 2014 – Is It a Game Changer? version of this post on our website (no form, direct to PDF for the next 30 days).
HubSpot Marketing Announcements
HubSpot announced ten new features on the marketing platform. These included a marketing content calendar, anonymous personalization, revenue reporting, and conditional logic. While all of them are compelling, especially for current HubSpot users, none of them really differentiates the platform. In fact, most of them are sort of me-to features the platform should have had years ago. That said, these features were prioritized and driven by customer demand, which HubSpot does a phenomenal job of capturing, prioritizing, and executing on. More than 140 feature requests from customers were added to the product based on customer requests. It’s difficult to fault the company for for listening to customers, even if it’s late to the party.
I always enjoy CTO Dharmesh Shah’s thought leadership. At INBOUND he actually told a wonderful story about how he and Brian Halligan stumbled on this concept of inbound years ago. While compelling, it doesn’t necessarily jibe with the trajectory of capabilities in the platform, which until the last few years were not on par with marketing automation solutions like Marketo, Eloqua, and Pardot. But that isn’t to say HubSpot doesn’t stand alone with a unique and compelling value proposition – they have always been an innovative market leader in optimization and enablement of early stage “getting found” activity associated with things like blogging, keyword optimization, earned media, and press release optimization. For the longest time I would say to advisory clients, you sort of need HubSpot, but you also need marketing automation. I am excited to see the platform and marketing automation capabilities including email, landing page hosting, social integration, trigger marketing, conditional logic, and reporting fill out the portfolio to a point where it’s safe to say that HubSpot can check all those boxes.
Bottom line, I talked to a lot of very happy customers using HubSpot. The resounding theme for me was that customers continue to struggle to feed the inbound beast with content – “yeah, the tool is great, but we haven’t cracked the nut on investing in the content yet.” The other theme, which I think is a prevalent theme for all marketing automation providers, was generally learning to use the platform to the full extent, and this was difficult for new buyers. Quite a few customers complained that there was almost too much content available; the system was very robust, and they were overwhelmed. You can’t win them all, but this reaffirms the challenges all providers have in acquiring and retaining customers.
With regard to sustainable growth, I think there’s a wonderful opportunity for all marketing automation providers to benefit from continued exponential adoption for the next 5-10 years, even with competitors. Marketing automation is a bit like buying a car – there are features and aesthetic qualities that different buyers seek out. So while some industry pundits are weary of customer retention stats and long-term sustainability of revenue forecasts for companies like HubSpot, I think that (1) the market is massive and only a tiny subset of relevant companies has adopted these solutions, and (2) buyers will move from one system to another, not one system to no system.
HubSpot announces CRM
For me the party started when CRM showed up in the room. Yes, that’s right: HubSpot announced a HubSpot-branded CRM platform. At first pass, it’s easy to think “so what?” In fact there are almost 50 SMB CRM providers in the market today, and there are very few barriers to entry on launching a new CRM. The reason is that most CRM is designed to be a system of record that requires manual interaction from reps. The interfaces look the same, and the features are a commodity. Plus, HubSpot isn’t the first to launch a marketing and sales platform (Infusionsoft, OfficeAutopilot, NetSuite, SalesFusion, and many more viable all-in-one solutions have existed for years). But my eyebrows raised when CEO Brian Halligan started to dig into what’s below the surface.
Can we all agree that the “module” app-centric, plug-into-CRM approach leaves something to be desired for end users? I’m not saying it’s failed or broken, but let’s say for the sake of argument that it could be better, more robust, and easier. For one thing, the integration is never as robust as the demo makes it look; there are costs associated with separate providers, separate licenses, data silos and in many cases limitations on the frequency of refreshes and API calls. But hey, it’s what we’ve been working with and if the alternative is having nothing at all, marketing automation buyers get tremendous value out of marketing technology integration with separate CRM platforms. But there’s still an issue, and it’s sales. Sales is still a very manual, labor-intensive process. According to Gleanster research, it is unprofitable for the average rep to spend more than 15% of their time in CRM – that includes opportunity creation, contact creation, etc. But that’s not all sales reps do. They spend copious amounts of time researching online, in social media, and searching for nuggets of data that will give them a competitive edge. This is where the HubSpot CRM capabilities really outpaced anything I’ve seen from CRM solutions.
HubSpot CRM has purposeful, packaged integration with the marketing automation tool so every aspect of not just marketing but sales engagement is deeply aligned inside a single platform. Reps can send emails from within the tool, which adds them to a Facebook timeline-centric interface of all activity with an account or contact. Reps can even place calls from within the platform and the system will record and store them for collaboration with managers and peers, organized by opportunity or account. But if you are going to change the game with CRM, you’ve got to reduce the manual entry for sales reps. HubSpot Sidekick (a rebranding of Signals) is a browser extension that gives reps real-time notifications on behavior and data about the prospect company, including social links, executives’ titles, company size, etc. HubSpot CRM also has packaged integration with data providers to automatically pre-populate account data from a website URL. This happens through back-end data integration inside HubSpot (likely proprietary internet algorithms and partnerships with companies like Dun&Bradstreet, Bizo, or ReachForce) and best of all, it’s packaged with the license fees (which sound like they will be somewhere around $60-$80 per user). Sweet! HubSpot just eliminated the burden of having to invest in a third layer of integration for customer data scrubbing and augmentation. More importantly, this streamlines the sales reps’ tedious manual research process. It also makes CRM a source of insight, not just a source of data capture for reps. While no customers are using the new HubSpot CRM system yet, I could tell this was a thoughtful re-design of what CRM should be for reps. The question I can’t resolve yet is how robust these capabilities actually are. For example, does the system fill in prospect data 90% of the time or just 5%?
Here’s why HubSpot CRM is compelling. Back in 2013 Salesforce.com made a run at acquiring HubSpot for a rumored $1B, and HubSpot declined. On one hand that’s less than an IPO is expected to raise, but on the other hand there’s certainly a sizable and profitable opportunity for HubSpot to capitalize on in the long term. Ultimately, Salesforce.com ended up acquiring ExactTarget, which brought with it a prior acquisition in Pardot. Naturally, Salesforce.com is now aggressively trying to convert existing clients to Pardot and is a formidable competitor to little old HubSpot. But is that really a problem for HubSpot? I don’t think so. One, Salesforce.com is facing the same conversion challenges every marketing automation provider is facing – some buyers just aren’t ready. Two, buyers seem to be just fine trying out multiple marketing automation providers, so not only does Salesforce.com have to convert a new buyer to Pardot, they have to retain them as well. That’s not all that easy for any provider.
Furthermore, Salesforce.com actually has a lot of small and midsize companies using the CRM platform that love the simplicity, but feel like they are paying too much for CRM with limited features for the price, and they probably are given their size. In some respects the small-and-midsize market is a bigger opportunity than the Enterprise market for marketing automation providers (it’s just a lot harder to sell into and retain those clients), which Salesforce.com, Oracle, SAP, and Microsoft continue to focus on in product innovation and customer acquisition strategy. HubSpot might actually be able to pull off an “innovators dilemma” of sorts (if you follow the concepts outlined in Clayton Christensen’s book of the same name) through aggressive pricing on a comprehensive platform built from the ground up that provides simplicity, more bang for the buck, and innovative new features. Okay, maybe that’s stretching a bit to suggest HubSpot is an an innovator by bringing an all-in-one offering to the table decades after they already existed. The point is, HubSpot is doing a lot of things well from an execution, brand visibility, and platform standpoint and they are in a position to compete aggressively with lesser known solutions. The mid-market needs Apple-like simplicity, particularly when investing in what is perceived to be a more complex platform (than email marketing) while simultaneously embracing new inbound strategy, marketing/sales alignment challenges, and process reengineering. Frankly, it would be cool to see HubSpot or their competitors message around the idea that “your biggest challenge is the content, so we help you invest more money in the content, not the technology.”
The new all-in-one marketing and sales messaging has a lot of bloggers and journalists comparing HubSpot with small business all-in-one offerings like Infusionsoft (which offers an all-in-one marketing, sales, social, community, and ecommerce platform at $2-5k a year to a little over 25,000 customers). I don’t actually see this as a huge competitive issue for HubSpot. On features and capabilities HubSpot is a more robust offering, particularly on the marketing side of things. Infusionsoft seems laser-focused on companies with 1-25 employees and over $100,000 in revenue a year. While powerful, even Infusionsoft can be a lot for their users to take in, because they are usually true lifestyle entrepreneurs who wear many hats and may not have aspirations to run a company with more than 50 people. Infusionsoft users often graduate from spreadsheet CRM, or no CRM, to the all-in-one platform. I think HubSpot would actually be overkill for the average Infusionsoft customer. They ought to be going after the mid-market providers who pay too much for feature-limited CRM platforms from enterprise CRM providers who probably got the sale because of the brand, not the platform. In fact, there’s a more interesting story to tell around the natural evolution of platforms from Infusionsoft to a more robust solution like HubSpot if companies actually grow to desire more robust capabilities. HubSpot also has a packaged CMS system designed to integrate seamlessly with the marketing automation features, something Infusionsoft is lacking.
I’m a little weary of the internal conversations that are probably happening at HubSpot, though. When margins are tight and the number of customers reaches the tens of thousands the story around sustainable growth gets harder to sell, and that’s when you often see a dramatic shift to the Enterprise level, where deal sizes are larger, margins are better, and customers tend to stick around longer. On the heels of a potential IPO, revenue growth is critical for HubSpot, and the larger they get, the harder it is to show exponential growth trends. From a portfolio standpoint, I certainly don’t think HubSpot can tell a compelling story around enterprise CRM, nor does it look like they plan to. Enterprise customers are just plain unlikely to leave their CRM provider for a new entrant like HubSpot – and make no mistake, they have CRM already. But competitors like Salesforce.com, Oracle, and Microsoft have one huge disadvantage, it’s much harder for them to lower cost at scale and continue to meet expectations from the street. If HubSpot can hunker down and focus on the mid-market with what seems to be a very compelling marketing and sales platform at competitive pricing, there’s lots of room for growth. If they try to fight it out against competitors like Oracle Eloqua and Marketo, I fear it might get ugly – for HubSpot.
Other Noteworthy Takeaways from INBOUND
HubSpot has very a robust partner network.
HubSpot has a network of over 1,900 agency partners and resellers. That’s huge, and it’s no surprise that almost half their revenue comes from that channel. Interestingly, when you talk to these B2B agencies, they struggle with the same inbound issue as everyone else, profitable content creation. The thing is that agencies do inbound as a service, so they need margins on the offering. That gets problematic for buyers who already feel like they are stretching budgets too tight by investing in the technology alone.
B2B agencies help new buyers make safer bets on marketing automation because they can help with content, strategy, and even running the campaigns in the platform. Agency partners are actually very affordable if you consider the cost of learning things the hard way, and they can ensure an organization makes incremental and consistent investments in a tool like HubSpot. Inbound marketing takes time to generate a return, but eventually it moves marketers away from dependence on the “campaign of the week” to meet targets. The worst thing you can do is invest in the technology and let it sit there because you don’t have resources, time, or expertise to support it. Agency partners can help maximize the investment so you see a quicker return. As Mark Twain once said, “A man who carries a cat by the tail learns something he can learn in no other way.” Respect the agency partners; they’ve held a lot of cats by the tail so you don’t have to.
HubSpot has a CMS platform.
HubSpot actually has a package CMS platform that is fully integrated with the marketing automation capabilities. Today open-source platforms like WordPress and Durpal have become a strategic asset in the digital marketing infrastructure, and they remain a popular and effective option. But if you are just standing up a simple and quick blog, product site, or promotional site that would benefit from turnkey call-to-action integration with marketing automation, it’s a great option. That said, I don’t see HubSpot CSM as a viable replacement for more robust paid CMS offerings. HubSpot CMS includes packaged templates, search optimization, responsive design, and dynamic customization.
Inbound doesn’t solve all your problems and it might create a few.
I remain a little skeptical anytime someone says “inbound is the key to marketing in the future.” It’s a tactic, and it should be used in conjunction with traditional marketing practices. Thus far, Gleanster hasn’t been able to prove that inbound is more profitable or more effective, but we can see that companies that invest in marketing automation outperform companies that don’t in revenue growth (on average companies using marketing automation generate 24% higher revenue metrics than companies that don’t). In general, I just want to make sure buyers enter the next generation of marketing platforms with eyes wide open. Inbound is not a silver bullet, but it’s a tactic that you should be utilizing. IF (and only if) you implement it effectively with people, process, and technology changes, it can help layer sustainable and predictable revenue growth into the pipeline.