I recently got an update from Erich Flynn, CEO of Treehouse Interactive. The company has been around for quite a few years, selling SaaS-based solutions for PRM, SFA and Marketing Automation. And growing quite nicely: 30-35% per year according to Erich.
The most recent announcement was about an enhanced solution for lead nurturing. I got a quick demo and thought it was a nice, usable way to help marketers deal with a job that has become more and more complex.
But the big problem I see is that marketing automation solutions require marketers to think like programmers. I get a headache thinking about what marketers have to deal with now — personas, content, campaigns and lead scoring — and I’m an analytic sort with a math degree and some programming experience.
More on that in a moment, but I believe it’s related to another issue — the slowing rate of growth in the MA industry. To explore MA issues and trends, I rang up David Raab, one of the smartest guys around who has been covering this industry for years. He recently posted Why Is B2B Marketing Automation Growing So Slowly? and included this chart.
There’s nothing wrong with 50% year-to-year growth, right? Well, the slowing growth rate suggests some developing issues.
First, after 10+ years of development, MA is not a particularly big space. Not even $1B in annual revenue with many small players. For growth to be slowing rather than accelerating is a sign of saturation. And indeed some analysts think MA may have reached 50% penetration rates in the high tech industry. That seems high to me, but nonetheless it calls into question the real potential of the MA industry as it’s currently focused — mainly on B2B lead generation and nurturing in high tech.
Second, other industries won’t be easy to enter. Although Treehouse has a few non-tech clients, generally it seems vendors are targeting the high-tech industry, with little penetration elsewhere. Yet these other industries are often mentioned as prospects for further growth. I’m not buying it. As hard as it’s been for tech firms to adopt MA solutions, the hurdle will be much higher in other industries. MA vendors would need to hire domain expertise and retool their systems to have a fighting chance. None are big enough to do that.
Third, and one of the factors in the slowdown in my view, is this stuff is still way too complicated. Marketers are using MA tools for basic tasks and very few (5-10%, I’d estimate) are really optimizing. The problem is that the MA industry has been too much about process automation (much like SFA) and too little about analytics. For example, why aren’t advanced analytics tools included by MA vendors to help marketers figure out how to start more quickly, and how to optimize?
Fourth, and possibly the biggest issue of all, MA is just a piece of the digital marketing puzzle. I think the ultimate answer is Revenue Performance Management (RPM), which is all about optimizing the end-to-end process. But MA is just one of the technologies needed. You also need SFA and other sales enablement tools, all stitched together and supported with analytics.
That brings me back to the issue of complexity for marketers. Most aren’t going to do all this work. SMBs will want an integrated solution that will include all the parts, which leads to vendors like Infusionsoft. Even larger companies will look for integrated suites, which is one good reason why Oracle acquired Eloqua.
What, then, is the future of the niche providers? I hate to say it, but the answer is most likely “go big or go home.” I’ll admit to a soft spot for start-ups and bootstrapped companies like Treehouse. And my hat is off to anyone that can keep growing profitably at 30% per year without massive outside funding.
But venture-backed software companies play a completely different game. Revenue growth is what matters above all else.
Marketo, for example, has raised $100M+ since it was founded in 2006. That money goes into product enhancements, sales and marketing, … and building a war chest to be the last vendor standing. The clock is ticking, however. Investors will want a return before long, which means either Marketo goes public or sells to large IT player to build out a marketing suite.
Of course Treehouse and other specialty companies could be acquisition fodder, too, like Pardot which was bought by Exact Target. And that could be an excellent exit strategy for vendors that don’t go the VC route.
My main point is that the MA industry doesn’t have enough heft to stand alone. So in a few years, will we be back to talking about CRM, or calling it something else?
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