Why Most Consumer Marketing Automation Systems Are Not Software-as-a-Service, And When That Will Change

Summary: Consumer-oriented marketing automation systems have been slower to adopt the Software-as-a-Service model than business marketing (demand generation) systems. But this will soon change, bringing lower prices and better systems as a result.

Software-as-a-Service (SaaS) is now the standard model for business-to-business marketing automation (a.k.a. demand generation) systems. Any vendor who didn’t sell that way would be an oddity. But consumer-oriented marketing automation products from vendors like Unica, SAS and Teradata are still commonly sold as traditional on-premise software.

Hosted vs SaaS: What's the Difference?

Many of the consumer-oriented vendors do offer “hosted” versions of their systems. These resemble SaaS in that the software is maintained off-premise by a third party. But clients typically still purchase of a perpetual license rather than paying monthly fees, as in SaaS. More important, the hosted systems are still largely configured and managed by the vendor or a business partner such as a service bureau. To me, the essence of a SaaS system is that users can largely do this for themselves.

I’m making a distinction here between running the software on your computers, which both hosted and SaaS vendors do, and managing each client’s implementation and on-going data maintenance. Hosted vendors do this for their clients but SaaS clients do for themselves. Although this distinction may be fuzzy in some cases, I still think it's important.

There are also technical distinctions that identify SaaS systems, such as whether one system serves multiple customers ("multi-tenancy"). Some people would argue that true SaaS systems are by definition multi-tenant and hosted systems are not. Mostly I’d agree, except that I can think of several conventional systems with versions that a service bureau can install to support multiple clients. Those are multi-tenant by any reasonable definition, but they’re managed by the vendor in the way that SaaS software (as I conceive it) is not. Multi-tenancy itself comes in several versions, depending on whether the hardware, software, and/or the database instance are shared. These have important technical and cost implications, but they aren't relevant to this post..

Why Consumer Marketing Systems Have Lagged in SaaS Adoption

What caused the divergence between consumer and business marketing systems? Much has to do with timing: the major consumer-oriented products were developed when on-premise software was the standard, and the large organizations who are their major customers have been relatively slow to accept SaaS in general. By contrast, the demand generation systems are newer and are sold to smaller companies, which have been early adopters of SaaS.

In addition, consumer marketers tend to manage the entire customer relationship, which requires integration with other corporate systems such as billing and customer service. Until recently, few SaaS vendors could handle such integration effectively. Business marketers generally limit their focus to lead generation and nurturing, which at most requires light synchronization with sales.

Consumer marketing databases also generally have more data feeds and more complex update processes than business marketing systems, again because the consumer systems are managing existing customers as well as leads. This makes them harder for consumer marketers to run without assistance, and thus less suited to the self-service-based SaaS approach. Yet even this is changing, as SaaS tools deliver greater power to non-technical users. For example, SaaS-based business intelligence vendors like Birst and Autometrics offer data integration capabilities that could form the basis for building a marketing system. The increasing openness of SaaS products also makes it easier for them to call on external data integration services.

In short, there’s nothing inherent in consumer marketing that prevents use of the SaaS model. The early obstacles that led to quicker adoption by business marketers are rapidly falling. We can expect the major consumer marketing automation vendors to continue to evolve their hosted offerings towards a true SaaS approach. We can also expect new entrants that are SaaS-based from the start, such as Neolane and Entiera (which I plan to review next week). And we’ll probably see marketing capabilities added by SaaS vendors in related industries such as email services (early example: Silverpop’s acquisition of Vtrenz, now Engage B2B) and Web content management (see my reviews of Marqui and SiteCore).

SaaS Systems Will Bring Lower Costs and Better Products

This can only be good news for consumer marketers. Pricing of conventional consumer marketing automation systems has remained stubbornly high in recent years. This is in part because of limited competition, but also because the bulk of the ownership cost is in the labor to deploy and maintain the systems. High labor costs mean that lower software prices would do little to encourage sales, since the buyer’s total expense would remain nearly the same.

By contrast, business marketers have seen ever-lower prices and rapid innovation as a multitude of SaaS-based vendors enter the field. These systems take very little labor to deploy, since that’s inherent to the SaaS model. In fact, implementation fees have in many cases fallen to zero, making the software fee itself the main expense. (The user’s own labor is another cost, but it’s largely hidden and difficult to estimate in advance; it therefore plays a minor role in the purchase decision.) The result is heavy competitive pressure to cut software prices, as vendors scramble to gain enough customers to cover their (largely) fixed costs.

SaaS-based consumer marketing automation systems have fundamentally similar economics, so we can expect similar results: new entrants able to deploy their systems at lower total cost than conventional software (because users do more of the work) will reduce their prices to achieve an adequately-large customer base.

The process will play out over several years as the SaaS based systems evolve to support more sophisticated marketing and greater end-user self-service. This means the new systems will start in the less-demanding lower and middle segments of the market and eventually work up to the largest marketing automation deployments. Still, the trend is clear and, so far as I can tell, quite inevitable.

It’s a great time to be a marketer.