Monday, July 11, 2011

B2B Marketing Automation Growth Slowed In First Half of 2011

You know that red-hot B2B marketing automation industry? Don’t look now, but growth is already slowing.

Our just-released update to the B2B Marketing Automation Vendor Selection Toolkit (VEST) shows that client counts grew just over 50% over the year ending in June, compared with nearly 100% growth for the year ending last December. That’s a marked decline, and the pattern is consistent across individual vendors: although some grew faster than others, each grew slower than during the previous period.*

You might think the slower rate is expected because each period starts from a larger base. But it turns out that even the absolute number of new clients fell: about 6,100 were added during the recent period, compared 7,000 during the earlier year. I’ll say that again: fewer new B2B marketing automation systems were sold during the past year than the year ending six months earlier. Ouch.

Here’s the actual data:

As of:Client
Count
Year-Earlier Client CountChange
in Client Count
Growth
Rate
June 201117,21511,0986,11755%
December 201114,1777,2126,96597%



These figures come from eight vendors including all the industry heavyweights: Infusionsoft, OfficeAutoPilot, HubSpot, Pardot, Marketo, Eloqua, Manticore Technology, and Genius. The report actually covers 17 vendors, but the others either were not in the January edition or didn’t provide accurate year-earlier information. The eight companies account for more than 90% of the total installations, so the exclusions are statistically insignificant.**

One obvious question is whether different segments of the industry are growing at different rates. The new report sheds light on this as well. We now ask vendors to estimate their client counts based on four segments:

- micro-businesses, under $5 million in revenue;
- small businesses, $5 to $20 million revenue;
- mid-size business, $20 to $500 million revenue, and
- large business, $500 million or more revenue.

The micro-business segment is concentrated among three vendors: Infusionsoft and OfficeAutoPilot, which serve micro-businesses almost exclusively, and HubSpot, which estimates 50% of its clients are micro-businesses. The remaining five vendors in my data (Pardot, Marketo, Eloqua, Manticore Technology, and Genius) have 69% of their clients in the small and mid-size segments.

The slowdown in growth rates applies to the both sets of vendors, although the small and mid-size group is slightly stronger. Client counts show the same pattern: the absolute increase in the most recent period was lower for the micro-business vendors (4,777 vs. 5,650), while it was essentially flat for the small and mid-size business vendors (1,315 vs. 1,340).


Year-on-Year Growth Rate (Client Count)
Year Ending:Infusionsoft, OfficeAutoPilot, HubSpotPardot, Marketo, Eloqua, Manticore Technology, GeniusAll Vendors Combined
June 201152%68%55%
December 201197%93%97%


So, what does this mean? Is the marketing automation bubble about to burst?

Not necessarily. Year-on-year growth of 50% is nothing to sneeze at, and, as I mentioned earlier, some vendors are growing much faster. Also bear in mind that several vendors have recently received large infusions of funding, which they'll spend on sales and marketing to further accelerate growth.

But it’s still worth sounding a note of caution. Business plans predicated on the industry continuing to grow exponentially now look more dubious than ever. B2B marketing automation could still stall – as B2C marketing automation did – as a niche product for an elite group of sophisticated marketers. It's fine for vendors to expand their product scope, as several are. But they shouldn’t let this distract them from the more fundamental task of growing the base market through promotion, education, and training.

I like irony as much as anyone, but if the demand generation industry failed to generate demand for its own product, no one would be laughing.

__________________________________________________________________________________
*As best we can tell. Some vendors provided partial information, so we had to do some interpolation. And the data flowed in over a two month period, so it doesn’t all align precisely with the January and December time-frames. But the pattern is so strong and so consistent that the general conclusions seem reliable.

**There a few mid-sized vendors who didn’t make the report at all, including Act-On Software and ActiveConversion, which have about 300 clients each. I’d guess these and other vendors add 1,000 to 2,000 to the total client count.

5 comments:

Mark said...

I've noticed a dramatic decline in the number of articles coming through my Google Alert for 'Marketing Automation' over a similar period. However it might be down to maths. 1+1=2 = 100% increase. Then 2+1=3 = 50% increase. Same number of systems sold, but more already installed.

David Raab said...

Yes, that's how the math works. But the number added seems to have fallen slightly as well. Many observers, vendors, and investors had expected those to rise quickly as marketing automation "crosses the chasm" to mainstream buyers. If they don't, then the industry will take a very long time to reach full penetration.

For Salesforce.com customer history, see http://bit.ly/rsVGBC

How long? Well, assume that current figure of roughly 18,000 installations represents 10% penetration, meaning there are another 162,000 companies yet to buy. If the total grows by 6,000 per year, it takes 12 more years to reach 50% penetration and 27 years to reach full penetration.

To look at it another way: Salesforce.com grew its customer count by 53% in its fourth year, and an average 40% per year since then. If the marketing automation industry only added 6,000 customers per year for the next seven years, it would grow just 19% per year. Over seven years, that's a difference of growing 333% vs. 1061%. Investors hoping that marketing automation will be "the next Salesforce.com" must certainly hope whatever company they back does more than add a flat number of customers each year.

Jeff Ogden said...

Very interesting data, David. I also wonder if the terrible economy is catching up with the industry a bit. Hard to invest in software when you are laying off thousands.

Jeff Ogden

Jeff Ogden said...

Great post and data, David. But there may be a couple of factors at work.

1) It's harder to put up big percentages when you are big.
2) No one is immune to the crappy economy. How do we invest in marketing automation when we are laying off thousands?

Jeff Ogden
Find New Customers
http://www.findnewcustomers.com

Brian Reilly said...

I have to believe that many MA vendor prospects realize the value of the technology but due to a lack of both people and process will stay prospects for the foreseeable future. While salesforce.com is a sophisticated product with a simple interface that can be used by nearly anyone in the organization, marketing automation requires a specialized skillset not currently resident at most organizations.
Dumbing down these tools is an unlikely move given just how much they need to do to be effective (email, microsites, social, direct, etc.).

This will probably be a direct sales barrier for most vendors which is why the agency and consulting channels are still so strong.