Raab Report: B2B Marketing Automation Industry Is Getting More, Not Less, Fragmented

I’ve gotten used to thinking of the B2B marketing automation industry as entering a consolidation phase, during which a handful of dominant vendors emerge and small vendors drop away. That’s why I was a bit surprised when yesterday’s blog post showed that the “big four” industry vendors (Infusionsoft, HubSpot, Marketo, and Eloqua) are actually growing slower than the “next four” largest (Pardot, Act-On Software, Net-Results, and SalesFusion)*. In other words, the industry is becoming less concentrated, at least for the moment.

In fact, this trend extends back for the past two years, which is as far as my VEST data goes. It likely extends still further, and, on reflection, this makes sense: at the start of a new industry, there are just one or two pioneering firms with no competition and, thus, 100% market share. This share can only drop over time as new entrants emerge. It's only in the later stages of consolidation – after crossing Geoffrey Moore’s chasm – that the dominant vendors really take control. For B2B marketing automation, we’re not there yet.

The table below shows all this in glorious detail: the big four vendors grew more slowly on a percentage basis than the next four, even though the big four added more clients in absolute terms. The figures for "other" are a bit misleading because the 2011 and 2012 figures include a few more companies than the 2010 data.  But they're directionally correct.

Share of clients somewhat overstates the dominance of the big four because Infusionsoft and Hubspot serve such huge numbers of small companies. Revenue would be a better measure but I don’t have reliable figures for the smaller vendors. I do have employee counts, at least for the top eight companies. They make the next four look more important: while the next four have just 12% of the clients, they have 18% of the employees.  This is up from 14% of employees a year ago, so the fundamental story is still the same: the next four are growing faster.

What all this means in concrete terms is that a new vendor can still challenge the current market leaders.  Both Pardot and Act-On are doing exactly that. Their success isn’t guaranteed and it’s not clear how much longer the window of opportunity will remain open. But, for now at least, the game isn’t over.

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* Actually, Genius should place in this group, since it has 900 clients.  But that information reached me the day after this post was written.  They're also growing much more slowly than the vendors listed here -- up from 700 clients a year prior (29% growth, vs. the 139% growth of the current "next four").  So I think the point about smaller vendors being able to grow quickly is better supported by keeping the existing data in place.