Thursday, July 22, 2010

Marketing Automation Vendor Consolidation: Lessons from History

Summary: consolidation isn't new among marketing software vendors. When campaign management systems consolidated in the late 1990's and early 2000's, most were bought by enterprise software companies. The pattern will likely repeat itself.

As I wrote in my June 30 post on consolidation among marketing automation vendors, I expect the number of competitors to shrink fairly quickly as new buyers concentrate their purchases among a handful of leading vendors. This is a natural result of a maturing market, as technology-oriented pioneers are replaced by buyers less likely to research their options in depth.

But what, exactly, will the consolidation look like? Will weaker marketing automation vendors merge with each other to establish a larger market presence? Will they merge with complementary firms to offer a broader range of capabilities? Will they specialize in particular industries to establish a small but profitable niche? Or will they simply be crushed as giants from related industries introduce their own products?

Let’s look at a similar consolidation about ten years ago, among the original marketing automation vendors.* These were campaign management systems including Exchange Applications, Recognition Systems/Protagona, Prime Response, Intrinsic, Unica, Aprimo, Decision Software TopDog/MarketWide, Alterian and SmartFocus.

The pattern is quite clear. A handful of vendors managed to survive as independent firms. The big winner has been Unica, which competes successfully among high-end buyers. Decision Software has remained a small company while Aprimo is most successful in B2B marketing resource management. Alterian and SmartFocus are also still independent, but are sold largely via marketing service agencies.

The rest of the competitors, including the original market leaders, were nearly all purchased as line extensions by much larger firms. Exchange Applications went to Amdocs, Prime Response went to Chordiant (itself recently purchased by Pegasystems), Protagona was purchased by DoubleClick (now part of Google), Ceres ended up with Teradata, Intrinsic was bought by SAS, Epiphany became part of Infor, Paragren was bought by Siebel (now Oracle). Other, less successful vendors simply vanished. There were no mergers of equals and no one thrived as a specialist in a particular industry. Although Unica, Alterian and SmartFocus have purchased complementary products, these were extensions around the campaign management core.

Although the world has certainly changed since the late 1990’s, I see no reason to expect a different pattern among demand generation vendors. A few might survive as independents serving the most sophisticated clients. Eloqua and Silverpop are the obvious candidates. Of the remainder, the stronger firms will probably be purchased by companies seeking enter the demand generation space, and the weaker firms will quietly go out of business or be purchased for their client lists.

The more interesting question is who will be the buyers. The obvious candidates are CRM vendors. Of course, Oracle has already made its move by purchasing Market2Lead's intellectual assets. is the big question and no one would be surprised to see them make an acquisition. Enterprise software vendors like SAP and Infor are also likely buyers. Microsoft is another possibility, although its Dynamics CRM is sold mostly to smaller businesses than the typical marketing automation system. Speaking of small business suppliers, Google and Intuit are long-shot contenders.

Email marketing is another obvious adjacent space. Again, there was already one transaction: Silverpop/Vtrenz in 2007. The potential margins from marketing automation probably look relatively attractive to email vendors. The problem here may be that the independent email service providers (ExactTarget, Responsys, Vertical Response) are relatively small companies themselves, so it might be hard for them to make a substantial investment. On the other hand, as the consolidation proceeds, small marketing automation companies may get pretty cheap.

Finally, we come to Web marketing companies. These include content management systems (Autonomy Interwoven, EMC Documentum, OpenText, etc.) and Web analytics (Adobe Omniture, IBM Coremetrics, WebTrends). Note that many of these are already part of larger suites whose owners could easily afford a marketing automation acquisition. A couple of smaller Web content management firms (Marqui, SiteCore) have already moved towards marketing automation. One challenge faced by the smaller Web marketing companies is that their customers (Web site managers and analysts) are generally not the buyers for marketing automation. Even “inbound marketing” (search engine optimization, keyword advertising, Web display ads) is often done by someone other than the marketing automation user. This is less of an issue for larger firms, who have relationships throughout their clients’ organizations.

Incidentally, not everyone agrees that smaller marketing automation vendors must vanish. I had a conversation today with one vendor who argued that success still depends mostly on helping new users get value from their systems. In this view, small vendors can succeed by providing excellent service and support, as well as by linking with marketing agencies and consultancies. This could certainly be a niche – remember that Alterian and SmartFocus survived by working through service providers. Still, I ultimately expect that most mid- and large-size firms will purchase marketing automation as part of a larger software suite, and thus that independent marketing automation vendors will find it increasingly tough to survive.

*Actually, there was a previous class of “database marketing” systems including Customer Insight Company, OKRA Marketing, Harte-Hanks P/CIS, Max$ell and RTMS. These used proprietary, non-SQL database engines. Most were purchased by larger companies and then discarded when adequate systems using standard SQL databases became available. Alterian and SmartFocus, both descended from Brann Viper, still survive.


Matthew Quinlan said...

I'm particularly intrigued by the idea of content management vendors buying into the marketing automation space. Having worked previously for Interwoven (part of Autonomy) and now for LoopFuse I definitely see some opportunity in terms of both customer target as well as technology. Especially as marketers attempt to triangulate across content, channel, customer to determine their most effective engagement tactics.


Matthew Quinlan

David Raab said...

Thanks Quin. There's a strong case to be made that gathering data (done by instrumenting content in the CMS), analysing data (in Web analytics) and using the data (in Marketing Automation) would be much simpler if done in one rather than three tools. At the moment, each of those tools has a separate buyer, but I think companies will press to overcome this once the benefits become clear.

Tewks said...

+1 for both. At some point here we are going to need a new term other than "marketing automation" because it really doesn't define what we are talking about.

From my perspective it is about the rise of content as a form of premium advertising. Ads are moving from the borders of a page, to the center. I predict you will see some CMS/WCM vendors start looking like adserving platforms. For them to get there, however, they are going to have to figure out the integrated analytics that has been a hallmark of the marketing automation space.

Interesting times for sure.

Tewks said...

One other thing... I disagree with the viability of the small firms. It's all finances. Even if they make someone very happy, they won't be able to sustain the overhead of the software they develop.

If this is their model, they are better off scrapping their product, adopting Loopfuse, and focusing on the services side of the business.

David Raab said...

Marcus, that's a really interesting point. Web advertising already involves extremely sophisticated analytics for things like behavioral targeting, although the analytics are generally outside of the ad serving platforms themselves. Marketing automation would definitely gain value if those analytics became available to it. Thanks for the insight.

Jriggsby said...

Great article. Informed opinion on the pace and rational behind potential email marketing space consolidation? Is the space (CC, iContact, vertical response, etc.) headed to consolidation or does proprietary nature of product/service make roll up type acquisition too costly? Thanks.