Tuesday, July 12, 2011

B2B Marketing Automation Industry Size and Segments

As I mentioned yesterday, our new B2B Marketing Automation Vendor Selection Tool (VEST) asks vendors to estimate the number of clients in each of four size categories.

This provides an interesting overview of the industry. The segments are defined based on revenue. Installation counts are:

Looking at the raw percentages doesn’t make much sense since businesses in each group are quite different. There’s a strong case to be made that micro-businesses in particular have such different needs that their vendors are not really part of the same industry as the rest of B2B marketing automation. I’ve described those differences in this post and go into them in our Vendor Selection Workbook (different from the VEST, and free on the Raab Guide site.)

But if you do want to consider all these vendors as one industry, the minimum adjustment to make is to account for differences in price. The table below calculates revenues using reasonable assumptions about revenue per client in each segment:

Combined with the previous chart, this shows the micro-business segment represents 61% of clients but just 17% of industry revenues. At the other extreme, large business represents just 6% of clients but 28% of revenue. The small- and mid-size companies are the heart of the industry , with 55% of the revenue from 33% of the clients.

The $257.5 million revenue estimate is reasonable but it excludes revenues from B2B marketing automation vendors not in the VEST report and the B2B revenues of B2C marketing automation firms. So I’d estimate total industry revenue at $325* million for 2011. This represents a 50% growth over my estimate for 2010. That is consistent with the growth rate I reported yesterday.

The figures also shed light on the ever-popular question of penetration rates. The table below shows company counts by revenue range from business list compiler Manta. But not all of these are B2B marketers. Looking at the industry categories, I'd put the estimated market at half the total.

The 26.7% figure for the large company category is clearly too high, but that's easy to explain: big companies have lots of divisions, so many vendors have sold to a little piece of those firms. There’s certainly still plenty of opportunity left. It’s possible the 3% figure for mid-size firms reflects some of this effect as well.

Figures for the first three categories are more intriguing. They're much lower than the usual estimates that 5% to 10% of companies have marketing automation. Either the surveys behind those estimates are incorrect or my market definition is too broad.

It’s probably a bit of each: surveys tend to reach people who have above-average interest in the topic, and my 50% figure is based on categories that could potentially use marketing automation, not the categories that have deployed it so far. A count of the pioneer companies, basically tech and manufacturing industries, would reduce the estimated market to anything from one quarter to one tenth the numbers shown. This would translate to penetration rates of 10% to 30%, which is more in line with current estimates.

But I’d argue that the market is already growing beyond this core group, so the long-term potential is considerably larger. That’s great news – so long as vendors don’t get stuck in the current niche and so long as competitors from the CRM, email, Web software, Web advertising or other industries don’t swoop in and snatch it all away.

*The original version of this post estimated $300 million. On consideration, I raised the estimate to $325 million because
- my revised estimate for 2010 was $225
- the 52% growth rate in the previous post was in number of clients, but growth is faster in the higher-priced segments, so the revenue growth would be higher
- average prices are probably rising a bit in the mid-sized segment and big segments, so revenue would rise faster than client counts
- the client counts were gathered in May and June, so they are not quite mid-year figures

I would have gone higher, but the large-company figures are probably overstated in my estimates because many of the 1,200 installations are small, departmental systems that wouldn't generate anything near $60,000 per year.


David Crankshaw said...

Fascinating. Thanks for putting these numbers together. Amazing that the penetration rates are still so low in these markets. Still a long ways to go before marketing automation becomes a common practice.

David Raab said...

What's even more interesting is that most surveys of marketers show anything from 10 to 30% say they already have a marketing automation system of some sort. Either the survey samples are highly biased, or marketers are using a much broader definition that includes email systems, CRM, etc. More likely the latter. This is still a problem for the industry since it suggests that many potential buyers think they already have a solution in place, and are thus less likely to purchase what most experts would call a 'real' marketing automation system.

Anonymous said...

Agree with David (both). We've found with our clients that marketing automation is being defined as any kind of marketing technology. Just look how broad the wikipedia definition is which is where we get quoted regularly from those not in the space.

Thanks David on another great post.

salesroles said...

Fascinating. Thanks for putting these numbers together. Amazing that the penetration rates are still so low in these markets. Still a long ways to go before marketing automation becomes a common practice.

Yep I was amazed at the low penetration rates, as marketing is key