Tuesday, February 12, 2013

Why Is B2B Marketing Automation Growing So Slowly?

Let me start by saying that the 50% revenue increase I’m projecting for B2B marketing automation in 2013 is a very healthy one. In actual dollars, the $250 million gain is much larger than the $175 million growth in 2012. So if you’re working in the industry, don’t circulate that resume just yet.

But still, as I noted last week, the growth rate is slowing – and for some vendors seems to have fallen considerably in the second half of 2012. The most notable is Eloqua, which as a public company has to report its results. Its year-on-year revenue was up 42% in first half of 2012 ($45 million vs. $31.7 million) but just 28% in the second half ($50.7 million vs. 39.6 million). That means even the absolute increase was down: $11.2 million vs. $13.3 million. Figures for other vendors are not publicly available but I've seen hints that several have slowed as well.

What really got me thinking about this was prepping for a Webinar I’ll be giving next Wednesday on the future of marketing automation (register here). I had figured to start off with my industry growth figures, but this led naturally to a question about long-term potential, which in turn leads to thoughts of market penetration rates.

We’ve recently been seeing surveys that suggest something close to 50% adoption of marketing automation.  For example, LoopFuse reported 42% of respondents had marketing automation in place, a Forrester study reported 45% use among B2B enterprise marketers, and the Lenskold Group found 70% marketing automation usage.*

If true, these figures would actually be bad news for marketing automation vendors.  They suggest the market is at least half way to saturation, after which growth would slow dramatically.

But most people in the industry are confident the potential is much larger than double the current market. The raw numbers suggest as much: according to data compiler Manta.com, there are nearly 1 million U.S. companies with $5 million or more revenue.** Of these, about 300,00 fall into B2B categories. Raab Associates' VEST report shows about 20,000 B2B marketing automation systems at those companies, yielding about 6% penetration. Not surprisingly, the rate is higher among larger firms.  I’ve excluded business under $5 million revenue from this analysis because that’s a very different market.

What accounts for the discrepancy between actual data and survey results? One answer is that people who answer surveys about marketing automation are disproportionately likely to be users.  So the untapped market is indeed much larger than surveys would suggest.

But here’s another, less comforting explanation. It’s a safe bet that at least half of current marketing automation users are in tech industries – call that 10,000 of the total. The Manta figures show 21,000 companies in the tech categories – computer hardware and software, ecommerce and IT outsourcing, electronics, and information technology. I know you can do this one in your head, but 10,000 clients among 21,000 companies means the tech sector is just under 50% penetrated.  This is pretty much what the surveys are telling us. And, yes, survey respondents do tend to be concentrated among tech companies.

Why is this worrisome?  Well, it suggests is that most B2B marketing automation growth is coming from mid-to-late adopters within the tech industry, not early adopters across a much larger universe.  That’s scary because everyone has expected a huge take-off when marketing automation finally transitions beyond the early stages of market development.  If the transition has already happened in tech and never gets started anywhere else, we'll never see that hyper growth.Quite the opposite: the tech pool will run dry in a year or two and growth will slow to a modest replacement rate.

A more tactical consideration is that  mid-to-late buyers have different purchasing styles (more risk averse, more support oriented, more price sensitive, more brand driven) than early adopters. There’s some evidence that B2B marketing automation vendors are moving their sales and marketing in this direction. This makes it even harder for them to sell to pioneers in other industries, who need the original missionary approach.

If you want another hint that the sky may be falling, how about this: a recent Econsultancy survey found that marketing automation is now lower priority among marketers than a year ago (top three for 11% vs. 15%). Since priority presumably translates to purchase intent, that seems to foreshadow a decline in new sales. I don’t want to make too much of this – the survey was among UK marketers and it also showed a sharp increase marketers who ranked marketing automation among their most exciting digital opportunities. Econsultancy’s explanation for the apparent contradiction was that most marketers already own a marketing automation system, so now they’re turning to exploiting it.  But while that's comforting on some levels, it still suggests lower future sales.

To be honest, I was less concerned about the year-to-year change in percentages than about marketing automation’s low rank in both years – next-to-last in 2012 and ninth of twelve in 2013. An IDC report from 2012 had similar results, ranking marketing automation seventh on a list of nine.

I have my own little theory about the low priority, which boils down to the fact that marketing automation only handles a fraction of marketers’ total activities.  Specifically, it supports email and online events, which a 2011 MarketingSherpa study found account for just 20% of program spending.  Even with direct mail and marketing automation itself, the total reaches only 37%. My theory is that marketing automation has a low priority because it is far from a complete customer management solution – or even a complete customer acquisition system.

There are other signs of early market maturity within my VEST data. One is greater concentration among the industry leaders.  My primary measure is employee counts, which are revealed by more vendors than revenue.  Last year, the top four industry vendors (Eloqua, Marketo, HubSpot, and Infusionsoft) added 49% more employees, compared with just 21% for the rest of the industry.  My revenue estimates show a similar gap although it's less pronounced. Revenue per employee is also about 20% higher for the top four vendors than all others combined; this is a sign of tight margins at smaller vendors, which make it hard for many to survive without outside funding. (That gap has actually shrunk since last year.)  Most tellingly, the past year hasn’t seen the rise of any fast-growing new challengers, in the way that Act-On and Pardot appeared in earlier years. This is yet another of industry stability and, perhaps, nascent consolidation.

So, is B2B marketing automation doomed to be no more than a niche application for tech marketers? Industry optimists would argue no, and point out that if half the clients are in tech, then the other half are not. Point taken. But it would be Panglossian to assume that other industries are simply waiting their turn to adopt marketing automation once the tech industry is saturated. In reality, I constantly discover new (to me) marketing automation products tailored to specific industries such as insurance, real estate, franchises, dentists, local retailers, and so on. I suspect the real reason the B2B marketing automation vendors haven’t had much success entering those territories is that they’re already occupied.

If that’s so, then the industry verticalization I’ve long expected has already happened and general purpose marketing automation vendors will have a much harder time than expected in selling to marketers outside of tech. As I suggested above, they’ll need a much more compelling story than one that leaves them at the bottom of priority lists even for tech marketers. Specifically, they’ll have to expand their scope to incorporate all marketing activities: a 20% solution just won’t be enough.

* Of course, the minute I posted this blog, I started to see additional figures.  A ClickZ article quoted 25% use by 38 B2B companies within the Fortune 500.  An Aberdeen study reported 30% adoption.  A BuyerZone survey returned 13% usage, although it probably included mostly small businesses. 

** Here's the Manta data if you want to play along at home.


Unknown said...

1) I've discounted the marketing priorities' reports as I haven't found them to differentiate between B2B and B2X.
2) Guessing that the Econsultancy report on marketing priorities includes a large European contingent, and marketing automation is just starting to take off, e.g., see Germany.
3) Completely agree with the non-high tech adoption rate. Take the B2B Finance vertical: it's not nearly as digital marketing proficient as high tech marketers.
4) Wonder what the CRM adoption cycle looked like for non-tech companies vs. tech companies, and is this comparable?

David Raab said...

Thanks Joseph. The surveys we see in these kinds of reports are generally unreliable become the respondents are not a representative sample. As to marketing automation being a priority -- well, realistically, people have other concerns like generating revenue so it's not surprising it would rank so low. But it was still thought provking.

Good question about CRM adoption. I don't recall it being particularly tech-heavy at first. Remember CRM mostly grew out of the old contact management systems, which were used by all types of sales people, not by central marketing departments. I don't know whether marketing automation has a unique affinity for tech marketing or if it's just a more or less random fluke that the initial deployments were in that segment. But, as you say, tech marketers are probably more digitally-oriented than others.

Anonymous said...

Great post David.

I would agree with you about the breadth of marketing automation. There needs to be a solution, a platform that organizes all of the activities of the modern marketer, across all channels.

I also like the eConsultancy chart that you posted, particularly the strategy at the top of the list: content marketing.

Modern marketers are finding that content is at the center of their efforts. That's why more and more are adopting our platform at Kapost. And while we integrate with Eloqua, Marketo, etc., will also integrate with all the other channels a modern marketer must operate in.

I think you'll find our system provides that elusive cross-channel platform that you've identified. Let me know if you'd ever want to take another look at it.

Best, Toby

David Raab said...

Hi Toby. Your comment is just on the border of being too self-promotional but I am publishing it. "Content marketing" is at the top of pretty much every list these days. I'm having a hard time seeing how it differs from other types of marketing -- all of which seems to involve content. Haven't really had a chance to think about it. But, yes, Kapost and similar systems do provide substantial value in helping marketers to manage content. Whether it's a complete solution...not so sure.

Anonymous said...


i should have just emailed you. i don't mean to promote. to neutralize, let me declare: our software stinks! don't sign up!

yes, marketers have always created content. but that content has historically been about their own product. in content marketing it is about their buyer's interests. the volume of content, the process and objectives involved is very different.

as for the "complete solution" . . . yes, we'll see. just wanted to state it here for the record. we'll check back in a few quarters and you can tell me what you think then.

David Raab said...

Toby, no neutralization required. Your software is good and people should certainly consider it.

I agree that buyer-centered content is the heart of content markting, and it's different from traditional product-centered content. But most of the activities to promote content are quite similar to traditional marketing programs -- all about finding ways to reach the right people and move them to action. I suppose that's the part of "content marketing" that strikes me as relabeling something old rather than being something truly new.

Anonymous said...

Are any of the verticalized solutions really good enough for the enterprise though? Back in the late 90s, I remember there being a lot of CRM tools for vertical solutions but, in the end, Siebel made a bundle selling their own vertical solutions to the biggest players in their respective industries.

We both know that mastering marketing automation is really difficult and requires both internal and external expertise to be effective. I have to believe the biggest vendors (Eloqua/Oracle, Marketo, etc.) will continue to grow outside of the technology vertical as marketers in less-penetrated verticals realize the power of an integrated sales/marketing platform. That said, it will grow more slowly in those verticals because if it was difficult for technology firms to master, it will be more so in non-technology verticals.

David Raab said...

Brian, you raise a good point.
I believe that areas like doctors/dentists, tradespeople, real estate, education, and even banks do still rely on specialized systems that are tailored to their needs. Enterprise is another story, but it might just be a vertical of its own. Whether general purpose vendors can compete with vertical specialists depends less on their technology than whether they can invest in the specialized staff needed to create vertical packages and to support sales to vertical markets.

As you say, the real issue is the difficulty of making marketing automation work. If vertical specialists do a better job of training potential buyers, because they understand the industry better, they will be hard to dislodge.


Anonymous said...

Great post, David. Thanks.

As a vendor in the marketing software space, I love the analysis.

What do you think MA vendors need to do maintain growth rates and pursue wider adoption? ...Verticalize? Broaden their offerings--as is the current trend towards Integrated Marketing Management? Make it easier to use?

I'd be interested to hear your perspective on strategy.

David Raab said...

I think both verticalization and broadening are viable strategies. Broadening is harder and takes more resources, so it's only an option for the largest vendors. Verticalization is a better option for most smaller firms. But, as Brian Reilly points out, big companies can verticalize too, so that doesn't necessarily create a safe niche. Painful as it is to say, many of the smaller vendors just won't survive.

Unknown said...

This is consistent with Marketing Automation reaching the trough of disillusionment in Gartner's hype cycle. Nearly every budget allocation in the marketingsherpa survey has an output: a better website, more tradeshow leads, more PPC leads, etc. Marketing Automation lacks a defined output, and the first impression might be a software to replace marketers rather than magnify their efforts.

The companies that survive will provide a platform to solve PPC, print, social media, SEO, PR, etc leveraging their database or the database of the CRM. Which database wins will guide whether these companies survive independently or continue to be acquired.

Unknown said...

This is consistent with Marketing Automation reaching the trough of disillusionment in Gartner's hype cycle

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