Acquisitions Reshape the Marketing Automation Industry: Growth at the Bottom, Room in the Middle, Fog at the Top

Raab Associates officially released the new edition of our B2B Marketing Automation Vendor Selection Tool (VEST) yesterday. This is our flagship report on the industry, with nearly 200 data points on 23 vendors and separate ratings for micro-business, small to mid-size companies, and enterprise marketing departments. There are quite a few vendor comparisons out there, but none come close to the level of detail in the VEST – and details are what you really need to select a system. I personally suggest that anyone interested in the industry buy a copy for themselves and another for someone they love. See www.raabguide.com/vest for details.

I genuinely enjoy catching up with the vendors while preparing the VEST, but must admit that my favorite part of the process is analyzing the data once it’s assembled. Sadly, the wave of acquisitions that swept the industry in the past year has made this harder: many major vendors are now part of a public company, which severely restricts the information they can share. We’ve probably passed a tipping point where so much information is hidden that I can’t draw a clear picture of industry growth rates or competitive positions.

The table below shows the data available and highlights the holes. I’ve grouped the vendors into three buckets based on the market sectors they serve: micro-business (under $5 million revenue), small to mid-size business ($5 to $500 million), and large enterprises (over $500 million).

You’ll immediately see that the “not reported” information is concentrated among companies serving mid-size and enterprise clients, which is where all the acquisitions to date have taken place. Neolane is an exception but only because they provided the VEST information just before Adobe acquired them in June. I doubt we’ll see new numbers from them in the future. Marketo was mostly missing until they provided key figures in their earnings call this afternoon. Thanks, guys.

I've summarize my thoughts on this data with three oh-so-catchy phrases: growth at the bottom, opportunity in the middle, and fog at the top.

Growth at the Bottom: the green shading in the client growth column highlights companies reporting a year-on-year increase of 60% or more. What jumps out is the concentration at the top of the chart, in the micro-business sector. Four of the five micro-business vendors grew more than 60% and the fifth (Venntive) grew at a far-from-shabby 54%. There’s too much missing data in the other sectors to say for certain that the micro-business vendors are growing the fastest, but it sure looks that way. My interpretation is that the micro-business sector is the least mature and still presents the greatest untapped opportunity – even if buyers are still limited to the small proportion of business owners who are “tech geeks”.

Room in the Middle: Marketo's client count increased just 36% from mid-2012 to mid-2013 (although they’re projecting 54% revenue growth for 2013 vs. 2012).  We can no longer see the growth rates for mid-market heavy weights Pardot and Eloqua, but I’d be surprised if they beat Marketo.  They're certainly not close to the 67% to 90% rates reported by LeadFormix, Act-On, and eTrigue. I suspect Pardot, Eloqua and Marketo will increasingly focus on selling to enterprises, and in Marketo’s case on expanding footprint within existing clients. If so, this might open the way to faster growth by the next tier of mid-market vendors, who are mostly still private.  (LeadFormix is the exception, but seems to be pretty much left alone by its corporate parent). The clear winner in this scenario is Act-On, which has ample venture funding and has indeed been growing very rapidly. They are already the first vendor since Pardot to break the 150-employee barrier (blue shading). Silverpop and HubSpot might also benefit but neither is fully focused on standard B2B marketing automation. Other vendors would need outside funding to squeeze through what will probably be a briefly open window.

Fog at the Top: My visibility into enterprise B2B marketing automation was always clouded because of cross-over by B2C vendors including IBM, SAS, Teradata, and Neolane. It is now completely obscured except for sporadic glimpses of details that vendors choose to reveal. But even if everyone shared all their data with me, the enterprise picture would remain foggy because enterprises are increasingly integrating marketing automation with advertising , sales, service, and Web management. This makes it increasingly meaningless to treat marketing automation as a distinct category. Of course, that integration is exactly why the enterprise vendors purchased all those marketing automation systems in the first place.

If integration really happens at the top then we'll end up with a bizarre symmetry, since the enterprise market will be mirroring the integrated sales / CRM / Web / ecommerce products already bought by micro-businesses.  This would leave stand-alone marketing automation as a niche product for mid-tier companies. It would be a very large niche, but squeezed between broader suites from above and below and, eventually, challenged from within by integrated suites built for mid-market companies. The obvious response from marketing automation vendors is to build those broad suites themselves or to create platforms that are the foundation of such suites. That’s exactly what the larger mid-tier companies are doing, but it’s an expensive proposition. Any small mid-market companies who want to play must grab whatever fleeting opportunity the market offers today for growth, before they are locked out for good.