Tuesday, September 16, 2014

HubSpot Jumps into the CRM Marketplace

Hell probably didn’t freeze over today but there might have been a light frost: after years of rejecting the option, HubSpot today announced it will offer a CRM system.

The news was the climax of the founders’ keynote at the company’s annual Inbound Conference, which has yet again doubled to reach 10,000 attendees. Audience response was predictably enthusiastic, since CRM features have been much desired by HubSpot users and resellers for years. The system itself offers standard CRM features – contacts and company records, calendar management, emails, activity logging, tasks, deal tracking – combined with automated population of company and prospect information from Web sources and Twitter activity. There’s also a neat feature that finds existing relationships between a company and email accounts within the user’s own address book and other address books (presumably of co-workers) who have granted access. Another feature goes a step further and provides finds data on other companies that are similar to a current prospect. The goal of all these features is to find useful relationships and information while minimizing manual research and data entry by sales reps.  HubSpot hopes this will encourage adoption of CRM by sales reps who have rejected it because it took too much work for too little value.

The product looked quite nice, although I think most of the features are already available in other CRM systems or add-ons. Having them easily available in a single product is convenient, but what’s really interesting is the integration of CRM with HubSpot’s marketing features and underlying database. This provides a combined sales and marketing system that’s quite unusual for mid-market companies. The approach is standard in systems for very small businesses, such as Infusionsoft and Ontraport.  But that’s a different market, and one which HubSpot managers make clear they don’t want to target (although I’m sure HubSpot has many such businesses in its current customer base).

Even more unusual for the mid-market, HubSpot is offering the system for free: initially to its current customers, and to the rest of the world some time next year. The free version will have some limits, likely related to features and database size, although the company hasn’t decided on the details. This follows the model of HubSpot’s current sales enablement system, Signals, which provided some behavior tracking and itself is being expanded and renamed Sidekick. HubSpot said it already has 100,000 Signals users, who greatly outnumber the 11,500 customers of its flagship marketing system.

The business strategy behind the new system is fascinating if you’re interested in that sort of thing. It’s a continuation of HubSpot’s transition from a purely marketer-focused focused company (remember that started as a tool to attract search traffic) to one that serves all customer-facing departments. This gives it access to the CRM market, which is much larger than marketing automation and would get even bigger if HubSpot succeeds where existing mid-market CRMs have failed. For a company that wants to keep growing, movement from marketing into the adjacent CRM space is probably irresistible. Can a HubSpot service offering be far behind?

Of course, there’s an obvious risk of HubSpot losing focus as it shifts to serving a broader range of users. But the alternative is being stuck in a marketing system space that is itself adding new requirements well beyond the current standard marketing automation features, such as integration with paid advertising and Web experience management. It might soon be easier to stay competitive with other CRM systems than to meet the full needs of omni-channel, integrated marketers.

It’s hard to imagine HubSpot actually abandoning its marketing users, but that might be an option that company’s managers are keeping open by developing a new base in the CRM industry. The analogy that HubSpot leaders used more than once was Apple creating the iPod as a separate business serving a much larger audience than the MacIntosh computer. Their intent seems to be that the broader business would introduce the brand to new companies who would then buy the original product. But it has surely occurred to them that if the new business is hugely successful then it will be much less painful should the original business shrivel away.

(Just to clarify: HubSpot will continue to integrate with Salesforce.com and other CRM systems; in fact, it announced several new integrations during the same keynote.  HubSpot managers said only one-third of their clients currently integrate with a CRM system and about two-thirds of those, or 20% of the total, integrate with Salesforce.com.  HubSpot's goal is to serve people not currently using CRM, not to take sales away from existing CRM vendors.)

Update - September 17

I’ve now had a bit more time to digest this news. My basic opinion hasn’t changed but some doubts have crept in. Freemium hasn’t worked well in either the marketing automation or CRM markets, probably because succeeding with both types of system take serious commitment from a client, whereas the whole point of freemium is to allow casual trials. CRM also takes some serious customer support, as HubSpot managers are fully aware, which makes it harder to justify economically. Perhaps HubSpot could convince its partners to handle some of the support for freemium customers in exchange for access to potential new customers. Tom Sawyer would approve.

Nor, now that I think about it, is the combination of marketing automation and CRM so uncommon among small to mid market marketing automation systems. It’s true that most of those products are more like basic contact management than true CRM, with the specific distinction being whether they track opportunities (deals) as an independent object: HubSpot CRM does this while I think most of the other CRM-within-marketing automation options don’t. The distinction is probably important because it means there’s a good chance of people starting to use HubSpot CRM without HubSpot marketing automation, which of course is exactly HubSpot’s goal. But, again, the risk here is that HubSpot CRM will attract smaller businesses than HubSpot really wants as it tries to move closer to the middle of the market.

I’m also reconsidering my fundamental premise that the CRM business is fundamentally more attractive than selling to marketers. If memory serves, CRM software revenues are estimated at $3 to $4 billion, which is bigger than the $1 billion for marketing automation but not by such a huge margin. Nor is CRM especially profitable: like marketing automation, it suffers from a glut of competitors because it is fundamentally easy to enter. So it’s a good thing that HubSpot sees CRM as the gateway drug to marketing systems, not a profit center of its own.

Or, perhaps more cleverly, they see CRM as a gateway to establishing themselves as a platform vendor at new clients. HubSpot hasn’t used that term very much, but they did stress that the CRM and marketing system use the same database and are accessed through the same APIs. In this view, HubSpot CRM would build a database that allows HubSpot to sell other, future applications at the companies that install it. These could be HubSpot’s own applications or third party apps sold through its marketplace. That might be a better long-term strategy, since the explosion of marketing technology will make it increasingly unlikely that HubSpot alone can provide a full range of marketing and sales functions – even though HubSpot so far has been more aggressive than most at trying to provide core capabilities (marketing automation, Web content management, and now CRM) all by itself. Repeat after me: the suite is dead.

However things play out, the new CRM product gives HubSpot several options it lacked before.  For that reason alone, it still strikes me as a good move.

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