Monday, January 14, 2019

Consumers Aren't As Into Personalization As You Think, and Other Survey Results

I see a lot of surveys -- easily a dozen each week.  Mostly they go into a big file which I mine occasionally for factoids to spice up a paper or presentation.  Sometimes I take a more thorough tour to look at some bigger issues.  Today is one of those days.

Specifically, I was prepping for a presentation in Amsterdam, which meant I needed to present general industry trends and then see what is different in Europe.  This turned out to be pretty interesting.  But I assembled vastly more data than I could include in any presentation where the audience was not chained to their seats (frowned upon by EU regulators).   So I'm sharing it all here with you instead.

(I've also packaged it all in a paper for the Customer Data Platform Institute, available here.  Much more convenient than copying this blog post if you want a reference copy.)

Note that there's more information on sources at the end of this post.  For now, let's just get to the good stuff.

Consumer Attitudes: Personalization

If marketers hold any truth to be self-evident, it’s that today’s consumers want and expect personalization. The reality is a bit different and depends greatly on the definition of “personalization”. The majority of consumers believe they receive personalized service, but many fewer expect personalized experiences. What they do expect is consistent service, shared information, and being identified as repeat customers. In other words, they expect you to know who they are and to use that data to serve them – for example, by being aware of past purchases and problems. But they don’t necessarily expect you to make personalized offers or otherwise personalize their experience.

We do see quite consistently that European consumers have lower expectations for all kinds of personalization.

Whether or not consumers expect personalization, it can still be a competitive advantage to provide it. The majority of consumers do say they’re more loyal to brands that understand them and provide good service, and more likely to stop doing business with brands with poor service. But, again, the focus seems to be more on service than proactive personalization: barely one quarter of consumers said that anticipating needs is the most important part of personalization. This may come as a shock to marketers who have put anticipating needs at the top of their list of reasons to do personalization.

These results shouldn’t be read as a reason to ignore customer needs. Companies get more revenue when they offer customers what they want, whether or not the customer expects it.

We again see that European consumers place slightly less weight than U.S. consumers on personalization, although the difference is less pronounced than with expectations. One interpretation would be that European consumers don’t expect personalized treatments and thus don’t factor it into their behavior.

Consumer Attitudes: Privacy

Marketers know they need to balance personalization against privacy. We’ve just seen that consumer interest in personalization may not be quite as high we thought. By contrast, consumers show great interest in privacy, both in general and specifically in relation to marketing. More than three-quarters don’t want companies to market to them based on personal data. Fewer than half would trade their data for personalized service, even though that’s the reason most companies give for collecting it. Although European consumers show slightly less concern about privacy in general, they are more opposed than U.S. consumers to letting companies use their data for marketing. This is consistent with the personalization results: if European consumers place less value on personalization, it makes sense that they’d be less willing to share their personal data to enable personalized treatments.

Looking beyond personalization to the broader question of trust, we again see that Europeans place less trust in business than U.S. consumers. An astonishing 68% believe brands sell their data. This may reflect the attention drawn to data sharing by the European Union’s General Data Protection Regulation (GDPR). Europeans' lack of trust in most business may also explain why they are more likely to support brands that do show high purpose.

Marketing Technology

Now let’s turn to marketers. Most European marketers will tell you that their region is behind the U.S. in adoption of advanced marketing technology. European consumer perceptions of less personalization support this. The data here do show that European marketers use fewer data sources and channels for most purposes, although the figure for inputs to attribution is higher. The differences are relatively small with the significant exception that Europeans report using personalization in 20% fewer channels (4.1 vs 5.1) than U.S. marketers.

The gap is larger when we focus specifically on data integration. European marketers are much more likely to cite challenges with linking multiple data sources, more likely to see linking data as the reason to deploy a Data Management Platform, and more likely to avoid a DMP because the technology is too complex. While integration is a substantial problem for many U.S. based marketers, it’s clear the pain is greater in Europe – despite having slightly fewer data sources to integrate.

The same pattern holds for marketing technology in general. European marketers spend a slightly smaller share of their marketing budget on martech and a slightly smaller share of their martech budget on data and analytics. But while those differences are fairly small, U.S. marketers expect much higher growth in their 2019 martech budgets. This is a significant indicator of attitudes regardless of what actually happens. Similarly, European marketers show consistently but slightly lower adoption of advanced marketing systems such as DMP, cross-channel engagement, and flexible attribution models.

Marketing Maturity

Looking beyond technology, we see that U.S. and European marketers share a high level of belief in personalization. But European marketers rank lower on other measures that indicate maturity. It’s particularly intriguing that European marketers are less likely than U.S. marketers to be prioritizing first party data, even though GDPR is generally assumed to make first party data more important.

In sum, the belief that European marketers are using less advanced technology than U.S. marketers appears to be correct.

Leaders vs Mainstream

What separates the most successful marketers from the rest? This data, all from the same survey, found that high performing marketing departments were twice as likely to be responsible for technical activities related to customer data: operations, governance, security, and schemas. This suggests that marketers do in fact get better results when they have more control over their customer data. By contrast, leading and mainstream departments had similar responsibility levels for traditional marketing activities such as automation rules, data acquisition, and analytics.

It’s important to qualify this message. Even among leading marketing departments, the majority do not have technical responsibilities. So clearly success is possible under other arrangements. It’s also important to recognize that marketing and IT will almost always share some responsibilities. And they should.

Other leader vs mainstream comparisons provide more insight into the challenges faced at different maturity levels. Mainstream marketers are more likely than leaders to cite disparate technology as their biggest martech challenge: this suggests that is the first hurdle to cross. Leaders, having started to knit together their systems, are likely to run into organizational barriers next. Once they resolve organizational problems, they can deliver results such as a single customer view and quantifying the benefits of personalization and real time marketing. Few mainstream marketers, still fighting technical and organizational battles, are able to accomplish these.

Some markers show much less correlation with leadership. Mainstream marketers are nearly as likely as leaders to lead customer experience initiatives and to run real time interactions in at least one channel. Note that single channel real interactions do not require unified customer data or any type of shared systems. So they are not by themselves an indication of maturity.

Customer Data Platforms

Finally, we’ll look at some information specifically related to Customer Data Platforms. The table below compares CDP selection priorities for enterprise vs mid-tier buyers. It supports the common belief that these groups have different concerns. Enterprise marketers give higher priority to data security and integrating data from many sources, including third party data. Mid-market buyers also rank security as their top concern but then look for help with internal data and for data analysis tools. These are probably problems that enterprises have already solved. One implication is that CDP vendors may find themselves specializing in one or the other type of buyer so they can optimize their systems for the different needs.

I also have several surveys that asked about CDP deployment. Answers vary greatly although the general result suggests that CDP adoption is getting close to DMP adoption. The very low figure from Heinz Marketing reflects the nature of its survey, which asked B2B marketers about tools for marketing analytics and pipeline management. The audiences for the other surveys were more representative but the figures still seem much higher than likely. The CDP Institute’s own estimate is that market penetration for CDPs at the end of 2018 was around 15%.

Note on Sources

This paper draws from surveys with different audiences, survey methods, and sample sizes. The origin of each item is indicated by a number that relates to the list of surveys below.  This list provides some information about each survey, as presented in the survey report.
Data from the original surveys has been processed in several ways:

• Questions have been paraphrased for brevity and clarity.
• European results are averages of country results, which have been weighted in different cases by national population, sample size, or not at all. Different surveys included different countries.
• Some U.S. results include data from all of North America.

Readers should be able to track down the original survey reports on the Internet. I haven't published links because links change too often to be useful.

1 Acquia, Closing the CX Gap: Customer Experience Trends Report 2019. More than 5,000 consumers and 500 marketers.
2 AdRoll, The State of Marketing Attribution, 2017. 987 respondents recruited by email and social media. Majority at director/manager level.
3 Aspect, 2017 Aspect Consumer Experience Index. Online survey with 1,000 aggregate U.S. sample and similar in Germany, Spain, United Kingdom.
4 Econsultancy, The Customer Data Imperative, 2018. 509 online survey respondents, primarily at large B2C brands. Mix of marketing, IT, and operations.
5 Edelman, 2018 Edelman Trust Barometer. 33,000_ online survey respondents across 28 countries.
6 ExchangeWire, Adoption vs Execution: How Media Agencies Across the Globe Are Making the Most of their DMP’s Capabilities, 2017. 470 agency professionals.
7 Frost & Sullivan, The Global State of Online Digital Trust, 2018. 990 survey responses.
8 Gemalto, Data Security Confidence Index, 2018. 1,050 IT decision makers from organizations with perimeter security systems.
9 GlobalWebIndex, Trends 19, 2019. 91,913 Internet users aged 16-64.
10 Harvard Business Review Analytics Services, The Age of Personalization, 2018. 625 responders from audience of Harvard Business Review readers. Primarily executive/senior management at large enterprises.
11 Heinz Marketing, State of Revenue Marketing, 2018. 241 B2B marketing executives, primarily small to mid-size companies.
12 Infosys, Endless Possibilities with Data, 2018. 1,062 senior executives from organizations with annual revenues exceeding $1 billion.
13 Ipsos+Medallia, The Customer Experience Tipping Point, 2018. 8,002 consumers in U.S., UK, France, Germany.
14 Mulesoft, Consumer Connectivity Insights 2018. 650 IT decision makers at organization with 1,000+ employees.
15 Relevancy Group, CDP Buyers Guide 2018. 406 executive marketers.
16 Salesforce Research, Fifth Edition State of Marketing 2019. 4,101 responses from full-time marketing leaders, primarily mid-size organizations. Mix of B2B and B2C.
17 Sizmek, Marketers Survey Results 2018: An Insider’s Look at Data, Walled Gardens, and Collaboration. 522 B2C brand marketers.
18 Spiceworks, 2019 State of IT, IT Marketing. 780 business technology buyers.
19 Walker Sands, State of Marketing Technology 2018. 300 marketing professionals. Primarily small to mid-size companies.
20 WE Communications, Brands in Motion 2018. Online interview of consumer survey panel totaling 11,000+ in U.S., U.K., and Germany.
21 Winterberry Group, Know Your Audience: The Evolution of Identity in a Consumer-Centric Marketplace, 2018. Online survey of more than 400 advertisers, marketers, fundraisers, publishers, technology developers and marketing service providers.

Saturday, January 12, 2019

What's Different About European CDPs?

For reasons that made sense at the time, I recently interviewed myself about the CDP Institute's latest review of Europe-based CDP vendors.  Here's how that went.

What do you think potential CDP buyers would find the most interesting stats from this?

From a buyer’s perspective, the most interesting stat may be the absolute number of local vendors available. We found 25 Europe-based CDP vendors, nearly one-third of the worldwide total. Marketers in UK, France, or The Netherlands can each pick from a half dozen vendors based in their country. This matters because markets still have considerable national differences. And I suspect that many buyers prefer to work with a local firm, especially for customer-facing functions such as personalization where knowledge of local buyers is important.

Buyers may also be interested in the market growth rate: the number of European vendors doubled, from 13 to 25, during 2018, while employment grew by 58% from 929 to 1,469. Cumulative funding grew by just 16%, suggesting that most growth is self-funded. We estimate total revenue among these vendors at €150 million in 2018. Revenue in Europe for non-European vendors is probably about equal to this amount.

Are there significant differences from country to country?

It’s a bit hard to say about country differences because there are probably quite a few firms we don’t know about. For example, I’m aware of only one German CDP, which just seems very unlikely. And although our figures show that Netherlands-based companies are especially small, the reason could simply be that we have been more exposed in The Netherlands than elsewhere and thus are more likely to learn about small companies in that market.

What about the rest of the world vs Europe?

The differences here are clearer. Seventy percent of European CDP employees work at companies with campaign-type systems, meaning they can select messages for individuals in batch campaigns or one-on-one interactions. Just 43% of employees outside of Europe work at similar firms. The domination of the European industry by campaign CDPs is its most distinctive feature. I suspect that European marketers prefer campaign systems because European marketers have fewer technical resources than their counterparts in the U.S. Campaign systems help European marketers stretch their budgets because they include a broader range of features than other types of CDPs, reducing the need for additional products.

Are there other differences beyond campaign type?

Yes. European CDP companies are much smaller and less well-funded than those outside of Europe: the average European company has 59 employees and €6 million funding, while the average company elsewhere has 99 employees and €25 million funding. Averages can be deceiving but other measures tell a similar story. For example, only one of the ten largest CDPs is based in Europe compared with five of the ten smallest. The difference is actually greater than this suggests because most of the large European CDPs are old companies – four of the six with over 100 employees were founded before 2006. By contrast, just one of the fourteen non-European vendors with over 100 employees is that old. This means that the largest European CDPs built their business doing something else – mostly as marketing services agencies -- while the largest non-European CDPs were CDPs from the start. (You’d need to look at the data in our global industry update, available here, for the non-European information.)

Are there any trends that might help to predict the future?

We assemble this data every six months so we get a good perspective on changes over time. The European CDP industry had been growing slightly faster than the rest of the world but in the recent period that was not the case: the European share of employment actually fell slightly. Another trend that had been clear was the steady shift of industry away from access vendors towards campaign vendors. But that also slowed during the most recent period and actually reversed outside of Europe, where analytics vendors gained share. This reversal suggests that different types of CDPs are finding success among different customer groups, meaning that the industry is not going to coalesce around a small number of vendors with similar features any time soon. That is different from the path that most industries take, where a dominant model and few leaders do tend to emerge fairly quickly.

Data on industry concentration points in a similar direction: the share of employment among the top five vendors has fallen steadily over the past two years, and even the share of the top 20% of vendors (a number that increases as the industry grows) fell in the most recent period. 

Over all, the report shows a vibrant, innovative European CDP industry that continues to grow by taking approaches that fit the special conditions of the European marketplace. U.S.-based firms, with much higher funding and a substantial technical head start, will not leave the market any time soon. But because the non-European firms are strongest in the data access and analytics categories, we see both sets of vendors coexisting and often even being used for different purposes within the same company.

Readers can download the European report here.

Tuesday, January 01, 2019

2018 Was a Great Year for Customer Data Platforms

The CDP industry had a great 2018, growing by 60% and reaching $740 million revenue, according to the CDP Institute’s just-released Industry Update (click here to download). The industry added 29 vendors and 2,653 employees, slightly more than the 26 vendors and 2,233 employees added in 2017. Vendor funding increased $568 million in 2018 vs $492 million in 2017.

But the smooth growth hides some interesting twists.  The report period (second half of 2018) saw the first two major acquisitions of CDP vendors: Datorama by Salesforce for reported $800 million and Treasure Data for $600 million by ARM Holdings for reported $600 million. It saw a new generation of purpose-built CDP systems for vertical industries and personalized messaging.  There was a sharp drop in new CDP funding.  And increased competition from non-CDP vendors is clearly on the horizon.

One thing that didn't happen was the long-expected industry consolidation. New vendors are being added more quickly than existing vendors can grow – so the industry is becoming more fragmented.

Let’s look at each of these developments in more depth.

Acquisitions. The CDP industry had already seen quite a few small acquisitions, mostly by agencies or vertical industry specialists adding customer data management to their existing product lines. But Datorama and Treasure Data were the first acquisitions of large CDP companies.  They were surely the first over $100 million and possibly the first over $10 million.

Yet neither deal is a simple as a large marketing suite adding a CDP module.  Salesforce is a marketing suite vendor but it purchased (and so far is selling) Datorama as a marketing performance analysis tool. This is how Datorama had positioned itself before the acquisition, even though Datorama does have a few clients using it to manage individual-level customer data in true CDP fashion. ARM Holdings, itself owned by tech conglomerate SoftBank, is a chip technology company that purchased Treasure Data to manage Internet of Things data.  (Treasure Data will continue selling itself as a conventional CDP.)   Yet, regardless of their intent, Salesforce and ARM are likely to find their clients using their acquisitions for CDP-style customer data management. Demand for such solutions is simply too strong to avoid that happening. And you can be sure that clever salespeople at both companies will offer the products as CDPs if that's what it takes to close a deal.

Next-Generation CDPs. Nine of the vendors added during the period were founded in 2014 or later – the first time a majority of new entrants were this young. These companies are small and lightly funded, averaging just 25 employees and $4 million. They can be seen as “CDP natives” that were designed from the start as CDP systems. By contrast, the majority of vendors entering the industry in earlier periods were older, larger, and better funded. Most began as something else and later repositioned as CDPs.

The new firms included more data access and analytics vendors than previous periods, again indicating that they were purpose-built for specific CDP applications and industries. This is the first period since reporting began that the industry share of campaign vendors decreased.

Organic Growth and Fragmentation.  Most industry growth in the past two years– a remarkably constant 72%, as it happens -- has come from new vendors, not organic growth by existing vendors. One implication is that adding younger, smaller companies could reduce the industry growth rate. Whether this happens depends on how quickly the existing vendors grow.  So far, employment at existing firms has increased around 10% per six-month period, which translates to a healthy but unspectacular 20% per year.  One cause for optimism: younger firms have tended to grow faster than older firms, suggesting the rate might increase as more young firms appear.

Larger firms have also grown faster than smaller firms. Ordinarily this would result in higher industry concentration, but so far the entrance of new firms has more than outweighed this effect. The industry share of the five largest vendors has in fact decreased from 46% in the first report to 28% in the latest report. I expect this fragmentation to increase as more specialized CDP vendors carve out niches in particular industries, regions, and functions.

Funding. We measure funding in two ways. One looks at aggregate funding for all industry vendors; this grows as new vendors are added, regardless of when the funding took place. The other approach looks at the timing of funding events.  It includes events that happened before a vendor joined the industry. The first measure, aggregate funding, has increased in rough parallel with industry vendors and employment. The second measure is more volatile and shows a sharp decrease since its peak in the second half of 2017.

The patterns of the funding have also changed over time.  In 2018, little funding went to data access firms, companies founded before 2010, or the five largest companies (accounting for 25% of industry employment) even though those are still a major portion of the industry. This suggests that those firms had already acquired ample funding to support their growth.

The decline in new funding during the most recent period may mean that investors are becoming cautious about supporting new CDP vendors. Whether this slows industry growth remains to be seen: the smaller, niche CDP vendors are more able to finance their early activities from personal investment and operations.  It’s likely that the more successful of these will attract additional funding in the future.

External Competition. There’s nothing in the CDP industry data to capture external competitors. But last fall saw announcements of products addressing the same needs as CDPs by Salesforce, Oracle, and an Adobe/Microsoft/SAP alliance.  My take is that the Oracle and Adobe entries are architecturally similar to CDPs as we define them (“packaged software that builds a unified persistent customer database accessible by other systems”) while the Salesforce entry falls short because it doesn’t create a persistent database.  None of these products is fully operational but the announcements alone will deter some buyers from purchasing alternatives. We’ve also seen many personalization and delivery system vendors beef up their customer data management capabilities in ways that make them more CDP-like. There’s no doubt that the growth of the CDP industry has captured other vendors’ attention, both as an opportunity for expansion and as a threat to their existing business. Competition from these vendors can only increase as they better understand the  capabilities needed for a CDP.

We’ve also seen existing CDP vendors expand their own footprints, often by adding email delivery capabilities. These are offered as a convenience for their clients, not because the CDPs want to enter the email business. But the result is to further blur the distinction between CDPs and other systems.

The net impact of these changes on independent CDP vendors is still in doubt.  Some companies will surely prefer to buy a CDP that’s a component of their existing delivery system or marketing suite.  But all will become more educated about true CDP requirements and many will find that these are best met by a separate product. Pressure from buyers may also force delivery systems and suite vendors to open up their products to external connections, both to feed data to an external CDP and to read CDP data. This greater openness will make it easier to use an independent CDP and thus reduce the benefits of buying a CDP that’s built into a larger system. If analysts who predict a world of microservices plugged into central platforms via standard APIs are correct – I’m looking at you, Scott Brinker – then independent CDPs will prosper within this open future environment.