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.

Salesforce + ExactTarget vs. SAP + hybris: Two Paths to Customer Management

Fresh on the heels of Tuesday's blockbuster ExactTarget / Salesforce.com deal, SAP Wednesday announced acquisition of e-commerce vendor hybris software.  Since Salesforce said that other companies also wanted to buy ExactTarget, it seemed possible that SAP had lost the deal and purchased hybris as a second choice. After listening to the analyst conference call (available at (303) 590-3030 passcode 4623918), I still can't say.

The SAP and hybris managers unfairly implied during their call that ExactTarget does nothing but email (without mentioning Salesforce.com or ExactTarget by name).  But as Salesforce.com made clear in its own call yesterday, they were most attracted by ExactTarget's multi-channel marketing capabilities.  It's possible SAP wanted ExactTarget for the same reasons and would have described it differently had they been the winning bidder.

In any case, SAP did tell a good story: real-time interactions seamlessly presenting customers with consistent information, dialogues, and purchases across all channels, with a central role for the Web.  This is certainly the long term goal for most marketers, although few are close to delivering it.  As SAP pointed out, it's a customer-centric view of the world, quite different from the operational focus of traditional CRM.  SAP does have some unique assets to support this vision, including back-office systems with sales, inventory, costs, and other data needed to fully inform customer treatments, and the in-memory HANA database to make this data immediately available for real-time interactions.  I haven't done enough research to judge whether SAP can effectively combine these pieces, but they're making the right promises.

I still wouldn't be as dismissive of the Salesforce / ExactTarget combination as the SAP managers.  People integrate CRM with back-office systems all the time.  You can also build great customer experiences with little or no back office integration.  ExactTarget does have some Web personalization features (from its iGoDigital acquisition), although I don't know how well they're integrated with the rest of the system.  Similarly, it has claimed to support real-time interactions in its Interactive Marketing Hub, but I don't know how well that works.  What I do know is that Salesforce and ExactTarget have a reasonable idea of what's needed and the resources to build it.  How well and how quickly they execute remains to be seen -- but you can say the same for SAP.

Incidentally, the common thread for these acquisitions is that both vendors are moving into direct B2C marketing.  It's a big new market for each of them, and makes both much more interesting competitors to IBM, Oracle and Adobe.  Perhaps that's the most important news here.

It would be misleading to give the impression that SAP and Salesforce are equivalent.  The two deals highlight some very fundamental differences:

- SAP is a full enterprise system; Salesforce is about CRM. The SAP managers made the point most clearly when they discussed that their appeal is targeted at the boardroom level: they are selling to companies who want to build their entire infrastructure on SAP's system.  Salesforce is now, finally, adding serious marketing to its CRM system (although there are still some gaps such as media buying), but even so its vision is still limited to customer management, and it is selling at the level of sales, service, and marketing departments -- rarely in the boardroom.  Note that the original concept of CRM already encompassed those departments, so this is less an expansion than a filling of gaps.

- SAP is a suite; Salesforce is a platform.  Indeed, SAP is the ultimate suite: every enterprise function running on a single, tightly integrated system.  I've long argued that the fundamental rule of software marketing is that "suites win", meaning most companies will choose an integrated suite over multiple best-of-breed point solutions.  SAP's success is Exhibit A in my evidence for this, but you could argue it's actually so large that companies might be just as happy with several smaller suites instead (e.g., one for CRM and one for back-office).   This would still let them avoid doing most of the integration work, while not forcing them to commit totally to one vendor's system. 

Salesforce is also an integrated suite, although limited to CRM.  But it has also embraced (and I think invented) the idea of an open platform: a foundation system that can be supplemented by attaching other vendors' products.  This provides easy integration without limiting users to capabilities provided by the suite vendor.  The model has been tremendously successful for Salesforce, particularly at letting it offer advanced functions to its clients without having to pay for developing those functions.  ExactTarget has embraced a similar model, incidentally.

- SAP is largely on-premise software; Salesforce is Software as a Service (SaaS).  It's true that SAP now offers SaaS options, but it was built as on-premise software and its large enterprise clients still mostly run it that way.  hybris also offers both options but runs mostly on-premise (typical for Web content management).  Salesforce of course is the granddaddy of all SaaS companies.

- hybris runs Web sites; ExactTarget is still primarily about email.  The obvious point of this is that Salesforce still needs serious Web site management to provide comprehensive customer treatments.

But the difference goes deeper.  Web sites are inherently real-time systems, while email is inherently batch processing.  This was the essence of SAP's comments today, and while they may understate ExactTarget's abilities, there is a kernel of truth.  Web systems are engineered from the start for high-speed processing, and the e-commerce features of hybris also mean it was engineered from the start to interact with individual customers, not just serve generic Web pages.  Email systems were originally engineered for batch processing, not individual interactions.  Mobile and social messages, which ExactTarget also supports, can also be handled quite well in batch.  I don't know to how far ExactTarget has evolved towards supporting real-time interactions, but its heritage lies elsewhere.

- hybris has 500 customers; ExactTarget has 6,000.  The revenue difference is much less: $100 million for hybris and nearly $400 million for ExactTarget.  What this reflects is that hybris' clients are mostly large enterprises, while ExactTarget has a broad mix of large and small companies.  Each each a good match for the core business of its new owner: SAP also focuses on large enterprises, while Salesforce sells to pretty much everyone. The broad reach of ExactTarget was certainly part of the reason that Salesforce wanted it, but Salesforce already has well over 100,000 clients, so the net increase isn't all that important.

What all this means, I think, is that SAP and Salesforce represent very different approaches to customer management: SAP proposes a single, tightly integrated, highly responsive real-time system where everything is connected and optimized.  Salesforce offers a looser set of connections with less control but more room for variety, change, and innovation.  SAP will sell more to the boardroom while Salesforce will sell to sales and marketing departments.  I frankly expect that both will succeed; it's a big market and each approach will appeal to different customers.  What I really hope is that both will show the market how to do integrated, cross-channel customer management: that way, everybody wins.

Circling back to the original question: I still don't know whether SAP tried to buy ExactTarget.  Based on the what I wrote above, hybris was a better fit.  But the SAP managers spent so much time disparaging email in their call that I thought I smelled sour grapes. Or was it just competitive vitriol?

Future of Marketing Automation: Grow or Die

‘Tis the season for industry predictions. I’ve already fielded a couple of requests for my thoughts, which usually requires some pondering before I reply. But this time I was able to answer right away because I’ve just finished a white paper on the future of B2B marketing automation, sponsored by Leadformix and available here for free download.

The question answered by the paper is “What will marketing automation vendors do next?” This is different from the perhaps-more-important question of “What will marketers do next?” I don’t claim any particularly deep insights into the latter: they'll continue to adapt to new media and buying habits, I guess. Like everyone else, I’m seeing greater use of social, mobile, and video; more cross-channel campaigns; closer cooperation between marketing and sales; and expanded use of analytics. If I had to predict one thing that isn’t utterly obvious, it's that B2B marketers will be more involved with managing customer relationships after the initial sale. The reason is that post-sales interactions are increasingly automated and marketers have the best tools to manage automated interactions effectively. The task is really the same as a sophisticated lead nurturing campaign: to monitor customer behavior and respond appropriately.

While my vision of future marketing may be rather broad, I think I see the future of marketing automation in clearer detail. This is what’s covered in the white paper. To summarize the argument:

• marketing automation vendors must grow or die. Today’s B2B marketing automation systems are used primarily for lead nurturing. This means they don’t help other marketers who do lead acquisition and marketing administration (planning, budgeting, project management, etc.). They also have limited interactions with sales and service departments, who own the post-sales customer relationship. Marketing automation vendors who want to expand their business need to service these other groups or risk some other system becoming the central platform for marketing management. If that happens, the other systems will slowly encroach on marketing automation functionality and eventually replace it.

• marketing automation can expand in either direction along the customer path: backward to acquisition or forward to sales and service.  Most expansion to date has been towards sales, in the form of add-ons that give salespeople access to information about behavior of their leads. But CRM systems are deeply embedded in sales departments, so they block growth in that direction.  I therefore expect marketing automation vendors to instead shift toward features for acquisition marketers. These would include not just “inbound marketing” through social media and search engine optimization, but also purchasing media such as online and offline advertising.

• marketing automation can also be divided into layers of delivery systems, campaign management, and platform functions.  Delivery systems manage touchpoints such as Web sites, email, and social media publishing.  Campaign management is the rules and models to select names for promotions.  Platform functions are supporting technologies such as the marketing database, planning and budgeting, content management, analytics, and security. Current marketing automation systems do all three to the degree needed for lead nurture campaigns.  Extending to other users will require more powerful platform functions in particular. Whoever controls the platform can best expand throughout the marketing department.

• marketing automation vendors will increasingly fall into two groups: a handful of big platform vendors and larger number of small specialists. The platform vendors will offer a broad range of functions internally and further extend their range by exposing their platforms to third party developers through “app markets”. The specialists will have narrower scope but be very good at serving companies with specific needs such as low cost, marketing services, or  industry editions (for sports, investments, franchises, etc.)  Both types of companies can succeed although the platform vendors will tend to dominate over time.

• new competition will come from outside the industry, especially from delivery systems. This seems counter-intuitive: delivery systems are by definition channel-specific and function-generic (a term I just invented to mean they serve all functions within marketing, sales and service). This means they are in the strategically weak position of selling commodity products without strong ties to any particular set of users. But the delivery vendors recognize this weakness and can afford to overcome it by investing in campaign engines and platform features. This is exactly what's happening when email vendor ExactTarget purchases Pardot or Web content management vendor SiteCore adds email campaigns and a database. It (almost) goes without saying that CRM vendors are also potential competitors: they already have the platform features; what they mostly lack are campaign engines.

These trends have specific implications for marketers who are selecting a marketing automation system.  You'll need to download the white paper to find out what they are.

Can CRM Add-Ons Replace Marketing Automation?

I’ve long believed that B2B marketing automation is just a passing phase: that, ultimately, B2B marketing automation systems will be absorbed into CRM systems instead of operating independently. It’s a view I discuss sparingly in public, since so many of my friends in the marketing automation industry have a vested interest to the contrary. But there are also a few vendors who have bet in favor of merged systems, so it wouldn’t be fair to ignore their view entirely.

Vendors have made the bet by building marketing automation add-ons to a CRM system instead of building a stand-alone marketing automation product.* I wrote in February about ClickDimensions, which adds advanced email campaigns and Web tracking to Microsoft Dynamics CRM. Of course, the jackpot here is Salesforce.com. At least two vendors have tried to hit it: Predictive Response and BizConnector, whose product is Lead Follow-Up.

Of the two, BizConnector’s Lead Follow-Up is more tightly focused, offering primarily a rules engine that allows lead nurturing and other workflows. It also provides real-time alerts and landing pages. Predictive Response has a broader range, with more advanced email features, including split tests, content templates, and branching campaigns, as well as Web visitor tracking, lead scoring, dashboards, and some data cleansing on form entries. Neither matches the scope of even a mid-tier marketing automation product, but many of the “missing” features would be available in other Salesforce add-ons. So the real question is whether the core campaign management features are adequate substitutes for a marketing automation product.

That question has no simple answer. Lead Follow-Up would probably suffice for small organizations, although it’s targeted more at individual salespeople than marketing departments. Predictive Response (which I have not examined in depth) might serve small and mid-tier marketing groups but probably not large enterprises.

Beyond these particular products lies the larger question of whether their CRM-based approach makes more sense than the separate-but-synchronized platforms offered by most marketing automation vendors. Each method has advantages:

- separate systems can present specialized marketing functions without getting in the way of sales activities.

- separate systems can use database designs optimized to process the entire database at once, instead of the one-record-at-a-time transactional processing needed for sales and service interactions.

- separate systems give each department complete control over its own system, something both groups often prefer.

On the other hand….

- unified systems avoid the need for data synchronization, which reduces complexity, eases cross-department coordination, and eliminates most risk of inconsistency.

- unified systems simplify deployment and support, especially from the perspective of the IT group (although this should be a minor factor in Software-as-a-Service systems, since most work is handled by the vendor).

- unified systems should save money, although it's not clear they do in practice.

The main technical issue here is whether marketing and CRM systems need different database structures. But even if that’s true, one vendor can provide and synchronize both structures at least as easily as separate vendors. Similarly, if separate user interfaces are really necessary, one system can offer both. So the technical differences are largely irrelevant.

Instead, the argument for separate systems really comes down the political desire of each department to have its own system, and a somewhat related expectation that a vendor focused exclusively on marketing automation will build a better system than a small division within a CRM company.

I actually accept those arguments. Vendors serving either marketing or sales will probably do a better job than vendors trying to serve both. But I don’t think this will matter in the long run. As marketing automation requirements become better understood, the CRM-based products will come closer to meeting marketers’ needs. As the functional gap narrows between the two sets of products, the convenience and cost advantages of a unified system will swing the balance in their direction. This will be reinforced by the business need for tighter coordination between sales and marketing, as well as the larger role played by corporate IT groups in selecting customer-related systems. Only marketing departments with very sophisticated needs will be able to justify buying a specialized marketing automation product.

In short, the merger between B2B marketing automation and CRM seems inevitable. In the B2B world, where sales is generally the dominant department, this means that CRM will encompass marketing automation rather than vice versa. The mechanics of the process are less predictable: CRM vendors might expand their features incrementally, acquire add-on systems, or buy a marketing automation product and integrate it. Different vendors may take different paths and move at different rates. But however they get there, I think the destination is clear.

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* For very small companies, vendors including Infusionsoft and OfficeAutoPilot have made the bet by offering their own CRM / marketing automation combination.

RightNow Adds Social Community Capabilities (But Don't Expect Support Costs to Fall as a Result)

Summary: RightNow has extended its social media footprint by purchasing HiveLive, which lets companies build public and private communities. It also released a benchmark survey showing that online channels (email, chat, Web self-service) don't do much to reduce customer service telephone calls.

In keeping with my recent posts about broader utilization of social media, I had a chat earlier this week with on-demand CRM vendor RightNow , who updated me on their recent purchase of HiveLive. HiveLive provides a social community platform, which means it lets companies build their own discussion groups, forums and such. HiveLive has many features to support business communities, both in terms of engaging with customers over issues such as product features and bugs, and in terms of building internal communities such as project teams.

HiveLive fits with RightNow’s vision of giving customers a seamless flow between community applications and a company’s traditional service systems. For example, if a question posted to a forum goes unanswered for a specified time, it can be escalated into a service system as a case to be handled by the company’s support group. If I understood correctly, RightNow and HiveLive can do this already.

We discussed deeper sharing, such as having answers developed in a public forum become part of a company’s internal customer service knowledgebase. That’s something RightNow may add in the future.

Our discussion veered onto other topics, and in particular how seriously companies really take the goal of improving the customer experience. RightNow shared a copy of its recent RightNow Multi-Channel Contact Center Benchmark Report, which was interesting in its own right.

One tidbit I found particularly intriguing was how few telephone service calls are “deflected” into email, chat and Web self-service channels. In the survey, most companies reported that fewer than 10% of customers in those channels would otherwise have made a phone call.

You could see this as bad news for the theory that having alternate channels available will reduce the need for call center agents. Or you could consider it good news that customers have more choices to pick the interaction method they find most congenial.

Another interesting item was that 55% of companies have some mechanism to gather feedback from customers, but just 10% of those use an IVR survey, which I personally consider the most effective way to gain broad participation. Again, you can treat this as good news (at least half the companies are trying) or bad news (just 5% of the total are doing it effectively). Either way, it’s food for thought.