Customer Data Platforms Revisited: The Future of Marketing Data

It’s nearly two years since I introduced the concept of a Customer Data Platform, defined as a marketer-controlled system that builds a multi-source customer database and exposes it to external execution systems.  You may recall that I listed several sets of products as CDPs: B2B predictive lead scoring and customer success management; campaign management with an integrated customer database; and data management platforms to support online advertising. Systems were included only if their data (or derived data such as model scores) was available to other systems for campaigns and messaging.

All those categories have done well since my original posts on the topic. Established vendors have grown quickly and attracted funding; new vendors have joined the mix, also often with substantial funding. So I suppose I could pat myself on the back for spotting an important trend and let it go at that.

But things aren’t quite so simple. A look at the entire CDP ecosystem uncovers important patterns that are hidden when you look at individual vendors or vendor categories. Here's a summary of what I've seen.

Customer Management Functions

CDPs exist because marketers need to coordinate customer (and prospect) interactions across channels. That coordination involves three basic tasks: gathering and unifying customer data from all sources; using that data to select the best treatment for each interaction; and delivering those treatments through the appropriate channel systems. Each of those three tasks has several subtasks. These layers are illustrated by the following diagram, which includes a unified data layer – the classic CDP.

Vendor Categories

So far so good, but it’s really just theory. Things get interesting when you look for specific systems that perform the subtasks. It turns out that there are several categories of specialist systems within each subtask, each doing similar or complementary things in slightly different ways. Connecting the logical flow to actual systems is important because looking at real products tells you what the market is saying: that is, what buyers are willing to pay for and where change is concentrated.

The following table shows what I found when I did this analysis. The list of vendors in each section isn't necessarily comprehensive, especially in crowded segments like B2B marketing automation. I should also stress that I’ve only included Decision-layer vendors who also build their own database. This makes them potential CDPs and means they have many Data-layer functions. In a sublimely liberating act of inconsistency, I have NOT limited the Delivery layer to vendors who build their own database. In fact, most do not.

Investment

The right-most column on the previous table shows the level and types of investment being made in each vendor class. I haven’t collected precise details but the general patterns are pretty strong. The major observation is that current investment is heavily concentrated on the Decision layer, with interest in predictive modeling and message selection (which could also be labeled as personalization). There’s some investment on the Data layer in data gathering vendors, especially along the lines of acquisitions by big companies (Oracle/Datalogix, D&B/NetProspex, etc.). This is a general sign of maturity. Similarly, most recent investment on the Delivery layer has been acquisitions (IBM/Silverpop, Oracle/Responsys, Teradata/Appoxee, etc.), which is a sharp contrast from the heavy venture capital funding a couple of years back. Again, this shows the relative maturity of the space.

(Caveats: although it doesn’t show up in this analysis, I do still see some interesting investment in marketing automation niches such as app marketing, distributed marketing, and agency systems. I’m also increasingly intrigued at the “tag management” vendors on the Data layer (Tealium, Signal, Ensighten, etc.), which are reinventing themselves as data integration hubs. I didn’t see that one coming.)

Implications

It’s tempting to interpret these results are showing that data assembly is a solved problem, allowing marketers to invest Decision systems on the next layer down. But any marketer can tell you, and every survey I’ve seen confirms, that most companies are nowhere near having fully integrated their customer data.

What I think is really going on is that people are investing in Decision systems that build their own multi-source databases, providing both Data and Decision functions in one package. Remember that my original CDP categories included B2B predictive vendors and campaign management vendors who did exactly that. So it seems the proper way to look at things is more along the lines of the following diagram, which shows there are several different ways to solve the customer data integration challenge: you can buy a stand-alone CDP that has only data-level functions; buy a Decision system that also builds an integrated database; or buy a Delivery system that does data, decisions, and execution. As the diagram indicates, most of the Decision vendors do incorporate the CDP functions, while only a few of the Delivery vendors do.

The diagram labels the Data + Decision combination as a “Marketing Platform”.  I think this is reasonably consistent with how most people use the term, since the key feature of a “platform” is its ability to integrate with external systems for delivery and other purposes. I’ve labeled the Data + Decision + Delivery combination as an “Integrated Suite” and used question marks to show that not all suites provide a complete Data solution. This is because many suites aren’t very good at bringing in external data or letting external systems access the data they’ve assembled.

As I noted in the previous section, most of the industry funding and excitement is centered on the Decision layer, which is where the Marketing Platforms live. The practical advantage of those systems over Data-only solutions is obvious: Decision systems deliver a revenue generating application while Data-only systems do not.

But think about that for a moment.  Each Decision system builds its own multi-source database and each integrates separately with the Delivery systems.  Having multiple Decision systems is a nightmare of redundancy:

It seems pretty clear that the better solution is to have a single Decision system controlling everything, which is arguably what most people (and vendors) have in mind when they describe a Marketing Platform. Indeed, this is exactly the direction that most Decision-layer CDPs are headed, by expanding the scope of their products from an initial point solution, such as B2B lead scoring, to encompass other applications. It’s safe to say that the people who built these systems always planned, or at least hoped, to grow in this direction.

Does the growth of Decision-layer CDPs mean that Data-only CDPs will fail? I’ll admit that only a few such systems have appeared in the past two years. But I’m not quite ready to give up on the concept.

Why?  Well, as Tolstoy never said, all good customer databases look alike, but every decision system is different. This means it’s hard to support all types of decisions within a single product. So it does seem that multiple decision systems will appeal to marketers who have the skills to use them and the scale to justify the added expense. Those marketers would benefit from a Data-layer CDP, which would make it easier to deploy best-of-breed decision tools even when those tools lack data unification functions.

The stumbling block for this approach is still the cost of integrating multiple systems: as the diagram shows, there are still plenty of connections in this model. But there’s at least some hope (although I remain skeptical) that newer technologies will make the integration easier. The other bright spot for the Data-only CDPs is that they should be attractive as partners or acquisitions for Decision and Delivery systems that haven’t built their own CDP functions.


And what about the suites? I’ve said for years that the first law of software market development is “suites win”, precisely because most companies will sacrifice best of breed functionality to avoid the costs of integration. Indeed, the big marketing clouds from Oracle, Salesforce.com, IBM, Adobe, and others all include extensive Delivery layer functions. I think it’s fair to say that while their commitment to being “open platforms” is genuine, they see that as a way of letting clients supplement the core functions the suites provide internally.  This is quite different from the idea of a shared Data and Decision platform that specifically avoids offering Delivery services. Still, there’s a  very good chance that a suite which can easily integrate supplementary functions will give marketers enough freedom to overcome the problems of lock-in, while still delivering the convenience of pre-integrated core functions. So I’m not quite ready to abandon “suites win” as a rule, although I’m a bit less certain than previously.

Looking Ahead

It’s fun to handicap the horse race among vendors and categories, but what really matters is the contest itself.   All these smart people and money are finally giving marketers the unified customer databases they so desperately need.  This removes a fundamental obstacle to the cross-channel integrated marketing that everyone recognizes is increasingly important. So let’s look at the view once we've climbed that mountain.

I’d like to tell you I see a new and perfect world, but what's actually there is more mountains.  Once unified databases become available, marketers will face a new set of challenges including:

- more need for predictive models and external data. I only lump those together because they’re already getting a lot of attention. Having a powerful database just makes them even more important.

- new focus on automated content creation and campaign design. Lack of skilled users and adequate content are already huge barriers to effective multi-channel marketing.  Removing the database barrier will only make them stand out even more. So we can expect smart people to address them through technology. Indeed, there is already plenty of activity in these areas but I think it’s fair to say that so far none of vendors have had a major impact. This is arguably the next exciting frontier for marketing technology.

- more developments in cross-channel customer tracking. Again, the need for this has been obvious and some major investments have already been made. Cookies are becoming increasingly inadequate as cookie-hostile channels like mobile become more important. Marketers will soon reach a tipping point (or maybe they already have) where they realize they must abandon cookies and move on to other approaches such as device identification or external identity databases. A new standard will eventually emerge, although I can’t even guess what it might be.

- tighter integration between advertising and marketing technology. These two realms are now largely separate with a few exceptions such as retargeting. But as personalized ad messages become increasingly possible, marketers will have ever-greater incentive to target and, ultimately, coordinate messages across channels using shared data. This is highly dependent on the improved customer tracking, so it might have to wait a bit.

- better marketing attribution. If there’s a last stop on the road to marketing Nirvana, attribution might be it. Once marketers have assembled all that data and associated everything with the right customer, they’ll finally be able to deploy advanced analytical methods to really understand the long- and short-term incremental impact of their marketing efforts. Then, and this itself would be heavenly, we’ll never again hear anyone quote John Wanamaker about not knowing which half of his advertising is wasted.

Recommendations for Marketers

Nirvana is still far distant.  Marketers face immediate choices in how to spend their time and budgets. The trends I’ve just described do have some immediate practical implications. Here are my suggestions:

- Experiment like crazy. The various Decision-layer vendors currently offer different specialties, such as lead scoring vs. product recommendations vs. churn predictions. Vendors in each area are expanding their scope so there’s a good chance you’ll eventually pick one to do almost everything. To have the best odds of making a good selection, you’ll want to learn about as many vendors as possible in advance. So run tests to build an understanding of the applications, technologies, and corporate culture. The good news is that each approach can probably pay for itself in improved performance, so these tests should be more or less self-financing.

- Keep an eye out for new data. Many of the Decision-layer vendors bring their own data to the party, and evaluating that data is one part of understanding what they offer. But there are also other data sources that are not tied to a Decision system. You’ll want to explore these to understand what value they provide value and whether to make them part of your long-term data foundation.

- Plan for integration. You may not have shared customer data or decisions today, but it’s increasingly likely they’re in your future. So every new marketing system should be evaluated in part on its ability to integrate with other systems. This involves sending data to the central database and reading data from it, as well as integrating with Decision-layer systems for predictive models, rules-based selections, optimization, recommendations, personalization, and more. Even if you’re going to use an integrated suite, you’ll want to assess how easily you can supplement its functions by tying into external products, and what kinds of products are already available for integration.

Summary

The stand-alone Customer Data Platform is one solution to the challenge of providing a multi-source, shared marketing database, but it isn't the only option.  Whichever solution marketers ultimately find most appealing, they will benefit from gaining control of their data and moving on to new opportunities that database makes possible..

Marketo Conference: Small Changes, Big Picture

Marketo wrapped up its three day Marketing Nation conference yesterday, having once more displayed its own marketing prowess by attracting national media attention (see here and here) with an appearance by Hillary Clinton. Still, the real focus was on Marketo’s own announcements, which included several product changes and a new positioning. (I wasn’t at the conference but Marketo briefed me on their plans.)

The product changes were quite modest: new search engine optimization features for entry level users; a global marketing calendar; and relabeling of InsightEra, which Marketo purchased in December, as Marketo Real Time Personalization. The SEO and calendar features are still in beta and will be rolled out this spring and summer. Real Time Personalization already exists, obviously, and will remain a separate product that can work with any marketing automation system.

The company also announced a deal to use Acxiom data for personalization and, somewhat more interesting, to coordinate advertising messages purchased through Acxiom with email and Web site messages delivered by Marketo. This borders on integration of Web display with marketing automation, an extremely important trend. But it's Acxiom, not Marketo, doing the hard part of matching advertising audiences with identified individuals.

Marketo placed these changes in the context of unveiling itself as “customer engagement platform”. Ordinarily, I don’t pay much attention to these announcements: after all, Marketo has pivoted more than Ben Franklin dancing a gavotte. But Marketo had the hype-blasters turned to 11, so the news is impossible to ignore.

My main reaction was, what’s new? Marketo has described itself as a platform for at least a year now (see this press release, for example) and I’ve been talking about marketing systems as platforms for even longer. More important, the value of platforms has been widely recognized through the tech industry for decades: classic examples include Salesforce.com’s own AppExchange, Apple’s iPhone AppStore, Microsoft’s operating system software, and, going way back, the original IBM System 360. The appeal of the platform model is obvious: platform systems are quasi-monopolies (or actual monopolies), so their owners can charge high prices while the app developers compete brutally with each other and must keep prices low. Consumers are intuitively reluctant to accept the monopoly relationship, but usually trade away their freedom because no other choice available or in exchange for convenience and low total cost. App developers make a similar calculation, trading lower margins and less control for the larger marketplace and less development expense.

The trick to winning these benefits is becoming a platform in the first place. This requires a large customer base, easy access by app developers, enough power to be useful, and a barrier that keeps the monopoly intact. Salesforce.com, Oracle, IBM, Adobe, Microsoft, and other contenders to own “customer experience platforms” all did it the hard way, by first building up a big customer base for their conventional systems and then opening that universe as a platform to app developers.

Every major marketing automation vendor has tried to do the same.  But their customer bases are nowhere near as large, so what’s actually happened in most cases is that app developers have integrated their systems with multiple “platforms”.  One of the more subtle tricks in the platform playbook is to prevent this by making your system different enough from others that it isn't easy to support them as well.  This is usually done by means of a uniquely structured application program interface. But developers won’t put up with this unless a platform offers a big enough audience or other benefits to make it worthwhile. It’s doubtful that Marketo, or any other remaining independent marketing automation vendor, has the market power to do this.

Let me be clear. I’m not saying the platform approach is a bad one for Marketo.  I’m saying they lack the market strength to erect barriers to collect monopoly rents. They’ll have to keep their APIs simple enough that app developers can integrate with other marketing automation systems as well.  This means Marketo will be competing with other platforms for app developer relationships and can’t rely on Marketo-exclusive apps to attract new customers or prevent old ones from leaving. This is good news for app developers and marketers, if not for Marketo investors.

But it’s not enough to decide to be a platform. You have to decide whom the platform will serve and what functions it will include. In the case of customer management, the big question is whether the marketing system should be separate from sales and service systems. The obvious answer is they should be the same: after all, we want a unified customer experience across the entire life cycle, so all departments delivering those experiences should be on the same platform. Indeed, Marketo seems to imply as much with the term “customer experience platform”.

But in an excellent blog post describing the new positioning, Marketo VP Marketing and co-founder Jon Miller makes clear that Marketo believes marketers alone are in charge: “marketers are responsible for an all-consuming process that starts with attracting initial buyer attention and continues all the way to locking in customer loyalty and advocacy.” To remove any doubt, he later clarifies that the “customer engagement platform is the core system of record for marketing, just like CRM is the system for sales and Human Capital Management is the system for HR.”

I’d say this approach is debatable.  It will probably be harder for a marketing-owned system to integrate with customer-facing systems in other departments. Certainly other “marketing cloud” providers like Salesforce.com and Oracle would argue otherwise – that, at the least, there should be a shared customer database, and probably some shared processes to select customer treatments, even if those treatments are delivered by channel- or department-specific systems.

Marketo’s conclusion does position them as the best choice for marketing buyers, since they are the only marketing platform vendor with such a limited scope. To quote Miller again: “The marketing platform provider should be a partner to marketing, a company that truly understands what’s happening in marketing and that 'has marketing’s back'. Your marketing platform is not an add-on to sales technology, or a component of an IT solution. It’s the core foundation to all aspects of marketing success. That’s why at Marketo, we think that a marketing platform should come from a company 100% focused on marketing.” Fair enough.

The second big question is what’s included in the core platform and what’s provided by partners. In many ways, this is where the discussion moves from theory to reality, since there are specific choices to be made. Marketo’s published diagram lists three major functions at the platform layer – decisioning (a.k.a. “the brain”), database (“marketing system of record”) and analytics. They put an application layer on top of that, including marketing automation, interactions (real time personalization, search engine optimization, social marketing), and operations (marketing management). The third layer includes delivery in different channels (email, social, landing pages, sales, web/mobile personalization, search). APIs are available to connect each layer to third party applications.

My own definition of the platform layer is pretty much the same as Marketo’s. But Miller’s post lists six components of a marketing platform, corresponding to both the platform and application layers. And Marketo actually delivers functionality across all three layers. In other words, Marketo is not actually selling the platform by itself: it sells the platform in combination with applications and delivery systems, some of which are included and some of which are optional.

At first I thought this violated the platform concept, since the vendor’s own tools will likely have tighter integration with the rest of the system than the APIs make available to third parties. But, on reflection, there’s no requirement for a platform to be fully “application neutral”. Marketo seems to be proposing to sell a basic set of applications and delivery systems and let clients supplement them with third party applications as needed. APIs are an escape hatch for emergency use only, not Lego blocks that let users build a custom collection of products from scratch.

There’s a good case to be made for bundling the platform with applications and execution systems, boiling down to that it saves marketers from having to make a lot of choices before they get started. It also justifies a much higher price than the platform alone, especially if the monopoly position is unavailable. Of course, this ends up looking an awful lot like a traditional marketing software suite, which is exactly what Marketo was and remains under the hood. Marketers excited by the platform vision should look very closely at the reality before assuming that Marketo, or anyone else, can deliver the benefits they expect.

Vocus Purchased by Private Equity Firm GTCR: This Could Be Interesting

Vocus announced on Monday that they were being acquired by private equity firm GTCR  for $446.5 million in cash, a premium of 48% over their stock market price. It’s still a modest multiple of 2.4 x revenue, compared with the 6 to 7 x multiples paid for ExactTarget and Responsys by Salesforce.com and Oracle and the 14 x that Marketo commands in the stock market. I can think of several reasons for the discrepancy: GTCR isn’t a big software company looking to fill out an existing marketing suite; Vocus sells mostly to small business, not enterprises; Vocus hasn't created enough buzz.  But the main reason is probably that under 15% of Vocus' 2013 revenue came from its marketing automation products.  .

Vocus has been working hard to change its profile. When I wrote about them last July,
they had already created a Marketing Suite separate from their PR Suite. At that time, the marketing product was missing key marketing automation features including lead scoring, multi-step workflows, and integration with Salesforce.com. Those were all added last month.  Based on a preview the company provided me in February, the implementations are more than adequate for the small marketing departments that are Vocus’ core customers.  To give a flavor for the implementation: 

• lead scoring holds separate scores for attributes and engagement activities; can assign activity points based on recency and frequency of email, Web visits, landing pages, and news release activity; and automatically recalculates scores over time.  But it only allows one score per customer.

• workflows are built on a graphical flow chart; support yes/no branching on attributes and activities; can execute next steps immediately, after a specified period, or after an action is completed; and support actions including send emails, add the customer to another workflow, update a list, update a contact record, and remove the customer from the current workflow.  But it doesn't support a/b splits within the flows.

• Salesforce.com synch is bi-directional and works with lead and contact records.  But it doesn't (yet) synchronize opportunities or custom objects.

Email, landing pages, behavior tracking, and reporting were already available in Vocus Marketing Suite, so the new features mean that Vocus now ticks all the major marketing automation boxes. It also still provides the advanced social media monitoring and influencer identification, press release posting, and local directory submission services that most competitors do not.  Plans include an expanded partner marketplace to make third party integration easier, expanded social marketing including social sign-on and social media campaigns, and anonymous visitor tracking without relying on cookies.  The vendor will also increase the sophistication of its core marketing automation functions, adding features such progressive forms, dynamic content, a/b testing for landing pages, and synchronization with additional Salesforce.com objects.

Beyond all that, my February notes include some vague but intriguing mention of automated analytics to help marketers do more effective lead scoring, segmentation, and workflow design. That kind of automation could be the key to expanding the number of marketing departments who can take full advantage of marketing automation opportunities.

To sum things up, GTCR has bought itself a very competitive marketing automation product for small to mid-size companies.  It will still mostly sell the business marketers but the social media, directory listings, and press release functions give Vocus more opportunity to serve consumer marketers than usual. The company now reports more than 8,000 marketing automation users,. expected to yield $40 million in bookings in 2014.  This easily makes it one of the largest stand-alone vendors in the industry. If GTCR allows Vocus to spend more freely on marketing and to continue improving its product, there is a good chance that Vocus can elbow its way to a top position in the hyper-crowded SMB marketing automation universe.

Yesterday's News: Marketo Plans IPO, Eloqua Eyes B2C

There were two bits of news from Marketing Automation Land yesterday: Marketo announced it has filed a draft registration statement for an initial public offering, and Eloqua CEO Joe Payne was quoted as saying his company plans to expand into business-to-consumer marketing.

The Marketo news is long-expected. CEO Phil Fernandez said last September that the company planned an IPO for first half of 2013, so they are pretty much on schedule. Of course, it’s still possible that someone would purchase the company instead, but the asking price is probably too high, and the prospect of an IPO just made it higher. No word on timing of the actual filing. Hopefully this means we soon get to see a filing statement with lots of juicy financial details…my mouth is already watering.

I have little doubt that Marketo can manage a successful IPO.  But it's less clear it can survive long-term as an independent company.  Previous marketing automation leaders including Eloqua, Unica, and Aprimo all ended up as part of larger organizations.  The fundamental reason is that marketing is ever-more-closely related to other business activities, as companies strive to provide an integrated customer experience.  Clients prefer to buy complete, integrated suites for all customer-management functions.  They good news for marketing automation vendors is that they can plug a gap that many big vendors need to fill.

This makes Eloqua's plan to pursue B2C marketers even more interesting.  Perhaps it they aren't really plans -- it was just a comment in a phone call, which I didn't hear myself.  But my immediate reaction is that Oracle already has a B2C marketing system, cleverly called Oracle Marketing and derived from its Siebel acquisition.  I've never heard an enthusiastic comment about the system, but as I recall from the last time I looked at it -- many years ago -- it was reasonably capable.  The only reason I can see for Oracle to use Eloqua as a B2C product is that Eloqua is a true SaaS offering, while Siebel was originally engineered for on-premise deployment and is still largely oriented that way.

This is pretty much consistent with a presentation last week by Oracle CEO Mark Hurd, along with Payne and Oracle EVP for Product Development Thomas Kuria. They set out a broad vision of customer experience management that included content management, social relationships, marketing, e-commerce, sales, and customer service, with Eloqua as the marketing component.
 

I wholly agree with the theory.  As I wrote recently in Why is B2B Marketing Automation Growing So Slowly?, today's marketing automation manages just one slice of the customer life cycle, and indeed just one slice of the acquisition cycle. Marketers need a broader system that itself fits into a larger puzzle. Oracle’s presentation showed they understand this quite clearly, and see exactly how Eloqua contributes to a solution. In this context, using Eloqua for B2C makes sense, since there’s no distinction between a B2B marketing cloud and B2C marketing cloud.


But the real world is more complicated than the picture suggests. B2B and B2C marketers have different requirements. Eloqua is more flexible than most B2B marketing automation systems but still can't match a good B2C system. The biggest issue is data structure: Eloqua is built around a standard model based on CRM systems.  It does let users add auxiliary tables but even those are subject to some constraints. A true B2C system can accommodate any data model. There are also issues of scalability and of specialized needs such as programs with hundreds or thousands of segments. It’s hard to imagine Eloqua competing in the top tier of B2C. It might be able to support mid-size B2C systems, but that doesn’t seem to be Oracle’s intent.

Oracle’s diagram might make  you think they have actually addressed this issue by replacing Eloqua’s own database with a “customer experience foundation” that includes data management and integration, along with automation, decisioning, collaboration, and business intelligence. That would be really great: one database to serve all the customer experience business functions, including marketing. But, alas, that’s not how Oracle does it. Each component of its customer experience cloud is a separate software application, many of which were purchased. Oracle does some data synchronization and sharing of certain functions, but that’s it.

So we're back to where we started: with an essentially separate Eloqua that is is engineered for B2B marketing automation.  Oracle has the money and engineering talent to rebuild Eloqua to meet B2C needs, but their track record for enhancing acquired products isn't good.  If Oracle wants a serious B2C cloud marketing product, it will probably need to buy something else.