With a quick examination of recent financial events, marketing software is arguably one of today's hottest enterprise technology sectors. Eloqua was the latest company to join the class of marketing technology IPOs with the likes of Responsys, ExactTarget and Bazaarvoice. The venture capital pipeline has been strong, and merger and acquisition (M&A) activity has accelerated recently a number of social media marketing companies being snapped up by behemoths like Google, Oracle and Saleforce.com.
According to industry research, big investments (and big bets) are being made in this space. Gartner estimates that about a third of marketing department expense budgets is devoted to purchases such as systems to manage customer relationships, predict customer behavior, and run online storefronts. In total, Gartner says companies spent up to $25 billion worldwide on marketing software last year, up from about $20 billion the previous year. By 2017, the research firm is predicting that CMOs will spend more on IT than their counterpart CIOs. Seeking to take advantage of this tremendous growth opportunity, Salesforce.com CEO Marc Benioff recently vowed to investors that marketing will be the company's next $1 billion business.
Data-Driven Science
Why the investment and optimism? Simply put, marketing has become a data-driven science requiring insight and execution, CMOs are getting a voice in Board-level discussions, and customers are holding all the power. The fact is consumers' lives have become increasingly digital—which plays a significant role in how they interact with brands. Both B2B and B2C brands have to be present and market where their customers are. As a result, brands are being forced to completely re-architect how they engage and drive the customer experience across email, social, mobile and web-based channels, along with existing interaction channels like direct mail, point of sale, call center, kiosks or ATMs.
To meet rising customer expectations, brands need to engage consistently across established and emerging communications channels in a meaningful, personalized and interactive way. The reality can sometimes feel like the complete opposite, and that reality is creating pressure on CMOs. Recent findings from The CMO Survey found CMOs to be generally pessimistic about the outlook for the U.S. economy. According to the survey, "CMOs expect competition to increase, including a larger number and more rivalry among competitors. Softer interest from customers and more intense competition for these customer dollars are the likely causes of this pessimism."
Innovation Is Being Driven by Emerging Growth Companies
While there is innovation happening in the digital marketing technology space aimed at helping brands take advantage of the "always-on customer" and better position against competitors, that innovation is largely happening among start-up and emerging growth companies. This trend can be observed in other sectors, including biotechnology.
Even SAP admits it's a challenge. At a recent SAP innovation conference discussing the company's work with startups, Jason Yotopolous, the executive vice president of global research and business incubation at SAP, said, "innovation is a challenge within a big company."
As a result, many large, established vendors are seeking to compete for the CMO's budget by filling in gaps in their portfolio or establishing digital marketing capabilities for the first time through acquisitions. Many vendors have started with social media marketing acquisitions – in part because it's the hottest sector. Consider recent examples including Wildfire (by Google), Buddy Media (by Salesforce.com), Vitrue or Involver (both by Oracle) and Yammer (by Microsoft). Now, those vendors will need to look beyond their shiny new social tools to fill in other critical pieces of the integrated marketing puzzle.
The Integrated Marketing Puzzle
What does that integrated marketing puzzle look like? What's the impact on the customer experience? Essentially, it's a new paradigm for building and sustaining customer conversations across inbound and outbound communications channels. It's no longer just about campaign management; it's about establishing an entirely new architecture built to support next best offers and next best actions—in other words, real-time recommendations based on customer context. That context must take into account a propensity to buy based on a customer's profile, the customer's lifetime value and where that customer is in their lifecycle with a brand, as well as specifics like device, geo-location and e-commerce channel preference – including web or mobile app. Conversational marketing – this is where innovation needs to be focused.
According to Gartner's Adam Sarner, "digital marketing represents a shift in strategy and approach, not just in channels. Although traditional campaign management thinking involves executing campaigns directly to the customer, successful digital marketing must act more as a mutually beneficial journey aimed at satisfying customers' wants and needs. This is a customer-focused strategy approach that will profoundly shift traditional campaign management strategy."
M&A and Innovation: Does History Predict the Future?
Similar to the post-recession years in the mid-to-late 2000s that saw CRM M&A activity like DoubleClick buying Protagona, Amdocs acquiring Xchange, SSA Global purchasing Epiphany, and Oracle snagging Siebel, we are now in a cycle, with consolidation driving opportunities in the marketing technology space. Software-as-a-Service (SaaS) is also changing the game and accelerating that consolidation.
The usual tech suspects like Adobe, Oracle, IBM and Salesforce.com are poised for continued investments, particularly in SaaS, but which other companies—perhaps just off the radar—have the potential to fuel the next wave of marketing technology M&A activity? Here are some to consider: SAP, EMC, Xerox and HP.
SAP: In keeping with its push toward cloud and mobile computing, SAP has made aggressive moves to strengthen its SaaS play, including the multi-billion dollar acquisitions of Ariba and SuccessFactors. Is the company missing the boat on marketing technology? Or maybe HANA, SAP's new Sentiment Intelligence solution that allows organizations to scan and analyze customer sentiment from social networking sites, is a signal of additional marketing-related investment to come? Imagine if SAP were able to take that analysis further by extracting customer insight from individual social profiles—with permission, of course—and bringing it into a central marketing database to drive highly targeted marketing messages and offers.
EMC: Increasingly, marketing is all about collecting, managing and getting insight out of big amounts of data in order to drive the appropriate next best action or offer. So, much like Teradata's acquisition of Aprimo, it's possible that EMC and other big data players will start making moves in the digital marketing space. After all, data is the oil of marketing, and having an integrated marketing platform with a direct pipe to massive data repositories is an attractive proposition.
Xerox: Direct marketing and document management, generally speaking, have historically been huge revenue drivers for Xerox. To remain competitive and to identify new and higher margin revenue streams, the company must travel up the digital marketing food chain. It needs to evolve beyond a commoditized fulfillment space to take advantage of new channels to both engage with customers and support new product and services offerings – if it can afford it!
HP: With a fiscal third-quarter loss and overall results called "better than feared" by industry analysts, Hewlett-Packard seems to be trolling the information management and analytics waters – similar to IBM's previous approach. Perhaps in an effort to bolster its enterprise business and balance slumping demand for personal computers, we could see more activity from HP as Meg Whitman continues to address her turnaround challenge. Like IBM started to do, it's a logical play to couple analytics with integrated marketing in order to make big data actionable to inform decision-making and drive more effective campaigns.
The Bottom Line
Most large enterprise software vendors are missing significant opportunities in digital marketing—while still playing catch-up in SaaS. And brands that are relying on those vendors to support increasingly complex customer engagement strategies will suffer as a result. Buying siloed point solutions – like the social media marketing tools we've seen over the past several months – is a short-sighted strategy.
To support brands' fight for customer loyalty—and share of wallet—there must be a more comprehensive strategy to deliver exemplary customer experiences by seamlessly coordinating messages and offers across all offline and digital channels: point of sale, direct mail, call center, social, mobile, web and email. This spectrum of channels, which must work in harmony, represents the next generation of marketing technology opportunity, investment and innovation. It will be an interesting race to watch – with a range of competitors with skin in the game, from large enterprise software to media companies like Yahoo and Google. And, despite Benioff's vow, combined with increasing evidence that businesses are becoming more comfortable buying technology from start-ups, the winner is anyone's guess.
Stephan Dietrich is president of Neolane Inc.
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