Acquisitions Reshape the Marketing Automation Landscape
Unlike their hyperactive younger brothers in business-to-business marketing automation, business-to-consumer marketing automation vendors have been a quiet group in recent years.
Most of the companies spawned during the first Internet bubble of the late 1990s vanished altogether or were assimilated into enterprise software suites. The handful of remaining independents - primarily Unica, Aprimo and Alterian - made few changes to their core products, expanding instead through acquisitions and limited organic growth.
This all changed in late 2010 when IBM acquired Unica for $480 million, followed by Teradata's purchase of Aprimo for $525 million. The prices are eye-popping: four to six times revenue and 50 or more times earnings. Observers could ask whether the buyers were insane, saw value that others had missed or hungered to join the second Internet bubble. Perhaps it was a bit of all three.
For the sake of argument and charity, let's focus on possibility number two. What value do consumer marketing automation systems bring to IBM and Teradata? What do the acquisitions mean about the future of marketing technology?
Two fundamental scenarios justify the Unica and Aprimo transactions.
Fragmented marketing systems will need to be replaced by integrated marketing suites. This is the vision that Unica, Aprimo and Alterian were already chasing in recent years. So were the two other big players in the market, Teradata and SAS. It's why they have all steadily expanded their products' scope and why SAS purchased AssetLink in February.
The argument for consolidation is primarily that marketing itself has become more integrated, as interactions across all channels are increasingly coordinated to provide a unified customer experience. Oddly enough, this coordination doesn't necessarily require you to link actual customer identities across those channels: so long as you can target messages by segment, people will be treated consistently across all channels. (Of course, this assumes that the segment messages themselves are coordinated across channels.)
Cross-channel coordination is still more dream than reality at most companies, but IBM in particular seems willing to invest in the missionary work needed to make more marketers aware that it's proven and practical. This won't be easy; until now, most big marketing automation systems were sold to database marketing specialists within marketing. Features with marketing-wide application (such as centralized planning and budgeting, shared content libraries and cross-channel performance measurement) have gained little traction, although interest has picked up a bit in the last year or two.
The fundamental problem is that database marketing remains peripheral to many marketing departments. Attention and budgets are still dominated by mass media advertising, which is created, purchased and measured outside of the marketing automation system. Even the Internet hasn't necessarily changed things. Much Web advertising is purchased like traditional media, based on audience reach and frequency with minimum attention to building database-marketing-style relationships.Until relationships replace mass media as the focus of the chief marketing officer's attention, demand for integrated marketing suites will remain limited.
On the other hand, imagine a world where that demand does exist. Marketing automation systems will be the center of large integration projects, generating revenues for hardware, software and services that dwarf the revenue from the marketing automation software itself. Corporate IT departments will be deeply involved in the purchase, implementation and operation of the marketing automation systems. Big projects run by their friends in IT? You can see why IBM and Teradata would be very interested.
Marketing becomes a branch of analytics. There's a plausible argument that all types of marketing, including mass media, will soon be devoted to targeting messages at individuals. This includes the anonymous, segment-based individuals described earlier. In this world, marketing victory goes to the best data and the best analytical tools. Marketing automation systems provide those tools. Marketing automation systems orchestrate database, analytical and customer-facing systems to select and deliver appropriate messages across all channels. In this scenario, marketing automation systems drive related systems, both in terms of encouraging their development (bigger data warehouses) and pulling through related products (systems in the same software suite as the marketing system).
These scenarios overlap substantially, but the second doesn't rely on marketers moving their entire organization onto a single integrated platform. Indeed, functions that don't relate to managing specific interactions could remain completely separate, such as planning and media buying. Even cross-channel integration is less central to the scenario, since analytics can be applied effectively to one channel alone.
Precisely because the second scenario doesn't require so much change, it seems more plausible than the first. Major departments within marketing, such as a Web group, can buy and run analytical systems without support from a visionary CMO. They might be able to use them through outsourcers or software as a service vendors, further reducing the need to involve corporate IT. This scenario ultimately yields more total business for the vendors, even if the individual projects are smaller.
We still don't know whether either approach will create enough business to justify the acquisition prices. But unless you're a stakeholder at IBM, Teradata or a competitor, why would you care? There are a few implications.
If the major vendors focus on integrated marketing suites, they'll educate IT and senior management about the value and methods of marketing integration. This will be good for marketers who want to do such projects, although they may be less pleased about losing some of their autonomy.
A focus on integrated suites could also lead major vendors to ignore marketers who don't want to or can't afford to buy them. This is mostly a good thing: it will open opportunities for other marketing automation vendors, resulting in greater innovation across the industry and, eventually, more products for marketers to choose from.
If the major vendors focus on analytics, they'll chase a broader range of clients and explore options such as cloud-based solutions more aggressively. This will make it easier for marketers to find customer targeting solutions but creates a tougher environment for competitors. It does leave a relatively open field for other types of marketing systems, such as planning, media buying, project management and content libraries.
Smaller competitors will emerge to serve clients who are too small to interest IBM or Teradata or who simply want something those vendors don't offer. Even though Unica and Aprimo may themselves fall into the black holes of their new corporate parents, a spray of small new stars will emerge to meet marketers' needs. With the original marketing automation vendors now almost completely gone, the ground is now clear for a new crop.