2005 Dec 01

The Market for Marketing Automation Systems
David M. Raab
DM Review
December, 2005

2005 has been an unusually eventful year for marketing systems. The vendor consolidation that began with the bursting of the tech bubble has run its course and the contours of the future marketplace seem clear. Of course, the future has a way of defying expectations, so nothing is certain. But like the D-Day general who recognized that long range weather forecasts were unreliable but still required them for planning purposes, let’s plunge ahead regardless.

We’ll start with the market today. What had once been a fantastic profusion of choices among all types of vendors has consolidated into a much simpler landscape. The past year has seen acquisitions of one-time leaders including Siebel, Epiphany, DoubleClick’s SmartTouch and Ensemble products, and Paris-based AIMS Software. There now remain only two major vendors focused primarily on marketing automation: Unica and Aprimo. And you could argue that Aprimo is as much a marketing resource management (MRM) company as a marketing automation vendor. (Marketing automation is mostly campaign management and analysis; marketing resource management is more about planning, project management and content distribution.)

But while Unica and Aprimo may be the last ones standing in their niche, buyers have other choices. Marketing automation functions are available from several other types of companies including:

– enterprise software vendors such as SAP and Oracle. This sector itself has consolidated, most notably with Oracle’s purchase of PeopleSoft. The enterprise sector has largely absorbed the enterprise-level customer relationship management (CRM) systems through acquisition and in-house development. Although the enterprise software vendors has tried to penetrate smaller businesses, they still sell primarily to multi-billion dollar clients.

– analytical system vendors including SAS, SPSS and Teradata. Unica arguably falls into this category as well–it started out in predictive modeling–but analytics is no longer Unica’s primary business. These vendors generally sell their marketing automation systems to companies who have already purchased others of their products. But they have such broad penetration that this still lets them compete in a great many situations.

– specialist vendors. Over the past few years, marketing automation vendors have steadily expanded to incorporate planning, budgeting, project management, email, and real-time interactions. The business logic is impeccable: expansion generates incremental revenue, makes them harder to displace, and helps compete with the still-broader scope of CRM and enterprise systems. But it also adds complexity and cost and conflicts with optimization for specific functions.

In particular, marketing automation requires use of standard relational database technology. This can never be as efficient as specialized engines for high-volume data analysis and segmentation. Such engines were at the heart of early campaign management systems but were largely superseded by standard relational databases when marketing automation products emerged.

Yet the laws of physics still apply: the specialized engines remain faster, often by orders of magnitude. Vendors with such engines, including smartFocus and Alterian, never quite went away, although they did lose the spotlight. Other vendors, including Decision Software Inc. and CampaignRunner, apply tailored processing methods to standard relational engines and have also prospered quietly. Today both groups offer an appealing combination of low cost, high performance and sophisticated functionality to companies needing serious campaign management but not necessarily the other components of a marketing automation package.

A different set of products, including Harte-Hanks Allink Agent, Synapse Technologies Synapse EBM, MarketSoft DemandMore Insights, and Fair Isaac OfferPoint, use other specialized technologies to help identify complex patterns in customer behavior.

Taken together, these groups of competitors form a remarkably simple market structure. Full-scope enterprise vendors are on top; analytical, marketing automation and marketing resource management suites share a layer in the center; and specialized point solutions sit below. It’s obvious that the marketing suite vendors in the middle level will continue to expand into each others’ territories, so the distinction between analytical, marketing automation and marketing resource management will largely disappear. This will make the picture still simpler.

But we should always consider the unexpected. What forces might disrupt this remarkably placid scenario?

– Hosted systems are an obvious candidate. Already a growing force in CRM and a presence in MRM from the beginning, they are not yet a major factor in campaign management and analytics. The obstacle seems to be the large amount of custom development required to build a serious marketing database. This is the antithesis of the hosted business model, which is based on the economies of standardization. Still, hosted vendors like Salesforce.com are increasing their integration and customization abilities. They are even adding plug-ins to support the most challenging of all marketing database tasks, customer data integration. So hosted systems may yet become a significant force in marketing automation. From another perspective, traditional service bureaus–which have always applied standardized processes to build custom databases–could be considered a hosted solution that already has a major market share.

– Serious breakthroughs in system integration are another possibility. Enterprise suites owe most of their attraction to the savings they offer compared with buying separate systems and linking them. If technologies such as service oriented architectures actually live up to their hype–always a big if–then the virtual stranglehold that enterprise system vendors have on large customers might be broken. This would give marketing suites a greater chance of penetrating the large organizations that are in some ways their natural customers. Of course, if integration were easier then the marketing suites themselves would face renewed competition from marketing point solutions. These point solutions could also include systems to coordinate and optimize customer treatments across all channels, separate from the channel systems themselves. Such products have existed for some time but had little market success.

– Personal marketing channels. Mass media are far from dead, but what if blogging, pod-casting, social networking, and other sorts of person-to-person communications truly did replace them? Marketers would need new systems and techniques to penetrate, monitor and influence personal networks. Even if such networks sold access to themselves, the sheer number of opportunities and the huge variations in their effectiveness would require new technology to manage the purchases effectively. And if paid advertising were not an option, even more sophisticated approaches would be needed to deliver marketing messages. Some existing techniques used to manage Internet ads and search page listings would be relevant, but many more would need to be developed and refined.

– Ubiquitous personal data. Even though more information is gathered today than ever before, there remain many practical constraints on how much data most businesses can assemble about their customers and prospects. But it’s possible to imagine a truly transparent world where all sorts of behavioral information is captured and merged into a central source that is commercially available at an affordable price. Astonishing improvements in marketing and service efficiency would become possible, and competitive pressures would force firms to pursue them. A wholly new set of data- and computation-intensive customer management systems, most likely from new rather than existing vendors, would emerge.

– Serious privacy legislation. This is the opposite of ubiquitous personal data, and even less likely. But if some inconceivable political development resulted in effective limitations on business use of personal data, marketing systems would need to compartmentalize data access, provide granular management of customer permissions, and preserve anonymity when required. In many cases it would probably be more efficient to replace existing systems than modify them. This would also provide an opportunity for start-ups to compete with established vendors.

As these examples suggest, disruptive change could come from technical, business or political directions. It’s intriguing that the non-technical possibilities listed above all point in the direction of more personalized interaction management and away from the segment-based, campaign-driven programs of traditional marketing automation. But this is far from conclusive: the change that will really turn out matter may be something else entirely. What’s important to recognize is that change will happen, and the simple, mature market of today will not last forever.

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David M. Raab is a Principal at Raab Associates Inc., a consultancy specializing in marketing technology and analytics. He can be reached at draab@raabassociates.com.

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