An End of the Anarchy in Marketing Technology?

News broke recently that Intuit off-loaded DemandForce.Intuit, long known as a leader in bookkeeping and tax prep software for small businesses, had purchased DemandForce in 2012. It was a part of a trend nearly all of the brands that serve small business followed: building or buying software to help with marketing.

Now with Intuit going the other direction, and abandoning marketing software, does this mean that the rush of brands large and small getting into marketing software is over and that a big consolidation has begun? To answer that question fully, let’s take a brief look at the history of small business purchases for business needs.

In the old days, a typical small business would very likely have bought checks from Deluxe, used Intuit software to print the checks, then would have purchased an ad in a book with yellow pages, designed the ads using an Adobe product, and kept track of sales leads with Salesforce or ACT! on an IBM computer, and then later got a website domain from GoDaddy and built a site on Web.com. These days, every company in that hypothetical case — every single one — has a marketing automation solution. Well, now with the one exception of Intuit.

What’s next? Are the car companies going to get into marketing automation? Don’t laugh. Tesla has said that it’s not really a car company, it’s really a software company, which is true enough, and was also true when Marshall McLuhan said essentially the same thing about GE and lightbulbs back in 1964.

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So the question is this: Does this streamlining by Intuit mean the tide is turning? Does it mean that companies who serve small businesses and agencies will decide to stick to their knitting, and just do one thing well?

In other words, in the way that we may have already passed Peak Oil, and we are probably at Peak TV right now, have we passed Peak Marketing Software? I think the answer is yes. 

Survival of the Product-Market Fittest

So, who will survive? As with any category, the winners will be those who do the best job of helping their customers. In this case, it will be those who can make modern marketing work for businesses with minimum hassle. While it’s easy to think that Software as a Service companies doing similar work could exist by the thousands because the costs are so low to run a SaaS operation, the reality is different. It’s certainly easier and cheaper to maintain a SaaS platform than it is to build and maintain installed software. And the business model for a subscription SaaS company is almost infinitely more valuable than just about any other business model.

But the costs of building and maintaining such a platform are not zero. As with almost any industry, it costs money to create something of value to businesses. And the businesses do not have a lot of time to spend researching all their options.

The small- and medium-sized business operators in the United States are the one group of people that growth in the economy depends on. So, they are amazingly productive. But they are busy. That’s why I think the tide has indeed turned, and we have passed Peak Marketing Software.

Now, the consolidation will begin. You read it here first. That’s not to say that the crazy-big graphic on ChiefMarTec will be shrinking anytime soon. But the reality for most small businesses is that within the next couple of years, the choices for marketing software will become fewer, but more complete and more competitive.

Instead of one small business needing a potpourri of, for example, an email tool, a keyword service, a marketing automation suite, a CRM and an analytics tool, it will be able to go to one company to get the whole stack, something that essentially never happens now. Even now, the smallest businesses need to assemble some kind of “stack,” even if they don’t even know it’s called a “stack” (and that there’s some cool ways to visualize that stack).

Sometimes that consolidation will be specific to one industry. The news about Intuit getting out of the marketing business came with the news that the acquiring company, Internet Brands, will use the marketing software to complete a software stack built specifically for the healthcare industry. By focusing on that industry, Internet Brands is betting that it can provide a complete solution and crowd out others who focus on tools for all, and not one particular industry.

Is that a winning strategy? Unclear. We’ll keep our eyes on that one. 

Which Marketing Technology Players Will Dominate?

Other marketing software providers, meanwhile, seem to understand that small and medium businesses, and the agencies who serve them, are looking for more features from one place. Take HubSpot, for example. It built a reputation as being a leader in the “inbound marketing” idea, the concept that businesses should build sites and content such that buyers will come looking for them. It focused hard on that one concept, and it worked. The company continues to grow and is now publicly traded.

But its announcements since going public signal a clear intention to grow beyond just inbound marketing to attract buyers. Its two biggest announcements since the IPO have been the addition of a CRM (competing with Salesforce, et. al.) and an Adword tool (competing with WordStream et. al.). Still, there’d be no way for HubSpot to compete with Internet Brands for 100 percent of the software needs of any one particular healthcare provider.

Will HubSpot keep adding tools until it can do so? That will be interesting to watch in the coming months. And is HubSpot really competing with Salesforce? The two have said publicly that they will remain friends, but I get the feeling that they are publicly shaking hands for the same reason that shaking hands was invented: To make sure there’s no weapon in the hand.

Both Salesforce and HubSpot are fast-growing and have been for a while. Salesforce has a head start, and its $47 billion market cap dwarfs HubSpot’s cap of less than $2 billion. Still, HubSpot’s “Inbound” conference is growing at a similar clip to what “Dreamforce” did in its early years, and the customer count, revenue growth and headcount are all reminiscent of Salesforce in the early years.

Before 2013, Salesforce was somewhat agnostic about marketing automation, and HubSpot, Pardot and others had an equal presence at Dreamforce. Once Salesforce acquired Pardot, all that ended. So, now a business can get a similar stack of marketing and CRM tools from both of those big players, meaning that there are two choices there. Are there others that can compete? Certainly the teams from marketing automation companies such as Marketo, Act-On, Infusionsoft and others would say that they can. And so do nearly all of the big software brands, including Microsoft, Adobe, IBM and Oracle. 

So How Do the Smaller Players Fit In?

Every company in the marketing world has its own story, its own plan for growth and finding its way in the market, but sometimes they are subject to the big trends in the industry. How they fare in the face of those trends depends a lot on their individual characteristics. Take Constant Contact, for example, the beloved email tool of small business. Can Constant Contact translate that love into selling a much broader toolset? I imagine that when Endurance International, owner of such brands as HostGator and Domain.com, decided to buy Constant Contact, it was hoping so.

Or consider GoDaddy, which has literally millions of people paying it every month for bare bones domain and web hosting services, yet its customer loyalty seems to be remaining high, or even growing, now that it’s publicly traded. Will that massive installed base mean that it can build a full marketing stack that really catches on for small business, or will a larger player purchase all of GoDaddy in hopes of integrating those small users into a larger software suite? These kinds of questions play out nearly every day for just about every company in the marketing technology space.

Smaller players are all trying to build alliances, integrations and partnerships with larger players, hoping that they can be part of a stack while growing and thriving on their own. But they may not be able to remain independent for long. The larger players will be looking for strategic advantages to compete with the other large players. The only way to lock up the smaller players and ensure that their key differentiators benefit only one of the larger players is for the big guys to gobble up the small guys. Longtime merger and acquisition experts say that’s the way it’s played out in industry after industry, and marketing technology will be no different. 

Why Consolidation Is Good for Business Users

And for the businesses and agencies using online marketing tools, at least some consolidation would clearly be a good thing. The choices are so huge and overwhelming at the moment that many of the smaller operators just freeze up. This is actually bad for businesses, and here’s why: Marketing is essential to growth, and yet only a small percentage of businesses are using any kind of marketing automation, in part because the choices are just so overwhelming. Show that crazy-big ChiefMarTec landscape to a florist and watch as her eyes quickly glaze over. There’s a huge amount of growth available for marketing SaaS companies, but one of the key obstacles is simply a noisy environment for marketing choices.

Let’s take a couple of examples to show what I mean. 

Example 1: The Symbiotic Relationship Between Content, Search & Adwords

Think about a midsize home services provider in a big metro area. Clearly search is crucial to success, so that plumber or HVAC repair shop may dump a huge amount of money into search ads. If that dealer doesn’t use some kind of Adwords management tool, those ads may be way more expensive than they need be. And if the service provider doesn’t do any content marketing at all, the quality score of its site won’t be as high, so it will have to pay even more for ad positions than it would if it just invested a small amount in content marketing. But a lot of plumbers just don’t get that, and they don’t understand why their competitors are eating their lunch online because they just don’t understand the connection between regular blog content and site performance, let alone the connection between content and Adwords pricing.

Blogging and other content marketing really works for small business, but the businesses have trouble seeing that connection, so they produce no content, and then pay way more than they need to for search advertising to generate any new leads. A marketing software solution that addressed that fact head-on could end up saving businesses a ton of Adwords expense and make their own value proposition that much stronger. Right now that doesn’t really exist. 

Example 2: The Danger of Cookie-Cutter Websites

Let’s think now about a small law office. This law office may have been using the same tools for legal research for decades, so when the sales rep from Lexis-Nexis or Thomson comes around and says that it can provide a website for the office, too, that lawyer often says yes. The problem is that (in my opinion) those websites are horrible cookie-cutter sites so ugly that if they were cars they’d scare the rocks off the road. Potential clients window shopping the site will be turned off. Now, even a giant company like Microsoft or Oracle is probably not going to have the legal research tools that law offices need, so lawyers will need to have at least two providers, one for legal tools and one for marketing.

But to ask a busy lawyer to have more than one marketing tool is asking a lot, which is why consolidation will help get lawyers an ability to have a site that actually works to help them get new clients, instead of just paying obscenely high rates for sites that act as little more than a business card stapled to a bulletin board at the library. 

Example 3: The Death of the Salesman

The legacy phone book publishers understand better than anyone that the days of making a ton of money publishing those books are past. They did make a lot in the day, however, and some of them are still sitting on considerable cash reserves. All of them to various degrees are building or buying SaaS tools to provide web hosting, marketing automation, and some kind of directory listings. And the remaining players all still have HUGE salesforces out there selling all these products. Now some of these companies are doing an admirable job, but some of them are selling websites that make the ugly legal websites I mentioned above look like a “Mona Lisa”. The thing is that there are hundreds of thousands of small businesses paying really good money for something that they could get for pennies from GoDaddy. Or they could pay the exact same amount to an agency using GoDaddy’s tools for agencies, a partner on the InfusionSoft platform, or one of dozens of other solutions and they would get fantastic results.

But those other solutions don’t have armies of salespeople literally going door-to-door signing up businesses who simply don’t understand the options that they have. Just as gay marriage became the law because young people wanted it and eventually enough of old people got out of the way, the number of people who will sign up for a crappy website just because a salesman visits them in their shop is dropping steadily. Eventually it will be results, not an army of salesmen, that win the day. 

Am I totally wrong about consolidation?

It’s certainly possible. A popular ethos these days is certainly one that embraces the idea that marketing software is fragmented, and the best marketers are the ones who can do the best job of stitching together the various pieces. That’s a widespread belief in the popular press, and it’s not wrong.

And what would have truly begun the era of consolidation last year — the acquisition of Salesforce by Microsoft — did not happen. The spin-off of DemandForce by Intuit could well be the exception that proves the rule.

But I don’t think so. I think consolidation is coming because marketing software is getting so good. We’ve seen it work wonders for our business, and we know it works for all of the clients we talk to every day. The rub is that only a tiny fraction of small- and medium-sized businesses have embraced much more than having a website and maybe an email newsletter, and they just can’t do more than that because the choices are simply overwhelming. Once the choices are consolidated, the underlying potential of marketing software will be realized.

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