Baird Marketing Tech & Services Industry Report 2020
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BAIRD’S MARKETING TECH & SERVICES SECTOR OVERVIEW TABLE OF CONTENTS Industry Overview 1 Industry Trends & Update 2 Market Landscape 3 A. Advertising B. Digital Experience C. Customer Journey Management D. Social & Relationships E. Customer Experience F. Data & Insights Appendix 4 A. Baird Overview B. Valuation Perspectives Page 1 INTRODUCTION TO MARKETING TECHNOLOGY & SERVICES We are excited to share with you our first edition of Baird’s Marketing Technology & Services industry report, which details our views on the industry, including segmentation, sizing, key market players and trends impacting various segments. Marketing means different things to different people. For us, we generally view marketing as the business process of identifying, anticipating and satisfying customers needs and wants. Marketing spans many customer or business-facing activities, which cross other functions that we did not cover in this report. Here, we addressed marketing technology and services that are utilized to identify, attract, engage, convert and retain customers. We have segmented the market into six core segments, including advertising, digital experience, customer journey management, social and relationships, customer experience, and data and insights. We further segmented the industry into 31 sub-segments, all of which we cover in detail herein. Marketing is mission critical and one of the cornerstones of business management and commerce. Every company, whether B2C or B2B, must appropriately engage customers to grow. As a result, companies spend billions of dollars annually on third party technology and outsourced services to define and execute their marketing strategies which has created an ecosystem of thousands of companies to address a broad range of needs. These needs are not one time in nature, they are recurring and support strong demand for software and services within these core segments and sub-segments. In total, we estimate that global marketing spending (total paid media and marketing people / data / tech services) was approximately $1.5 trillion in 2019. Growth varies significantly by category, but the core segments and sub-segments in this report are by nature growth-focused areas of marketing and represent a continued, massive secular shift of dollars from traditional legacy channels to digital and innovative omni-channel strategies. _____________________ Sources for information on this page: BMO Digital Marketing Hub v4.1 report. Page 2 INTRODUCTION TO MARKETING TECHNOLOGY & SERVICES (CONT.) The landscape for marketing technology and services is significantly impacted by the end customer and their process for making purchasing decisions. Today’s path to purchase, whether B2C or B2B, has never been more fragmented than it is today. Decision makers have many options to choose from to discover products or services, to try them, and to eventually decide to purchase them. The path to purchase is not linear and varies widely by end market, geography, and unique customer. There are select trends we see as significantly impacting the path to purchase and therefore the types of technologies and services required to market to and win over customers. These include: 1. Significant changes in communications infrastructure and consumer behavior driving an undeniable shift to a digitally focused engagement 2. Mobile opening up a continually evolving set of new marketing experiences 3. The intersection of e-commerce and online advertising - the rise of Amazon has a formidable challenger to the Google/Facebook duopoly 4. Demand for a seamless, personalized experience across every channel and touchpoint in the customer journey 5. While temporarily on hold given COVID, experiential will remain a long-term secular trend 6. Data collection and usage, against an increasingly strong push for regulations of privacy 7. The use of artificial intelligence and machine learning to harness the massive quantities of data to reach and engage with consumers in more effective ways Page 3 INTRODUCTION TO MARKETING TECHNOLOGY & SERVICES (CONT.) As these trends play out, many new technologies and services have been or are being developed to address new marketing needs. This has resulted in a significant infusion of venture capital and growth equity to support emerging players that are investing in product/service line expansion to meet these customer needs and their own sales and marketing efforts. We estimate that over the past year, $13B has been raised for more than 130 marketing technology and services related companies. At the same time, more established corporates in the space are looking to M&A to build scale, add to their capabilities and create more fulsome solution suites to better serve their customers. In 2019, we estimate over 200 transactions (vs. ~150 transactions in 2018). We expect interest in the industry to remain high, provided the mission critical and recurring nature of this universal need. And with that, we’re excited to share our views on the industry and look forward to your feedback and future discussion helping you consider investments within the space All the best, the Baird team. Robert W. Baird & Co. Incorporated 227 West Monroe Street, Suite 2100 777 East Wisconsin Avenue 1211 SW 5th Avenue Chicago, IL 60606 Milwaukee, WI 53202 Portland, OR 97204 Fax: (312) 609-4950 Fax: (414) 765-3912 Fax: (503) 603-3065 Eric Winn Rhett Braunschweig Evan Mueller Managing Director Director Director [email protected] [email protected] [email protected] Simon Pearson Justin Prichard Martin Luen Managing Director Managing Director Managing Director [email protected] [email protected] [email protected] Andrew Snow Brady Blackett Managing Director Director [email protected] [email protected] _____________________ Sources for information on this page: Capital IQ, 451 Research, Pitchbook, Gartner. Page 4 MARKETING TECHNOLOGY & SERVICES SECTOR BREAKDOWN Page 5 SUMMARY OBSERVATIONS: COVID-19 IMPACT ON MARKETING TECH & SERVICES COVID-19 has significantly accelerated a decade-long shift to digital. Consumer and corporate mindsets and purchasing habits will never be the same which will have a dramatic impact on the marketing technology & services market COVID-19 implications: The unique combination of COVID-19 precautions – shelter-in-place, work-from-home, travel restrictions, store and restaurant closures, etc. – are driving dramatic changes in consumer behavior in a very short period of time. Many of these changes are an acceleration of decades-long shifts to e-commerce and engaging with and acquiring customers through digital channels. We believe many of these consumer behavior changes will be lasting and habits created during the pandemic will remain. Near-to-medium term impact: Historically, marketing spend is impacted by downturns as companies pull back marketing spend against lower demand from existing and prospective customers. The magnitude of the decline and how it impacts each channel will depend on how and where demand falls off and where each unique marketing technology/channel is in its maturity and market penetration. Unlike past downturns, the drop-off in demand is more severe, with certain verticals like retail, restaurants, and travel/hospitality shut down, and certain marketing mediums legally prohibited, e.g., large scale events. While digital is weathering the storm better than many channels, it is not immune. There have been rapid declines in spend across most digital channels, with overall industry growth in the U.S. expected to be roughly flat (~2% in 2020) vs. the 15-20% growth expected pre-COVID. Gradual recovery: While marketing spend is cyclical, it’s also one of the first areas to bounce back as the economy improves, as companies look to acquire customers as demand returns. Checks suggest that the gradual recovery in digital ad marketing continues, benefitting from high user engagement levels and improving pricing trends. While still far from its historic levels, current growth in e-commerce is helping to stabilize the digital ad market. Digital share of spend is expected to increase meaningfully at the expense of print, out of home, radio and TV. On page 8, we have laid out the various marketing segments and sub-segments and detailed the severity of the impact of COVID-19 on each. _____________________ Source for information on this page: eMarketer U.S. Digital Ad Spending Update Q2 2020. Page 6 SUMMARY OBSERVATIONS: COVID-19 IMPACT ON MARKETING TECH & SERVICES (CONT.) COVID-19 has significantly accelerated a decade-long shift to digital. Consumer and corporate mindsets and purchasing habits will never be the same which will have a dramatic impact on the marketing technology & services market Where to invest: There are areas of marketing technology and services that have remained resilient during COVID-19 and are likely to weather most downturns. The segments that we predict will continue to perform irrespective of demand are infrastructure related and support basic marketing efforts vs. volume-based, discretionary spend. Examples include largely subscription based spend on CRM, CDP, content management and customer experience management systems. These systems are foundational and required to execute a base level of business during a downturn including serving existing customers, vs. trying to acquire new customers. They are not easily switched off and on. There also has been, and will continue to be, a flight to performance-oriented marketing that has a clear, and attributable ROI. Where do