TM Capital Marketing Automation Software Report Industry Spotlight www.tmcapital.com Providing Tech M&A Advisory Services on a Global Scale a portfolio company of a portfolio company of has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by has completed a $10,000,000 has been acquired by private placement of common stock has divested has acquired has acquired has acquired certain assets to Black Logo C: 0 M:0 Y:0 K:100 has acquired has acquired has obtained a has been acquired by majority investment from Blue and Green Logo (Blue) C: 100 M:69 Y:0 K:38 (Green) C:100 M:0 Y:65 K:38 For details visit www.tmcapital.com Marketing Automation Software Industry Spotlight Introduction: A New Phase in the Evolution of the Marketing Automation Software Sector The Marketing Automation Software (MAS) sector has With the explosion of “big data” and the general acceptance become one of the most exciting and dynamic areas within by C-level executives of the need for “Marketing Intelligence” the broader Enterprise Software market. In 2010, TM Capital to drive revenue growth, we believe that the MAS sector initiated coverage of the MAS sector and predicted that the remains well-positioned for above average growth over convergence of various MAS technologies and overlapping the next few years. As evidenced by Figures 1 and 2, the functionality would create confusion in the marketplace escalating usage of mobile devices and the rapid adoption among customers. This confusion would lead MAS vendors to of Social Media as a critical marketing channel – and the recognize the potential synergies with their various solutions massive volume of “big data” that is being collected from and would ultimately drive consolidation in the sector. Major these sources - are forcing marketing professionals back to transactions in the sector such as IBM’s acquisitions of the drawing board to adjust their communication strategies Unica and Coremetrics, Teradata’s acquisition of Aprimo, to more effectively reach “ultra-connected” prospects and Adobe’s acquisitions of Day Software and Omniture, etc. customers. The bottom line is that these trends further dramatically altered the industry landscape and validated highlight the importance of MAS solutions and the outsized our thesis. In 2011, we reiterated our position that the MAS growth opportunity for this sector over the next few years. sector remained poised for significant growth – and further consolidation. Since that time, we’ve seen a rapid adoption Today, we believe the MAS sector is in a new phase of its of MAS solutions as functionality has continued to evolve, the evolution. Historically, the major challenge faced by marketing SaaS delivery platform has become totally pervasive in this professionals was measuring the ROI of marketing campaigns sector, and the ROI from MAS solutions has been validated. and subsequently, justifying an investment in MAS solutions. With the rapid adoption of mobile technologies and social However, given the advances in MAS functionality over the media, and the resulting exponential growth in data, the past few years, the ROI of marketing campaigns can be more need for MAS solutions has never been greater. We’ve also clearly measured and marketing initiatives can now be directly seen further consolidation in the sector as some of the major attributed to top-line revenue performance. While specific Enterprise Software players, such as Oracle, Salesforce. solutions within the MAS sector have developed at different com and others, have announced eye-popping acquisitions rates, in general, the MAS sector has evolved from the “market that will continue to turn the landscape upside down. education” phase, which was characterized by extended sales cycles and the need for MAS vendors to educate Figure 1: Interactive Marketing Industry Growth customers on the value of MAS solutions, into a “sales execution” phase whereby MAS vendors (US$ in Millions) are focused on rounding out their portfolio of $90,000 MAS solutions, developing a comprehensive $80,000 marketing platform, establishing a robust $70,000 partner network and building market $60,000 share via an intense focus on direct sales. $50,000 $40,000 Historically, most MAS vendors have treated the $30,000 B2B and B2C markets differently, primarily due $20,000 to the nature of each market and the differing $10,000 needs of marketing professionals in these — markets. The B2B market has traditionally 2011 2012 2013 2014P 2015P 2016P had a greater emphasis on the sales function Search Marketing Display Advertising Mobile Marketing versus the marketing function – fewer Social Media Email Marketing marketing professionals supporting a larger Categories 2011 2012 2013 2014P 2015P 2016P CAGR sales force. The B2C market has typically Email Marketing $1,510 $1,694 $1,875 $2,066 $2,262 $2,468 10% had more of an emphasis on marketing, as Social Media 1,590 2,119 2,760 3,453 4,217 4,995 26% direct sales – if any (i.e. call centers) – are Mobile Marketing 1,652 2,777 4,238 5,697 7,057 8,237 38% Display Advertising 10,949 12,860 16,085 19,783 23,919 27,600 20% often integrated into a customer service Search Marketing 18,756 21,553 24,613 27,515 30,433 33,319 12% function. B2B solutions are generally tailored Total $34,457 $41,003 $49,571 $58,514 $67,888 $76,619 17% to products or services with longer sales cycles Source: Forrester and typically focus on robust lead nurturing, www.tmcapital.com - 1 - Marketing Automation Software Industry Spotlight Introduction typically been strengths of B2C marketing solutions. In turn, Figure 2: Number of Mobile Internet Connections B2C marketing professionals are beginning to understand the 350 need to create a single profile of their customers based on all 293 299 available data (i.e. website interactions, marketing campaign 300 279 260 responses, buying history, etc.) to turn “browsers into buyers.” 250 234 Given the massive volumes of data available to B2C marketing 204 professionals, this is no easy task. As B2B-oriented MAS 200 vendors seek to move into the B2C market, they will need to 150 either build database expertise or acquire B2C-oriented MAS companies who have experience working with this complexity. 100 Connections 50 As the synergies between various MAS solutions (i.e. lead Millions of Mobile Internet management, email marketing, campaign management, — analytics, etc.) become increasingly evident and customer 2013 2014 2015 2016 2017 2018 needs continue to converge, the MAS sector will continue Source: IBISWorld to move into the “consolidate or persevere” phase and, based on the recent M&A activity in this sector, it appears lead scoring, and sales force automation capabilities. B2B “consolidate” has become the preferred alternative. The sales are typically lower volume, but high-dollar transactions first wave of consolidation in the MAS sector featured large, compared to B2C sales. Sales decisions in the B2B data-centric Enterprise Software vendors acquiring MAS market are based on multiple interactions between sales companies with strengths in campaign management and, professionals and customers whereas B2C buying decisions more significantly, customer and web analytics capabilities. are often made based purely on marketing collateral, website Examples include IBM’s acquisition of Unica and Teradata’s content, etc. While the need for marketing intelligence in acquisition of Aprimo. More recently, some of the larger ERP the B2B market is critical for generating leads, targeting vendors, such as Oracle, have established a strong presence customers and focusing sales efforts, the data available to fuel in the MAS sector through acquisitions of marketing platforms B2B marketing solutions is more readily attainable and less such as Eloqua and Responsys. In addition, leading CRM complex to analyze and understand than in the B2C market. vendors, such as Salesforce.com, have validated the value proposition of an integrated CRM and MAS solution through One of the major differences between the B2B and B2C acquisitions such as ExactTarget (which had previously markets is that B2B MAS solutions rely on data provided by a acquired MAS vendor Pardot). We expect to see additional CRM solution, whereas B2C solutions require the development consolidation within the MAS sector as many of these large and maintenance of an underlying database. There is no Enterprise Software vendors will continue to seek to add need to create a separate database for B2B MAS solutions, capabilities and build out their MAS solutions with the goal of so integration is easier and B2B MAS vendors can focus their creating a truly integrated marketing platform. Furthermore, efforts on developing attractive user interfaces and additional going forward, we expect to see continued encroachment functionality (analytics, reporting, etc.). The trade-off, however, in the MAS sector by other traditional enterprise software is that CRM data is fairly rigid which limits some of the flexibility sectors including business intelligence, content management of B2B MAS solutions. Marketing professionals using B2C and, most notably, e-commerce solution providers, who MAS solutions need to build and maintain an underlying we think could bring a lot of excitement to the MAS sector. database. The good news is there’s plenty of data available to populate this database; the bad news is that B2C solutions are Over the past few years, investors have poured substantial more expensive and require a longer implementation time due amounts of capital into the MAS sector. Notable investments primarily to the complexity associated with the creation of the include HubSpot, ExactTarget (acquired by Salesforce.com), database. With advances in technology, and specifically the Marketo (IPO), ClickSquared (acquired by Zeta Interactive), dramatic increase in the volume and availability of customer Neolane (acquired by Adobe), and SilverPop, who received a data, we are starting to see convergence between the needs collective $175 million in financing since 2011 – which represents of the B2B and B2C markets, especially with respect to lead only a fraction of the total investment in the MAS sector.