Marketing Automation Software Industry Spotlight A Bright Spot in the Cloud www.tmcapital.com An M&A International Inc. partner fi rm Providing Tech M&A Advisory Services on a Global Scale Hitachi Consulting has acquired: has acquired: has obtained a majority investment from: IT Services S InformationIf Services S InteractiveIE Entertainment Buy-Side Advisory Buy-Side Advisory Sell-Side Advisory has acquired: has been acquired by: has been acquired by: FUJITSU CONSULTING IT Services Integration Software IT Services Buy-Side Advisory Sell-Side Advisory Sell-Side Advisory cedar has divested its Lights Management has merged with: Films business to: has been acquired by: CRESTONE 2 INTERNATIONAL IT Services Digital Media Enterprise Software Merger Advisory Sell-Side Advisory Sell-Side Advisory Marketing Automation Software Industry Spotlight A Bright Spot in the Cloud The marketing automation software sector is one of the The competitive dynamics in the industry will inevitably fastest growing segments of the IT world – one that make it challenging for smaller, undercapitalized players shows no signs of abatement as the global economy to survive. However, the window is not closed for enters its next growth cycle. Analyst fi rm Gartner the pureplay market, whose innovation and fl exibility estimates that organizations spend $1.0 trillion annually with customers are creating the momentum in the on marketing. While a majority of this spending is being space. Vendors continue to emerge as the use of new allocated towards internal marketing teams and outside marketing channels, such as social media and mobile agencies, the advent of Web 2.0, cloud computing and devices, become mainstream and CMOs continue to “new media” outlets have precipitated growth in viral adjust their strategies. Software platform providers demand for technologies that automate marketing such as SAP, Oracle, Infor, Microsoft and Teradata are processes and improve returns on IT investments. moving aggressively into the area with both “build” and These dynamics have created a tailwind for the space, “buy” initiatives. Consolidation has been prevalent, with which is growing at an annual rate of more than 20% and approximately 90 M&A transactions taking place since is forecasted to continue to do so for the next fi ve years the beginning of 2006. Over the same period, we have (Source: Forrester). Relative to the broader software tracked over 200 fi nancings in the sector. This level of industry, which is expected to grow at 1.5% in 2010 activity has created one of the noisiest, most sought (Source: Gartner), the growth prospects for the sector after areas of enterprise software. are extremely robust. These trends have attracted the attention of both the private equity community and the The goal of this piece is to make sense of the noise, larger enterprise software competitors, many of whom defi ne the landscape, identify the fundamental growth are jockeying for position and placing their bets with drivers and study the consolidation trends that will shrewd M&A moves. continue to characterize the market for the foreseeable future. Figure 1: Enterprise Marketing Platform (EMP) Spending vs. Global IT $5,000 EMP Compound Annual Growth Rate: 21.2% Total IT Compound Annual Growth Rate: 2.3% $4,000 $3,000 $2,000 $1,000 Total EMP Sales (USD in millions) Total 2008 2009 2010 2011 2012 Source: Forrester (Enterprise Marketing Platforms) and Gartner (Global IT Spending) Marketing Automation Software - A Bright Spot in the Cloud Industry Spotlight Defi ning the Marketing Automation Software • Campaign Management and Relationship Marketing – Industry optimizes and ensures consistent communications across customer and partner touch points. Marketing automation software tools enable marketing Specifi c product functionality in this genre departments to design strategies, automate processes, encompasses lead management, fi eld marketing, improve customer communications and monitor email marketing, database marketing, web marketing, marketing performance. These tools provide a communication optimization, market segmentation, mechanism for marketers to identify and execute on new offer management, event-triggered marketing and customer insights, collaborate internally and interact customer analytics. with external marketing agencies. The fi nancial return on these applications for customers comes in the form • Marketing Resource Management (“MRM”) – of improved top line growth, reduced overhead and automates the processes surrounding marketing optimized productivity across all marketing channels/ planning, budgeting and brand management. Specifi c operational boundaries. functions include creative production, digital asset management, project management, content The marketing automation software “umbrella” spans distribution, fulfi llment, localization, branding several sub-sectors, which, cumulatively, represent a consistency, marketing calendars, planning and $2.5 billion industry (Source: Forrester). These sub- budgeting and web content management. sectors include: Figure 2: Marketing Automation Software Industry Overview Source: TM Capital www.tmcapital.com - 4 - Marketing Automation Software - A Bright Spot in the Cloud Industry Spotlight • Event & Loyalty Management – creates process pureplay specialists. In compiling our research, we have effi ciencies around trade show planning, event built a database of more than 800 companies that we management, offer management, points accrual characterize as marketing automation software players. engines, self-service redemption, customer Forrester estimates that the top eight vendors account interaction centers and partner validation programs. for approximately one third of the total spending Many of these solutions are geared towards the in the $2.5 billion sector, which implies that a strong airline, retail, hospitality and fi nancial services majority of the revenue is being generated by a broad industries. array of players. Considering that less than 2.0% of the addressable market is currently saturated (Source: • Interactive Marketing – identifi es trends and Gartner), we understand the basis for the fragmentation. opportunities through web analytics and automates interactions with customers and prospects through Many pureplay vendors currently offer innovative, best- email and the web. There is substantial overlap in-class solutions to meet the various requirements of the between this sub-sector and campaign management. marketing value chain. As these companies have gained popularity and the demand for more comprehensive • Marketing Performance Management (“MPM”) – solutions has grown, larger players have moved into monitors customer behavior and website trends the initial stages of offering “platform” solutions that to report on the overall performance of marketing automate marketing across siloed application suites, initiatives. MPM tools provide KPIs on customer marketing roles and geographical boundaries. Customer insight, marketing planning, scorecarding, profi tability demand for solutions that span campaign management, management, fi nancial management, pricing MRM, channel management, lead management, event optimization, CRM analytics, website analytics, management and MPM is facilitating technology propensity to churn/buy, predictive analytics, text convergence across once disparate application genres. mining and search. This has fostered encroachment from ancillary software areas. Vendor Landscape Few pureplay providers, with the exception of Unica, The marketing automation software space is extremely have been able to reach the $100 million revenue bifurcated in the sense that while there are large software mark without being acquired. The consequence is industry incumbents such as SAP, Oracle, Teradata, Infor that undercapitalized, best-of-breed specialists have and SAS vying for share, the remainder of the market confronted challenges in customer situations where is addressed by a highly fragmented universe of smaller, vendor viability is a concern. Many of these players Figure 3: A Highly Polarized Industry Source: TM Capital - 5 - Marketing Automation Software - A Bright Spot in the Cloud Industry Spotlight offer the robust functionality, application fl exibility and willing to sacrifi ce “best-in-class” functionality for the broad set of competencies that customers are seeking. peace of mind that stems from sticking with a ‘safer’ They also offer built-in best practices that adhere to supplier will often move in this direction. The demand marketing users’ preferences and behaviors. However, for high-end functionality, tightly integrated marketing selling enterprise-level marketing solutions also requires “platforms” and a more streamlined selection process tight integration with the broader software ecosystem that favors providers with scale will inevitably generate of an organization. This is an area where the larger further consolidation. The tables on the next two software organizations excel. pages demonstrate the peripheral software camps that are encroaching into the industry, as well as some of As a result, larger players are delaying sales cycles the companies in each respective area. Please see the for the lower end of the market with the promise of appendix for detailed vendor notes. future product development. Customers that are Figure 4: Marketing Automation Software Vendor Product Comparison Multi-channel Marketing Marketing Campaign Resource Lead Event Loyalty Performance Management Management