Will the bubble burst in marketers’ faces?

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In the months leading up to last week’s big news that Vista Equity Partners would be acquiring Marketo for $1.79 billion and Salesforce buying Demandware for $2.8 billion, Silicon Valley was awash with rumors of a bursting bubble.

The bubble comes from a marketing tech explosion that has given rise to more than 3,800 vendors, billions of venture capital dollars, sky-high valuations and a whole lot of shaky balance sheets. Now marketing tech appears to be on the verge of a shakeout, a frenzy of merger-and-acquisition activity, the inevitable fall back to earth.

A sudden squeeze in venture capital in the tech sector earlier this year signaled foreboding winds ahead. Unable to raise money and faced with crunched timelines to show value, marketing tech startups began in earnest tightening their belts, cleaning up books, tweaking pricing and bolstering capabilities, say marketing tech insiders.

Marketers, too, are starting to scrutinize tech vendors more closely, lest they find themselves locked into technology that is no longer at the leading edge or supported after being acquired. At Gartner’s Digital Marketing Conference in San Diego last month, analysts advised marketers to hedge against market consolidation by looking at a tech vendor’s financial health and asking bona fide customers frank questions about the technology’s benefits, shortcomings and viability.

How did we get here?

The marketing tech explosion

The first signs of the bubble surfaced when companies embarked on digital business transformations, which elevated the role of marketers from mere custodians of the brand to composers of the digital customer experience.

Reflecting this awesome responsibility, marketing budgets have risen around 10 percent every year, with a third of the budget spent on marketing tech. The CMO will likely soon outspend the CIO in tech spending, and line of business executives aren’t far behind. IDC predicts CMOs will shell out $32.4 billion on marketing tech in 2018, a compound annual growth rate of 12.4 percent. Three out of four marketers own or share profit-and-loss responsibility, Gartner says.

“More and more new technologies have applicability in marketing, because the purview of the marketer has grown from driving brand and demand to orchestrating the entire customer experience.” – Kirsten Newbold-Knipp, Gartner

Swelling marketing tech budgets sent venture capitalists into attack mode. In the last five years, they poured $134 billion into the marketing tech space, VentureBeat reported. Tech vendor ranks grew from under 1,000 two years ago to more than 3,800 today, according to Scott Brinker’s annual marketing tech vendor landscape study.

Tech giants, such as Oracle, Salesforce and Adobe, jumped into the fray. At one point, Oracle’s marketing tech buying spree averaged an acquisition a month. Yet the number of vendors continued to double every year, thanks to investors aggressively stalking the marketing tech unicorn—a startup valued at more than a billion dollars.

Then, realistic expectations set in this year.

In a crowded market, the odds of finding a unicorn tumbled, which led to a sharp decline in venture-capital funding and a flurry of consolidation. Investment banking firm Luma Partners reported 72 merger-and-acquisition events among advertising tech, marketing tech and digital content vendors in the first quarter this year, the second highest quarter of activity since the start of last year.

Venture capitalists also began pulling back on current investments.

“Essentially, too many companies have taken too much money at unsupportable valuations,” write Biz Carson and Matt Rosoff at Business Insider. “A lot of the money they raised came with huge caveats that would protect late-stage investors.”

Don’t fear the bubble burst

For marketers, consolidation among vendors has a silver lining. Marketers are already swamped with too many choices. Brinker’s landscape study has a whopping 49 categories, with the biggest being sales automation and social media marketing. Gartner’s marketing tech map showing how everything is connected looks like the public transportation system in Tokyo. The complexity of the marketing tech ecosystem, as well as massive integration challenges, has become overwhelming.

Consolidation can bring a little clarity to the purchasing puzzle.

“I think we should expect to see more consolidation and more suites or platforms emerging and potentially more capabilities brought into those suites or platforms,” says Gartner analyst Kirsten Newbold-Knipp, adding, “Brands want to consolidate vendors.”

Related: 12 Must-Have Mobile Marketing Tech

While it’s anyone’s guess what the shakeout will look like, we are beginning to see some marketing tech categories actively consolidating.

Case-in-point: Content marketing and social media marketing have lots of vendors with limited functionality and customers. These vendors might not have the wherewithal to be standalone enterprises, say marketing tech insiders. Social media marketing (186 vendors) and content marketing (160 vendors) land in the top five largest marketing tech categories, according to Brinker’s vendor landscape study.

“Both have a proliferation of vendors that are point-solution oriented,” Newbold-Knipp says, adding that ScribbleLive acquired Visually earlier this year and Adobe announced plans to buy Livefyre last month. In June, UBM plc acquired Content Marketing Institute for $17.6 million.

Another marketing tech category that might experience lots of acquisition activity is data analytics. A KPMG survey found that data analytics is a key trend in driving mergers-and-acquisitions activity in the technology sector this year. In this case, however, it’s about adjacent vendors picking up a data analytics company to broaden their offerings and become a more viable entity.

“Everyone—small and large players—is trying to bolster their capability,” Newbold-Knipp says. “They’re trying to move beyond simple web analytics into much more complex analytics that incorporate attribution analysis or, in some cases, bring together attribution and mixed modeling into a single portfolio.”

Marketing tech’s nebulous future

To be fair, we’re in the early days of marketing tech consolidation. A true shakeout hasn’t happened yet. Even Vista Equity Partners buying Marketo isn’t really consolidation, Brinker argues, because the acquisition actually reduces the chances that the Marketo platform will be absorbed into a competing product.

“Someday the industry may see such large-scale consolidations, but we’re not there yet,” he says.

We also might not see the kind of fire sales and shuttered doors that mark other burst bubbles. It’s unclear if a marketing tech shakeout can be observed simply by tracking the number of vendors on Brinker’s landscape.

Rather, the marketing tech universe might be one of constant expansion and contraction. As parts of the market mature and consolidate, new marketing tech solutions emerge. For example, virtual reality, which started out in gaming, and Internet of Things, which has roots in manufacturing, are both making their way to marketing. Virtual reality promises an exciting customer experience, while Internet of Things brings a connected one, as well as valuable customer data for marketers.

“More and more new technologies have applicability in marketing, because the purview of the marketer has grown from driving brand and demand to orchestrating the entire customer experience,” Newbold-Knipp says. “Despite consolidation, there’s a lot of opportunity for new entrants in spaces of the marketing ecosystem that marketers don’t event think about as marketing today.”

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Tom Kaneshige is editor of Five2ndWindow, Penton’s independent news site helping marketers and line-of-business executives get ahead of the mobile disruption happening to the customer experience. You can reach him at tom.kaneshige@penton.com.

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