Beyond Marketing Automation: Building a Complete Marketing Infrastructure

This started as a post about Empathy Logic, a company that merges data from marketing automation, CRM, Web tracking, order processing, social monitoring, and other systems; lets marketers segment and select from this more complete set of data; and sends the resulting lists back to message delivery systems such as email and Web sites.

You might think that Empathy Logic isn’t needed because a marketing automation system is supposed to build that integrated database. But B2B marketing automation products are largely limited to data they generate internally or import from CRM. The B2C marketing automation systems can usually attach to any data structure but rely on some other system to create it. So, yes, there’s a need for a company like Empathy Logic.  (Before I change topics, other key points about Empathy Logic are: product is about one year old; uses Pentaho open source software for data integration and business intelligence; runs on the Amazon EC2 cloud infrastructure; and charges $10,000 to $20,000 per month for its services.)  

Empathy Logic got me thinking about a topic that doesn’t get discussed much in B2B marketing automation circles: the place of marketing automation in the larger marketing system architecture. B2B marketing automation vendors generally position their systems as a replacement for separate applications including email, forms creation, Web analytics, content management, and reporting. This may leave the impression that marketing automation is the only system a marketing department needs.  Marketing automation vendors have little incentive to correct the error, since mentioning integration would only slow the sales cycle.  (For more about integration requirements, take a look at our recent workbook on the topic.)

Raab Associates does have its own model of a complete marketing architecture.  But before presenting it, let's look at some other opinions.   I found three surveys that address the issue.

The most intriguing was published last September by Adobe and Econsultancy.  The focus is online marketing (remember that Adobe owns Omniture, Day Software, Demdex and now Efficient Frontier) but the survey is especially interesting because it asked about adoption, value received, and effort required. The original report presented these separately but I’ve combined them in a bubble chart:

This is worth some exploration. You’ll see that marketing automation is at the bottom – meaning it’s the least resource intensive of the technologies listed. But it’s also farther left than most, meaning it’s also among the least effective at delivering profits. (I’m going to assume that “significant impact on the bottom line” meant significant positive impact.) I’m really feeling a bit disrespected here: marketing automation is easy AND ineffective? Maybe the survey-takers are getting poor results because they’re not putting in the necessary resources.  Or maybe they're mostly Web marketers who aren't really all that familiar with it.

Either way, the respondents still gave marketing automation a better effort / value ratio than attribution, buzz monitoring and social media management. Maybe they understand those better and see how much work is involved.  But campaign management, which I think is email campaigns but might be Web ad campaigns, also rates as harder than marketing automation. Doesn't marketing automation include email and a whole lot more?  I have a hard time understanding how email alone could be harder.

This survey also addresses the ever-popular question of adoption. This group reported that 38% were using marketing automation. That’s considerably higher than most estimates but it’s among the lowest rates on the chart.  In that sense, at least, it supports the general belief that marketing automation is still in its early stages.  I’ve provided the actual numbers below:

If you looked carefully at the previous survey, you probably noticed that a few important applications were missing, such as Webinars. Oops. A survey last February by Act-On Software had a more realistic range of applications. 

The Act-On survey isn't perfect for today's purpose: it was sent to small and mid-size business, listed several marketing automation components separately (email, lead nurturing, and lead scoring), lumped all of social media into a single category, and ignored Web analytics entirely. Still, it gives a pretty reasonable idea of the relative utilization of different methods, most of which would involve different marketing systems.

I found a one more survey that listed marketing systems, from the CMO Council  in July 2011.

This is by far the broadest list.  It includes CRM, call center, master data management, talent (staff) management, ecommerce, and product life cycle systems. That the question describes them all as “marketing automation solutions” gives some idea of how broadly the term is sometimes defined – which I still suspect is a major reason that many surveys show that “marketing automation” has such a high penetration rate.  Unfortunately, this survey didn't ask directly about usage.

If we look across all three surveys and add Raab Associates' own research, a reasonably complete set of components for a marketing architecture would include:

• marketing database management (data extraction, customer data integration, master data management, database updates)

• Web advertising (paid search, banner ads)

• Web site management (Web content creation and management, search engine optimization, ecommerce if relevant.

• Web analytics and optimization (could be part of Web site management but still largely done by separate systems.)

• social marketing (blogs, social media monitoring, social media posting, community management, advocate management)

• Webinars (it seems odd to make these their own category but they’re still separate systems and don’t easily fit with Web site management or social marketing)

• marketing automation (direct mail, email, mobile, landing pages, web behavior, nurture campaigns, lead scoring, reporting; includes batch, trigger, and event-driven campaigns and real-time interactions)

• media buying (for conventional media: TV, radio, newspaper, magazine, outdoor, etc.)

• marketing resource management (project management, workflow, content and digital asset management, budgets and forecasts, purchasing, staff management) 

• analytics (reporting, dashboards, attribution, marketing measurement, predictive modeling, mix optimization – this extends beyond the channel-specific applications like Web analytics)

• CRM (not usually run by marketing but so intimately connected with marketing systems that I'd consider it part of the architecture.  I'm using CRM as a catch-all term for sales automation, order processing, customer service, loyalty, call centers, and partner management.)

There are many ways to draw this architecture and perhaps I'll return to it another day.  My point for now is simply that marketing automation is just one piece of the larger marketing puzzle -- and marketers need to recognize that they'll need to pull data from multiple systems to do a thorough job of managing customer relationships.

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Influitive Helps Marketers Build an Army of Advocates

Marketers recognize the potential reach of social media, but are rightly frightened that they can’t control the message. Most social marketing applications sidestep the issue by focusing on creating communities (Jive, Lithium), monitoring conversations (Radian6, Trackur) and running promotions (CrowdFactory, Nextbee). Marketing automation vendors have mostly worked on making it easy to post and share messages and to capture social data. (See my December 8 post for details.)

Influitive tackles the control issue head on.  It applies game-based motivational methods to company advocates. Marketers define “challenges”, such as sharing content, making a referral, creating case studies, or providing a reference, and the system issues points to advocates who perform them. Advocates can accumulate points and exchange them for rewards. Advocates can also earn badges, move through levels, and compare themselves to others on leader boards.  The system can also offer games, contests, and direct messages to advocates.  These features all give advocates a continuing stream of new reasons to stay active.

This is a strikingly simple concept – but I think it’s brilliant. An army of advocates can be a tremendous resource, but without a way to attract, nurture and direct them, they’re less an army than a random mob. Influitive lets marketers gradually strengthen advocate relationships by posing challenges that require increasing levels of commitment.

Influitive founder Mark Organ describes the process as an "advocate development funnel" whose ultimate goal is "social nurturing" by advocates who provide personal references to potential buyers who are also their professional peers.  While these ideas are intriguing, I suspect they're not really necessary.  The practical benefits of systematically managing advocates are probably obvious to marketers who have been struggling to regain control over their social media presence .  

My thumbnail description doesn’t cover the important technical features that make Influitive practical.  These include controls over how challenges are issued (who is eligible, date limits, quantity limits, etc.),  managing awards, and API-level integration to pull profile data (LinkedIn), record completed challenges (Quora, Twitter, Facebook, LinkedIn) and announce completed challenges (Salesforce.com Chatter). The company plans additional API connections with Jive, ZenDesk, and other systems.

One caveat in all this is the legal and ethical issues regarding rewards for advocates.  Ardath Albee wrote about this recently in some detail.  Since Eloqua is an Influitive client, I asked Eloqua VP of Content Marketing Joe Chernov (who also co-chairs the Word of Mouth Marketing Association's member ethics panel) how they use it without breaking any rules. His answer is worth printing in full:

We neither give rewards, nor have we ever given rewards, in our use of Influitive. We give badges and thank-you's … in other words, we show our appreciation in the form "social currency." But we give no cash, no prizes, no compensation. If the Influitive platform reaches a point that it can hardwire disclosure into the testimonial across all media channels, then we'd consider material incentives in certain circumstances. But it's my fundamental belief that marketers think they need to offer valuable perks, but if a client truly is an advocate, then the person is often entirely willing to help … for nothing in exchange but gratitude.

In other words, it's quite possible to use Influitive without violating disclosure standards.  The product supports this with automated disclosure options, which can be made mandatory if a company wants.  Naturally, this doesn't guarantee all clients will be equally scrupulous.  

Influitive is currently in beta. Pricing is free up to 20 active advocates, and then starts at $500 per month, growing at roughly $20 per advocate per month. It has 16 customers, about half above the 20 advocate minimum.

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Marketing Automation Interface Should Focus on Customers, Not Campaigns

Several vendors have shown me their new campaign management interfaces recently. All were refined, attractive, and thoughtful. Each had subtle features that appeal to a connoisseur: floating tool pallets! Fly-over icon labels! Dynamic menus! Curved lines!  But they’re all still basically the same flow charts that Frank Gilbreth (of Cheaper by the Dozen fame) introduced in 1921 and we've seen in marketing systems for more than 20 years.

Now, I’m not saying marketing automation vendors should find a new approach just because I’m bored with the old one. But the truth is that the old way doesn’t work: every experienced developer I’ve ever spoken with has told me they’ve found users get confused when flow charts grow past a handful of branches. That’s true even though users themselves design campaigns by drawing a flow chart on a whiteboard. If you watch that process closely, you’ll see that (a) users themselves have trouble when their diagram gets too complex and (b) they can’t make much sense of it when they come back the next morning (assuming the whiteboard wasn’t erased).

Developers have taken two approaches to this challenge. One is to add features that help manage complexity – all those floating pallets and pop-up menus. These do help but it’s like Chaos Theory as explained in Jurassic Park: piling complexity on complexity eventually ends in a catastrophic collapse. The other approach is to simplify the experience by removing capabilities such as multiple branches and recursive loops. The extreme version of this is interfaces that define each campaign as a single sequence of steps, with no branching at all. This is certainly comprehensible but it can prevent marketers from doing what they want.

Something more radical is needed. Developers must think outside the flow chart. One way to start is to consider interfaces they’re already using in other systems.

• touch screen. Dragging and poking at a flow chart with your fingers instead of a mouse wouldn’t be much of an improvement, although it would help. Creating splits by stretching an icon until it breaks into pieces might be kinda fun. Scaling up or down the way you zoom into online maps – and having the level of detail adjust automatically – would definitely be an improvement. But I’m guessing there are some more dramatic alternatives that avoid the flow chart altogether.  Think about your favorite touch screen apps and see what comes to mind. How could you design a marketing campaign with Angry Birds?

• voice activation. I have no interest in speaking the same commands I could type. But a system that understands voice commands has natural language capabilities to infer what I need based on context and past experience, and thus save me the work of defining the details explicitly. (Think IBM Watson on Jeopardy or iPhone Siri.) If you think about the primal whiteboard scenario, what really happens is the marketers say “let’s add a split here” before drawing it – so a natural language approach could be a big time saver by skipping the drawing step altogether. Or the system might actually ask questions and make suggestions that lead the marketer through the design process: Who is your target market? How many reminder emails do you want? Might I suggest you add a reward: here are the best three to consider.

• virtual reality. The biggest problem with flow charts is they are inherently two dimensional.  This means that intersecting branches must visually overlap, which is very confusing.  Could a virtual reality interface let marketers follow each path independently, like walking down a street or flying through a forest? This comes closer to simulating the customer’s experience – perhaps the marketer could be pelted with messages as she passes through (I’m thinking of monkeys throwing fruit), and toss them back as a response.  Or, imagine a road map that traces the customer's physical journey through  both the real world and cyberspace, with marketing messages presented as billboards and interactions as conversations with passersby.  Or could you map the customer journey itself – a trip through the funnel – with a similar presentation of billboards and conversations?  Think of a child's board game like Candyland or, perhaps more appropriate, Alice's trip down the rabbit hole. 

• data visualization. Think of all those cool illustrations you’ve seen of social networks, molecular structures, Web behaviors, economic trends, geospatial data, manufacturing processes, and who knows what. Why can't marketing systems do better than flow charts and pie graphs? How about a three-dimensional campaign diagram that you can rotate and zoom on three axes? Or a six-dimensional view using height, width, depth, color, size, and shape, with a slider for time? Some of these might be hard to interpret but even a flow chart takes some training to understand. I'm certain that creative design can pack more information into a simpler package.

• games and simulation. Could a marketing campaign sprout like a tree, growing more complex over time and bearing customers as fruit? Simulation games use simple rules and a few user choices to create elaborate cities, empires, and organisms. Some already let users run model businesses. More advanced versions of those programs could use rules derived from your customers' actual behavior to test alternative campaign designs and pick the ones most likely to succeed. The campaign details would be built by the system, so the interface becomes less important, although marketers would still need to review everything before deployment. These designs would be inserted into the matrix of existing programs, so the system could model each program’s incremental impact on the full customer lifecycle and on other program results. This leads directly to the Holy Grail of Marketing Optimization (which might make a fine multi-player quest game, come to think of it).

• multiple views and viewpoints. Most of today's marketing automation systems already let administrators control which features are available to which users. But everyone with access to a given feature usually sees the same thing. The one exception is that salespeople are given wholly separate interfaces tailored to their needs. But this approach should be carried over to other personas within the marketing department – the CMO’s view of campaigns is radically different from the marketing operations person’s, and they should not be looking at the same flow chart. Even the same user might want different views at different times, depending on the task at hand.

• customer perspective. I’ve already touched on this but it’s worth more attention. There’s a strong argument that the fundamental notion of separate marketing campaigns should be replaced by integrated customer treatments across all channels and life stages. The flow chart interface is based on the individual campaigns, and becomes impractically complex precisely when campaigns are expanded to accommodate too many contingencies. A customer-centered approach would develop rules for each situation rather than stringing together rules for many different situations. Those rules would be simpler because they dealt with a narrower range of conditions. They could also be spread between campaign logic and dynamic content logic, and many might be replaced altogether by predictive models that choose the highest-value treatment. The explosion of channels and contacts has made integrated customer treatments essential. Marketers need a fundamentally new interface designed to provide them.

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Marketing Automation Skills are Scarce: Vendor Strategies to Close the Gap

The marketing automation industry continues to grow quickly, with many vendors announcing their client bases have more than doubled in 2011. But there’s also a growing realization that many marketing automation systems are used for only simple tasks – often no more than email, landing pages, and CRM integration. For example, LoopFuse found that nearly twice as many used email and web landing pages as lead scoring.

Even more worrisome are increasing reports of user dissatisfaction – not enough to stop people from using the systems, but perhaps enough to prevent them from expanding their deployments or recommending marketing automation to their friends. Act-On Software recently reported that 40% of marketers are dissatisfied with their campaign management program.

Surveys, like this one from IBM, show many obstacles to successful deployment.  But the ultimate problem is staff skills: marketers who know how to use their systems and understand their benefits can make a compelling case for investments in programs, integration, technology, data, process change, and whatever else is required.

Marketing automation vendors are painfully aware of these issues. They've taken a range of approaches to addressing them. I've seen four distinct strategies:

• training. This is the most direct approach: if users don’t have enough skills, then teach them. I’m using “training” in a broad sense to include all types of preparation before deployment: these include marketing planning, process change, content development, metrics definition, and organizational realignment as well as actual training in system use.  This is the traditional strategy for B2C marketing automation and at B2B firms large enough to afford substantial pre-deployment investments.  It’s also the preferred option of most industry consultants (myself included) because it provides the strongest platform for future success. Among B2B vendors, Eloqua is the poster child for this approach. (And I should note that many vendors are supporting the Marketing Automation Institute's training program too.)

But not everyone can afford through training and preparation for a marketing automation deployment. The remaining strategies are designed to help those who cannot.

• ease of use. Simple systems let marketers get started with minimum preparation. This is by far the most popular strategy among vendors, presumably because it increases sales by placing the fewest demands on buyers.  It's applied by Marketo, Pardot, Act-On Software, Genius, Net-Results, and many others. It’s also the most popular strategy among buyers, judging by how many installations never grow past the basic functions. But the approach is also probably the reason for high dissatisfaction: marketers must find they face a much steeper learning curve than they expected to use their systems' fully. For long-term success, vendors who take this approach must ensure that their clients keep growing after the initial deployment.

• automation. Instead of training marketers to do hard things or making those things easier, automation has the system do them instead. This is a much less common strategy, in part because it's technically demanding and expensive to execute.   It's also a partial solution at best, since no one thinks marketing can be fully automated.  Still, it's being applied to lead scoring (creating the actual scoring formulas automatically, instead of asking users to define them); to content selection (letting the system predict which content a visitor is likely to want); and to contact frequency (letting the system determine how often a lead should be contacted). HubSpot is following this approach most aggressively although others are also applying it in places.

• full service. This strategy argues that it’s ultimately more efficient for the vendor to do complex marketing automation tasks than to teach marketers to do the tasks for themselves. That’s not as crazy as it sounds: marketing automation tasks like setting up a new program are often complex, rarely required, and quick for a well-practiced expert. So buying a couple of hours or days of service each month really does save time and money.  It also gives access to more expertise than a small marketing department could ever build internally. As you might expect, this approach is most common among at the small business end of the marketing automation spectrum: Genoo, MakesBridge, and OfficeAutoPilot are good examples. But it seems to be creeping upstream: LeadLife, Treehouse Interactive, and Manticore Technology apply it to larger customers.

Although I’ve associated specific vendors with each strategy, the reality is that most companies apply a mix of several. This violates the classic strategy rule to select one clear goal and focus all resources on reaching it.   But a mixed approach probably makes sense for marketing automation, where a tactical choice like making your system easier can support several strategies and where different buyers may need different treatments.

This doesn’t mean that vendors can get away with being sloppy.  The market is too competitive and marketing automation is too complex to succeed despite poor execution. It’s also likely that a dominant approach will emerge within each customer segment.

But even then, one size won’t fit everyone. Both vendors and buyers will still need to match the deployment strategy to the buyer’s situation.

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Social Media Features in Marketing Automation Systems: Who Does What?

Social media is arguably overhyped as a marketing trend: it gets well under 10% of marketing budgets (different surveys have figures from 3% to 8%) and results are questionable (it was rated the least effective content marketing tactic in a recent MarketingProfs study).  But social is clearly growing fast and has great potential. So marketing automation vendors are understandably eager to support it in their systems.

I recently took a quick tour of vendor sites to see what social features they’re offering. Results are summarized in the table below. I need to stress that I’ve only credited vendors for features they list on their site. I strongly suspect that the data is incomplete, especially for basic features that are so common the vendors simply don’t bother to mention them. (Note: the table has been updated after the original post based on vendor feedback, so it's a bit more reliable than it was originally.)

The features fell into four broad categories:

• Basic posting and sharing: the most common features and the simplest level of social media marketing. As I wrote above, most vendors probably have most of them even though the chart doesn’t show them.

• Social media monitoring: watching social media for mentions of the company or other topics and responding when appropriate. Plenty of third party applications can do this, so providing it within the marketing automation system is mostly a matter of convenience.

• Importing social data: loading social data into the marketing automation database so it can be used for segmentation, analysis, and sharing with salespeople via CRM integration. This is harder than monitoring since it requires linking social identities to marketing leads and connecting to the social system’s API.

• Social platform integration: using native features of the social platforms by writing to their APIs. This can be tricky for the marketing automation vendors to build but it lets their clients take greater advantage of social media possibilities.


Looking at the chart as a whole, what stands out is the sheer variety: once you get past the basics, no features are common enough to consider them standard. This contrasts sharply with mature categories like email, landing pages, and nurture campaigns, where dozens of features are shared by most systems.  The reason is obvious – social media is still very young – but the disparity still provides interesting insights into what different vendors feel are most important to their clients.

The variety also illustrates that a great number of social media applications are possible (with plenty more to come). Naturally, the vendors will borrow features from each other, so we can expect some convergence over time..  A standard set of features will emerge as the industry figures out what’s really important.

The list below presents each vendor with a brief explanation of the table entries. Links on the vendor names go directly to the vendor Web page or press release that described their social media capabilities.  In cases where the data came from different sources, I've put the link on the items themselves.

Neolane
- posting: central panel to post tweets and Facebook updates
- sharing: place sharing buttons on emails
- tracking: measure clicks on links in system-generated posts.
- Facebook forms: use forms within Facebook pages and apps to gather customer permissions
- social sign-in: use social media sign-in services to replace marketing automation forms
- personalized Facebook ads: display different ad versions on a Facebook page based on the user’s profile, including both Facebook and non-Facebook data


Marketo
- sharing: place sharing buttons on landing pages
- tracking: measure visitors from the shared pages
- load Twitter feed: connector to load Twitter conversations to lead profiles and use the conversations in campaign rules


Eloqua
- sharing: place sharing buttons on emails and other marketing materials
- social sign-in: use social media sign-in services to replace marketing automation forms
- Klout segmentation: add Klout scores to lead profiles and use them in campaign rules
- show Twitter feed: let salespeople see a lead’s Twitter posts on their Profiler dashboard


IBM/Unica
- social monitoring: use CoreMetrics Social to find social media mentions of company


Aprimo
- posting: manage blog posts with review process and SEO recommendations
- sharing: place sharing buttons on email and microsites
- tracking: integrate with third party web analytics to track social referrals
- monitoring: integrate with third party social listening tools for monitoring


Pardot
- posting: central panel to schedule and send social messages
- load social profile: use Qwerly to import social media profiles and add to marketing automation lead profile
- show social profile: show social profile data in CRM


Silverpop
- posting: send posts to Twitter, Facebook, LinkedIn and/or RSS feeds along with email sends
- sharing: place sharing buttons on email
- social sign-in: use social media sign-in services to replace sign-in forms
- Facebook forms: add registration forms to Facebook and blogs
- badges and buttons: embed buttons and badges in email for Facebook, Twitter, Foursquare, StumbleUpon, XING


Act-On Software
- tracking: embed trackable links in system-generated posts
- social prospecting: find relevant social conversations and send to in-box; send template-based responses


SalesFusion
- sharing: place sharing buttons on email and landing pages
- tracking: embed trackable links in system-generated posts and online documents


TreeHouse Interactive
- sharing: place sharing buttons on email and landing pages
- tracking: embed trackable links in system-generated posts
- Facebook forms: build advanced forms that can work within Facebook pages


Net-Results
- load social profile: find data about visitors on Jigsaw, Linkedin, Twitter and post to marketing automation lead profile


Genius
- tracking: embed trackable links in personalized web promotions and chat messages


Loopfuse
- social monitoring: use Collecta realtime search to find social media mentions of company


HubSpot
- posting: send social media messages and blog posts
- sharing: place sharing buttons on blog posts and other content
- social monitoring: find social media mentions of company and respond
- Facebook forms: build ‘welcome’ app to capture leads on Facebook page

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LeadLife Bundles Services with Marketing Automation

LeadLife released a completely rebuild version of its marketing automation system last month.
The new system features a cleaner interface and revised capabilities that reflect what LeadLife has learned about the needs of small to mid-size companies since its original product launch in 2008. This involves a careful balance between complexity and power.

The best example of this balance, and the most notable change in the system, is campaign design.  LeadLife originally used a linear sequence of steps, while the new system uses a branching flow chart. This is a somewhat unusual choice for a small business-oriented system, whose clients tend to find flow charts difficult to work with. But LeadLife – like many other marketing automation vendors – found its clients tend to design campaigns as flow charts. It therefore chose to build the flow chart interface but to exclude the more confusion-inducing features, like the ability to send leads back to previous steps in the same flow or to start new flows in the middle.

On the other hand, the system does include some features not usually found in small business systems.  These include rule-driven, dynamic content blocks within emails, which LeadLife found many clients applied fairly easily. The system rule-builder also combines power with simplicity: for example, rules can reference specific links within an email (powerful) and the system automatically presents a list of links within the specified email (simple).

Probably more important, LeadLife has also bundled marketing services with its software. For example, vendor staff will design the campaign flows for the client, further reducing the risk that the flow chart will cause confusion.  Vendor staff will teach the client best practices such as building several small campaigns instead of a single complicated one.

Services are provided with every level of the product, including the lowest price of $750 per month. Specific options include marketing strategy, content creation, design, lead nurturing campaigns, lead process definition, and analytics. Most are performed by LeadLife’s internal staff although copywriting and design may be sent to subcontractors.

Bundled services are LeadLife’s solution to the skill gap that keeps so many companies from adopting marketing automation or using it fully. Other companies have taken a similar approach.  Still others have tried alternatives including keeping the system very simple, providing extensive training to use more complex systems, and using automation to handle complicated functions. Although most vendors apply them in combination, their emphases do vary.  It's not clear which choice will prove most effective -- but a lot of money is riding on the outcome.

Back to LeadLife. The scope of the new product includes typical marketing automation functions: campaigns, email, landing pages and forms, lead scoring, behavior tracking, CRM integration, sales alerts, segmentation, and reporting. Reports and some other features are still a work in progress but the basics are in place. LeadLife is migrating its existing 70 customers to the new system over the next few months. The system is sold on a month-to-month basis (no long-term contract) and prices are based on email volume and services.  Clients at all levels get the full set of system features.

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SDL Buys Marketing Automation Vendor Alterian for $107 Million

So, it turns out that while I’ve been obsessing over vendor selection workbooks, our friends at marketing automation vendor Alterian up and got bought last week by language technology vendor SDL for about $107 million. Why didn't somebody tell me?

I’m most familiar with SDL as a Web content management vendor, although their financial statements show that just over 75% of their revenue comes from manual and automated language translation. The company had more than $300 million revenue last year and is nicely profitable.

Alterian hasn’t been doing so well lately, with about $55 million revenue for the past year and cash-basis loss around $6 million. Management has also been in flux: CEO David Eldridge resigned in April, a new CEO Heath Davies was named in July, and president and co-founder Michael Talbot resigned in October. The company was nearing the end of a 100 day restructuring plan that dropped its headcount from 440 to 260.  It had also taken several red-flag accounting actions including restating revenue, changing its revenue recognition policy, and taking large asset write-downs.

You math whizzes out there will have already noted that the purchase price is just under 2x revenue, compared with the 5x-ish prices paid a year ago for Unica and Aprimo. Whether this puts a damper on the prospective valuations of other marketing automation vendors is hard to say: Alterian was obviously struggling, and its main business model was to license its software to marketing service providers rather than selling it directly or via Software as a Service. On the other hand, Alterian did have some SaaS components to its business, notably SM2 social media monitoring (formerly Techrigy).

Alterian also had a bold vision of extending beyond traditional campaign management and analytics to include marketing resource management and web content management as well as social media. I’d still argue the strategy was correct, but that Alterian didn’t have the financial resources or market clout to execute it. Certainly its costs got ahead of its revenue: at 440 employees on $55 million revenue, it had just $125,000 revenue per employee, compared with the $200,000 I consider standard (see my post from last January on revenue ratios -- even at that time, when Alterian had just 370 employees, it was already below par.)

SDL’s chairman is quoted as saying that “The marketing analytics, campaign management and social media were the big attractions” of Alterian, so presumably the company will keep those businesses. The content management piece, about 27% of Alterian sales, will presumably be merged with SDL’s much larger Web content management business.

The big question for the marketing services providers who are Alterian’s primary customer base is how SDL will treat them, since they are not SDL’s current core clients. That’s more than a little scary, especially given the dearth of alternative mid-priced marketing automation systems for consumer marketers. (See my list of B2C vendors from September and my discussion of the differences between B2B and B2C marketing automation from October.)

On the brighter side, I can argue that the Alterian acquisition supports my long-standing contention that marketing automation and Web content management will eventually coalesce into a single system. Any gloating is restrained by the fact that Alterian had already combined the two and didn’t succeed. But this probably just shows that deep pockets will be needed to pull off the combination in a world where the competitors are heavyweights like IBM, Oracle, Adobe, SAS and Teradata.

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Assess Marketing Automation Vendor Services Before You Buy - Another New Workbook

I wrote yesterday about our new workbook for marketing automation cost estimates. Today I’ll describe the other one: evaluating vendor services.  Both are available free at the Raab Guide Web site.

The problem with services is simple: you won’t use them until you’ve already bought the product. So the trick to evaluating them is to ask lots of questions in advance to understand whether they’ll meet your needs.

Of course, there are two parts to that mission: building a clear picture and knowing what you need. In terms of what you need, vendors offer three types of services:

• deployment: help with setting up your system
• support: help in operating your system after it’s deployed
• account service: help in growing your business.

Different companies have different needs in each area.  Buyers must understand those needs to know what they want a vendor to provide. I've written extensively about needs analysis in other posts and workbooks, so I won’t repeat those discussions here.

Similarly, the new workbook assumes you know what you’re looking for. It focuses on how to get it by providing suggestions for who to talk to, what to ask them, and how to interpret their answers.  Each service types involves talking to different people:

for deployment, talk to:

• deployment staff to understand their skill level, typical projects, and project management methods
• sales staff to understand deployment services and pricing
• references to understand the types of services provided and the quality of work

for support, talk to :

• head of support to understand services, staff qualifications, training, and reward systems
• front-line support staff to understand the kinds of problems they handle, internal systems that help manage their work, and how they’re motivated
• sales staff to understand support services and pricing
• references to understand service levels and satisfaction

for account service, talk to:

• head of account services to understand staff qualifications, measurement methods, and whether they have “success managers” separate from “account managers”
• account manager to understand their skills, training, workload, and objectives
• head of training to understand the kinds of training available, who delivers it, and if they understand how customers use the system
• head of professional services to understand the quality and scope of services
• head of partner relations to understand the types of partners and the company's investment in building a partner ecosystem
• sales staff to understand the types of account services and pricing
• references to understand the scope and quality of account services

The workbook offers dozens specific questions in each of those areas. I suppose you could just send each company the list and get back written answers, but you’ll get much more value from telephone and personal interviews. These let you listen to the replies and ask follow-up questions to drill into topics of interest. You probably won't need to ask every question to every person; the first few answers will often be enough to give a good idea of how the company does things in each area.

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New Workbook: Estimating the Cost of Marketing Automation

We released two more vendor selection workbooks last week, both sponsored by Eloqua and available for free on the RaabGuide Web site. One is about estimating the cost of a marketing automation system and the other is about evaluating vendor services.

The cost workbook was a particular challenge because the subject is so complex. After much thought, I came up with four cost categories:

• direct system costs: the actual price paid for the marketing automation software itself. This is where most buyers focus their analysis, but it’s a tiny fraction of the value at play.  Background research for the workbook suggested that automation costs are from 1% to 5% of an average marketing budget. This means that the direct system cost is pretty much insignificant compared with the marketing budget it will help to manage. To put it another way: even a small improvement in the other 95% to 99% of marketing costs can easily pay for a marketing automation system.

• operations costs: other costs related to running the marketing automation system, such as staff time and costs of related systems. Most of these are marketing operations costs, and there may be others in sales and IT.  You’re already incurring many of them, so the analysis has to identify how much they’ll increase or decrease as a result of marketing automation. This is really hard since it takes a detailed understanding of your current processes and how they'll change.  But the stakes are high: operations costs are about 25% of a typical marketing budget.

• marketing program costs: the expenses for specific marketing programs, such as advertising, trade shows, email, etc. These are the other 75% of the typical marketing budget. Marketing automation can reduce these costs substantially, both through reduced waste and through shifting funds to more effective programs.

• revenue: many marketers shy away from building revenue gains into their marketing automation calculation, but revenue is ultimately the reason for their investment. From an analytical perspective, it’s important not to double-count revenue gains (assuming the same marketing budget) and cost savings (from a lower marketing budget).  It's also important to recognize that revenue isn’t 100% profit. The workbook describes how to do this.  To keep things in perspective: marketing costs are under 10% of revenue at most firms, meaning that direct marketing automation are under 0.5% of revenue.

Analyzing all four items in depth is a big job. The good news is you don’t usually need to assess them all at once. 

• building a business case for marketing automation needs only a rough estimate for direct system costs, since they’re so small compared with the revenue, marketing program costs, and operations.  

• comparing marketing automation systems lets you focus on the system costs and changes in marketing operations costs, since those may vary considerably from one product to another. The impact on program costs and revenues should be about the same unless you're considering systems with widely different capabilities.  But hopefully you identified your needs earlier in the process, so you'll only be comparing similar systems once you reach the final evaluation..

It's useful to understand these cost categories, but the real work is gathering the details for each component.  This is where the workbook comes in: it lists of specific items to consider, so you have a framework to help ensure your analysis is complete. This is important: to take a real-world example, one of my consulting clients recently received quotes from two marketing automation vendors, one of which included email delivery and one of which did not. Recognizing the difference made it easy to prepare a true apples-to-apples comparison, but we could have easily missed it until later the process if we had not used a formal framework.

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