Earlier today Marketo agreed to be acquired by Vista Equity Partners for the cool sum of $1.79 billion which works out to $35.25 per outstanding share. Vista has its eyes open and Marketo is a public company with fiduciary responsibility to maximize shareholder value (a logical construct that I have always questioned). So let them go and do what they do, but to play devil’s advocate, I think someone made a mistake.
First, there’s the obvious question: How does Vista make money on this long term? At some point they’ll want to sell Marketo at a higher price but that suggests there will be such a “greater fool.” But is there?
In the last several years all the major CRM vendors have bought up the independent marketing tools and folded them into their suites. Salesforce had been rumored to be the most likely candidate to buy Marketo just before it surprised the world and bought Exact Target instead. Today Salesforce doesn’t need a marketing product, thanks, just the same. Ditto for Oracle, which bought Eloqua to kick off the buying frenzy. Other vendors, SAP, Microsoft, etc. are fine too. Sugar could use a high quality marketing automation solution to round out its offering but at nearly $2 big ones it’s hard to see that combination happening. So the question of who is a likely buyer becomes very important.
Suppose the likely buyer doesn’t exist yet; suppose that the best fit for Marketo is a new CRM suite that will be cobbled together from spare parts by Vista. That could happen but if so the prospect of a synthetic new vendor would mean spending billions more to assemble the suite and millions more to make it all work. That’s like starting the Indy 500 by spotting the competition 450 laps. It doesn’t make a lot of sense to me, but I’m just an analyst.
I can’t really think of a third option unless it’s using Marketo as the seed crystal of a new category of front office products whose business model revolves around marketing and lead development. That would give you a broadcast-advertising model that leverages audience development with targeted message development. This isn’t such a bad idea but it isn’t exactly new either and the existing front office players each have salient in this area too. Thus we’re back at the Indy 500.
I’ve always thought highly of Marketo. They spent a lot of time and effort, not to mention capital, building a new idea about analytics based marketing. The idea was new and foreign in most circles when they got started but it has become mainstream. In all of this you’d have thought some other CRM company would have bought Marketo before this because it would have been a good fit for several possible suitors.
But that didn’t happen and Marketo found itself in a game of musical chairs without a clear future. Stand-alone marketing appears to be a declining phenomenon. So now Vista no doubt has a plan and it will be interesting to watch it play out.
Almost forgot. The re-IPO strategy is a more likely scenario but then you would have an improved balance sheet, a tidy company, and a higher valuation to sell the stock. But even if this strategy works to perfection you will still have a stand-alone marketing automation company.
The CRM industry is shining a bright light on digital marketing these days and it is a sign of how early we are in the digital marketing boom that few if any vendors are championing the idea of using marketing in any way other than for driving sales. Having seen recent marketing events by Oracle and Salesforce, it appears that the focus on driving more sales or some variant of it makes perfect sense for marketing organizations just getting their feet wet. And why not, driving sales is the job of marketing so what else might you expect from marketing?
Well, looking down the road, I’d say that the most important thing that digital marketers could do would be to build brand loyalty. That’s not a stretch but it doesn’t appear to be top of mind either. Here’s my logic: marketers want to generate leads that sales can close whether in B2B or B2C situations and as long as they can generate acceptable numbers that will be fine.
Unfortunately though, digital marketing might simply be accelerating an already prevalent issue, churn. Study after study of customer loyalty shows customers not being loyal to much more than a rewards program or discount. Whatever vendor offers the best reward is likely to get the business, at least temporarily. This leads to the confusing situation where customers appear to behave in loyal ways, even saying they are satisfied but in reality they’re ready to go elsewhere whenever an opportunity presents itself.
The solution to this dilemma is to promote customer loyalty through marketing, but there are some wrinkles to be worked out. You can’t market loyalty under most circumstances. The dismal success rate of many rewards programs shows this. Please don’t tell me about frequent flier programs (FFP), because while they promote loyal behavior, they also contain some of the most disgruntled customers imaginable. Check out a customer sentiment site or two and you’ll see what I mean.
Real customer loyalty starts with customers wanting to engage with vendors—direction is important too, you can’t expect much if you ask customers to like you. So a logical conclusion might then be that marketing loyalty is useless and why am I writing this?
Simply put, we need to do a much better job of marketing engagement to customers if we want them to be loyal in return. How? Understand first, that making an additional purchase is a form of loyalty but it is only one and it comes at the end of a longer chain of events. In loyalty terms, a customer repurchase is equivalent to a customer defending your brand online or in public spaces, contributing knowledgebase articles, answering a survey and many other little things like that. Ironically we don’t promote (i.e. market) those things and we often don’t record the events themselves in part because a purchase is often the only recognized loyal behavior.
Studies I read show only about 15 percent of vendors encourage customer engagement like that but better than 80 percent try the old cross sell and upsell whenever they can. Some vendors even go to the extreme of asking their customers to say nice things. Their reasoning is that such advocacy is a surrogate for loyalty and it is but you can’t start there. Loyalty is driven by engagement and all of that drives advocacy. You can’t rush it.
So back to digital marketing. It might be the most important customer loyalty tool ever invented but of course, you have to use it that way. If your digital marketing strategy is simply to drive more leads you might want to rethink that. At some point everyone will have good digital marketing tools, and they’ll know how to use them. But at that point customers might not be much different than they are right now, tired of being approached to make one more purchase. So it’s a good time to expand our horizons to figure out how else we can use digital marketing to promote our brands and earn engagement and loyalty.
Denis Pombriant is a well-known CRM industry researcher, strategist, writer and speaker. His new book, “You Can’t Buy Customer Loyalty, But You Can Earn It,” is now available on Amazon. His 2015 book, “Solve for the Customer,” is also available there. Pombriant can be reached at email@example.com.
One of the companies that I advise, Metavine, is on a path to seriously disrupt the application development market in several ways. Such a disruption is not a new idea. Ever since third generation procedural programming languages (3GLs) like COBOL and FORTRAN gave way to the 4 GLs, we’ve been looking for faster programming and better programmer productivity and for decades we’ve come up empty. The fault lies in the paradigm for application development and the very idea of a programming language.
As long as our model consists of writing line after laborious line of procedural code our development will be slow and have error built in. Whenever humans run into this kind of roadblock we turn to automation—we build a machine that standardizes a process, which enables us to stamp out huge numbers of whatever product we want. Automation drives cost reductions too. So that’s the paradigm we’ve been searching for, a way to automate the software creation process.
There have been many partial success stories along the way but every time we’ve gotten close a new challenge cropped up and the goalposts moved. Generating code turns out to be only one of several challenges that a software automation paradigm needs to deliver. We also need efficient ways to fold in third party and legacy apps, build in support from essential accessory apps such as social media, generate running code for multiple platforms and operating environments, and we need to face the reality that our apps need to harmonize with those of other development modalities. It’s a tall order and no wonder we haven’t gotten further toward the goal in the last few decades.
No coding environment or generator can do all this by itself what’s needed is a platform that inherently supports these diverse functions. There are several platform solutions that have gotten close recently though most of them build high walled gardens around themselves that require users to more or less get any color they want as long as it’s black.
The solutions on the market are quite good and they deliver on the basic need for software automation. But most haven’t cracked the nut on distribution and I believe distribution is the element that will push us into a new paradigm.
Conventional automation still produces running apps that customers buy or usually subscribe to. You might think that there’s nothing wrong with this, and there isn’t, but it raises a couple of caution signs. Increasingly we’re discovering that markets for generated software are rather thin, there aren’t that many possible customers or we’re discovering that markets are potentially huge but that the prices we can charge start at $0.99 and don’t go up much.
In the latter case there’s a great deal of risk in developing an app that will sell for 99 cents because you’ll need to sell quite a few to break even. On the other hand, if you are building a simple app to support a small need in your company, you might not sell any but you’d really like it if every little app your people dreamed up didn’t have to come from IT. Ideally you’d like to buy something for the equivalent of 99 cents.
This is where a new paradigm for software, based on non-procedural specifications can be valuable. A specification can be traded, perhaps for other specifications, so that a lending library of capability builds up and a take-one-give-one culture emerges.
Trading app specs through a standards based community removes the need for money and creates a commons in which the members measure their “wealth” as common resources.
That’s the full-scale idea behind Metavine. It’s a non-procedural application automation environment with a community of like-minded people involved in supporting each other. Metavine’s community resembles the community culture growing up around 3D printing. In that world, people trade specifications, tweak them for specific needs and generate one-off products.
This seems like an important new direction in the software industry where the cost of products continues to shrink even as demand rises. This commoditization will only be accelerated by further improvements in automation and business models. So I invite you to examine Metavine’s development approach and experience its community. You can get started by clicking here. Please let me know what you think.
In today’s hyper-competitive markets, customer loyalty takes on new importance for numerous reasons. Markets are competitive because in many there are multiple competent vendors with quality products. Also, the number of net new customers is falling to the rate of population growth; for example, if you have a smartphone you might be reluctant to buy another every two years. This means that for any vendor to show decent growth, strategies that take away a competitor’s customers become very important. Therefore, so do strategies for retaining them and that’s where loyalty comes in.
It also doesn’t help that so many products are sold as services today either. The rise of the subscription business model means lots of customers understand that they can find another vendor if the current one lets them down. According to a 2015 report from Accenture attrition imposes high costs on the global economy. In 2014, the last year for which we have data, customer attrition amounted to $6.2 trillion dollars.
To put that into perspective, there are only 3 economies with bigger GDP’s (gross domestic product) on the planet, the U.S.A, European Union, and China. So effectively the fourth largest GDP is wasted if you consider that churn represents a re-establishment of a status quo with no real advancement because a customer simply trades one vendor or brand for another in a churn.
The significance of churn is often lost on people simply because customers are won and lost individually and as long as a vendor has a net increase in revenue or units shipped or similar measures, we tend to de-emphasize or even ignore churn. But should we?
Right now, even the best companies selling subscriptions have churn rates of 10 percent or less. Some churn is unavoidable especially if a customer leaves a demographic—they age out, or outgrow a product or a service, for example. These things can’t be helped and you might call this acceptable churn. But if there’s acceptable churn then there has to be unacceptable churn too and the GDP numbers are mostly about the unacceptable variety.
Unacceptable churn is insidious—it happens when we’re not looking. One moment a customer is exhibiting loyal behavior using a product or service or perhaps even increasing exposure to it and accumulating points. But the next moment the same customer is gone.
Vendors have tried all manner of ways to retain customers and reward programs head the list. But customers accepting rewards for making purchases are often only exhibiting loyal-like behavior without any consideration of the real thing. One study by IBM, Travel loyalty – Discount discontents showed that upwards of two-thirds of travel customers would churn out of a vendor situation if they could find a better price. But that’s not real loyalty, which can be defined as a customer having a vested interest in seeing the vendor do well.
Truly loyal customers aren’t in the relationship for discounts or coupons; they like the products and services and they preferentially select one vendor over another. Vendors that have figured out how to encourage customers to be loyal have discovered that engagement is a key to success. Importantly there are 2 types of engagement, the kind initiated with vendors, which comes spontaneously from customers.
Figuring out how to earn spontaneous loyalty through engagement is the work of modern loyalty programs and it has less to do with accumulating points, miles, or discounts than you might think. It’s also the subject of my new book, You Can’t Buy Customer Loyalty, But You Can Earn It. I’ll be providing more loyalty insights here soon.
Apple’s earnings disappointment thudded into view in the middle of an afternoon of briefings at Oracle’s Modern Marketing Experience conference in Las Vegas. In that context it gave me a lot to think about especially the difference between a one time earnings disappointment and something more serious. (1)
I have a feeling that Apple is only the most visible instance of the wheels beginning to wobble on the truck of tech. The legacy software vendors including Oracle, SAP, and Microsoft each have fundamental challenges ahead as they continue to march to the cloud. Each needs to move its considerable customer base to cloud solutions that have very different economic models and each will have to face the fact that success involves lower revenues as customers adjust to paying for subscriptions. In this scenario, success will look a lot like failure.
The way of the world
This is typical of end of paradigm situations and there isn’t much to help. For instance, textile manufacturing was once the heart of our economy but that’s moved to lower cost countries by and large. We backfilled with higher value products and services and the same is happening now with technology. Ironically though the issues and challenges faced by Apple and those companies moving to the cloud are different from a pure economic perspective.
Apple’s flagship consumer products are reaching barriers caused by market saturation and lower cost competition. The move for Apple is to innovate more consumer goods if it can but that’s a big if. There is likely a limit to how much personal gadgetry we can extract from chips and screens. Google Glass and Apple Watch might be hints of a ceiling though it’s still too early to call a trend.
Commoditization is another factor. Apple is experiencing headwinds in China, its second largest market after the U.S. Also, it sold fewer iPhones globally in the last quarter than expected due in part to stiff competition from Android devices that are lower cost and functionally competitive. Still Apple garners most of the profits from the sale of smartphones, a market whose margins are tightening with competition. We can expect this trend to continue as vendors cut prices while attempting to maintain market share.
Other shoes drop
Apple isn’t alone. Twitter is still losing money though less of it according to the latest numbers (2). The same saturation dynamic is operating for Twitter but at a much lower revenue run rate than Apple. Social media is a winner takes all market so though there aren’t very many competitors the value of a network is in the number of participants, which naturally limits the number of competitors. The dominant advertising model that social media relies on for revenues has been under pressure with other vendors like Google and Facebook having to adjust.
The legacy providers face a different problem that manifests in similar ways. As they become more successful at moving customers to the cloud, their revenues shrink and come in over longer time periods. So their year over year comparisons look worse much like Apple’s predicament even though they may be selling well.
Cloud computing was seen as a great leap forward because it gives customers much lower cost structures and it has kept that promise. But it is also a form of commoditization and I wonder how legacy vendors will replace the revenues they give up as they turn to the cloud. It’s not as though there is a choice, competition is forcing everyone to the cloud so it will take years, I think, for legacy vendors to grow enough to replace revenues they are losing in the shift.
Then, too, demand growth is reverting from an exponential growth curve to one that resembles organic population growth and this means any vendor seeking to grow will need to do it by taking share from others in a zero sum game.
What about CRM?
What happens next for CRM is speculative. The new technologies that Salesforce, Oracle and everybody else are bringing to market foretell a time when the front office employs fewer people as commoditization heats up, but that might not be a problem. The IoT is a hot idea right now with little to show of any real substance but it’s possible that the IoT will be the next bit of infrastructure that will spark exponential growth. As a communications layer it could spawn a lot of jobs as people, relieved of more mundane occupations leverage the information boiling out of the IoT to perform services that only people can do.
In some respects this is a scary time. Apple missing its number can’t be fun and neither can watching a legacy company’s earnings evaporate even as it does most things right. We’re in a transition period and if we keep our wits about us and continue to innovate in a few years we might find ourselves in an era that resembles the late 1980s.