tl;dr There are three trends that are changing the nature of martech. They will catalyze the end of the “first golden age of martech” and lay the foundation for a second golden age that will be much larger, but likely look quite different.
- Ecosystems — instead of marketing cloud suites vs. best-of-breed point solutions, we will have the best of both: open platforms that serve as stable foundations, augmented by large ecosystems of specialized third-party apps that are more deeply integrated.
- Experts — the lines between software vendors and professional services firms will blur: software companies will offer more expert services; services firms will automate and bottle their expertise in code.
- (Citizen) Engineers — in a digital world where every company asymptotically becomes a “software business,” organizations will extend commerical platforms with customized customer experience apps and business process logic, many via “citizen developers.”
(Ecosystems, experts, engineers — stretched a little because alliteration is always appealing.)
Disclosure: Before continuing, note that outside of writing this blog, I am also marketing” technology landscape> always serves as a wonderful opportunity to step back, observe the industry as a whole, and recognize major trends. (Pssst, if you’re a martech company, you can send us your info by expanding” or consolidating>?” is the obvious question you might ask.
But give or take a few thousand companies in either direction, the size doesn’t really matter. Anything more than 2,000 vendors qualifies as “a ship ton,” to use the French nautical term for it. And believe me, there’s still a ship ton out there.
Yes, there’s been a large number of martech acquisitions this past year, and I expect that trend will accelerate. Nearly half of the previous without” taking venture capital>. The “how” of building a sustainably profitable martech business is a tied into the three major trends that are reshaping the field.
We’ll discuss each of these in more detail below. But before we do, it’s worth noting that the transition from our first golden age to our second one will be difficult for a number of the first generation martech vendors, primarily those who have been reliant on VC funding but have yet to achieve profitable escape velocity.
The Age of Reckoning in Martech: 2018-2020
We’ve been in the First Golden Age of Martech for the past 6 years. During these heady times, the sector expanded seemingly without limits.
But those limits are appearing now. Mostly from the constraints of the VC investment model — there’s only so many billion-dollar unicorn software pure-plays in the martech space in a given decade, and we’re pretty close to saturated at this point.
These next couple of years will be a challenging “age of reckoning” for the current generation of marketing technology ventures. If it coincides with a macroeconomic recession, attrition in the space could be significant — although I’ll stake claim to a worst-case upper bound of at most 40% over the next two years.
One of the surprising characteristics of the Cambrian explosion of martech over the past 6 years was that it happened without being particularly anchored around platforms.
Sure, there were a few. Salesforce in CRM. WordPress in CMS. More recently, Shopify in ecommerce.
But compared with platform ecosystems such as iOS and Android in the mobile market — which spawned millions of diverse apps that could be seamlessly installed with a single tap — martech wasn’t very platform-y.
But these weren’t platforms to the same degree as, say, an operating system. They were more like marketing middleware. They helped shuttle data between apps — which was super helpful, especially when it got easy enough for “citizen integrators” to do it without taking a number in IT’s mile-long deli line. Yet each app continued to live in its own little bubble of workflow, user experience, and governance.
There’s tremendous potential for innovation if we can break through those bubble barriers.
To me, software platforms have up to four layers in which they can bring coherence to the apps that plug into them:
- Data — centralizing and normalizing data as a “system of record”
- Workflow — routing and sequencing data, actions, and activities
- UI (UX) — providing a common user interface and user experience
- Governance — managing billing, compliance, and performance of apps
As an example, Apple’s iOS platform serves three out of four layers — workflow doesn’t really apply in that context. In contrast, most of the platforms in martech have primarily served the data layer, with a few lightweight pieces of workflow and UI.
Data is the most foundational component — and easiest thing to exchange between systems over APIs — so it makes sense that the industry would start there. But looking beyond martech to the broader SaaS platform world, it’s worth noting that Dropbox, G-Suite, and GitHub all expanded their platforms last year to support greater workflow and UI integration with third-party apps. (Each of those links is a TechCrunch story worth reading.)
I imagine we’ll see more of those kinds of integrations in martech platforms ahead. In addition, the raft of privacy regulation taking hold in the marketing industry will incentivize platforms to take a more proactive stance on governance for compliance reasons.
Collectively, martech platforms can bring significantly greater cohesion to marketing stacks.
That friction isn’t only challenging for marketers. It’s also challenging for martech vendors. They’e often selling against friction and inertia more than a competitor. Convincing a prospect of a new capability you can offer them, on the merit of its own ROI, isn’t enough. You have to overcome the barriers of their environment too.
Reduce that friction, and you could open up a whole new generation of martech innovation. It could enable a much broader set of martech vendors who don’t need to raise large VC rounds to create profitable businesses within a platform’s ecosystem — micro-ISVs filling out a long tail of specialized and niche capabilities that are easy for marketers to add to their stacks.
There will still be VC-funded martech ventures, striving to be a category leader that operates across many platform ecosystems — or to become one of the leading platforms themselves. I think of those respectively as the “torso” and the “head” of the martech long tail.
But in sheer volume and variety of martech capabilities, the tail will be what’s revolutionary.
If you look across the ecosystems of major martech platforms today, you can already see this taking shape. Extrapolate this trend over the next few years, and it’s not hard to imagine how it defines a second golden age of marketing software.
2. Experts blending software and services to deliver outcomes.
Around the time the martech landscape crossed 1,000 vendors in 2014, I remember talking with one of the executives of the 4A’s (American Association of Advertising Agencies) — talk about alliteration — about something highly ironic.
While marketers were freaking out about having to choose among 1,000 different marketing technology vendors, none of them seemed particularly bothered by the fact that there were more than 10,000 agencies in the U.S. alone that they had to choose among for services.
And that’s not including management consultants, systems integrators, or any of the other varieties of external guns-for-hire in the marketing world.
So why are marketers comfortable choosing among all these hordes of service providers, but scared by a fraction of as many martech vendors? Partly because the industry had grown up that way. But also because:
- Most agencies were considered “fungible” — you could swap one out at any time.
- Most agencies were hired to deliver outcomes or packaged assets — not build new capabilities inside a client’s firm — which made them easier to evaluate and engage.
In contrast, marketing technology software hasn’t been particularly fungible. And the decisions required to evaluate, purchase, and operate it have certainly been more complex.
Now, that isn’t to say that everything has been smooth sailing in agency-land. Agencies as we knew them have been thoroughly disrupted by changes in the digital world:
- Arbitrage on media placement has been decimated by programmatic advertising.
- The scope of marketing has expanded dramatically and become much more complex.
- Clients are moving more software-powered marketing capabilities in-house.
- Martech vendors themselves are competing against them for marketing’s budget.
- To support those clients, agencies have to become martech experts themselves.
- Technology and management consulting firms increasingly vie for the CMO’s ear.
- Gig economy networks have put downward pressure on hourly service economics.
Yet here’s the thing: clients have never been in more need of help than they are today.
Service providers who assemble the right talent and develop deep expertise in specific aspects of modern marketing have enormous value to offer clients. If they can structure engagements in a way that captures enough of the value they create — perhaps in an ongoing, subscription-like format — with non-linear scalable economics, they can build a very good business.
Hmm, almost starts to sound like a software business, eh?
But, but, but… selling software to customers is more complex for the reasons we listed above, right? It used to be, yes. But it’s steadily becoming less so:
- Consolidation among major marketing platforms are providing a more open and stable foundation upon which to create apps that can seamlessly plug in to a marketer’s stack.
- Because these third-party apps feed their data into the common platform, they have less lock-in power than most business software once had — customers can swap out an app at any time without losing the work the app did for them.
- Microservices and APIs in the cloud — and increasingly, serverless architectures using infrastructure such as Amazon Lambda — make it easier to package and deliver smaller chunks of software functionality.
- By remotely interfacing to the APIs of a client’s marketing stack, a service provider can bottle its “secret sauce” — its unique algorithmic processes and techniques — in scalable code, but still manage the client relationship as a service engagement.
This isn’t a hypothetical vision of the far future. It’s already happening today. Many of the major consulting giants and agency holding companies have been acquiring or building software with this strategic shift in mind. (Note their inclusion in LUMA Partner’s Strategic Buyer LUMAscape.)
But you don’t have to be a large services firm to play the software card. In fact, this strategy is a way for smaller firms to differentiate themselves and punch above their weight class.
As one example, take Blue Green Brands — the wonderful team who is also helping me with this year’s martech landscape — a boutique firm specializing in conversion optimization for major digital brands.
They developed a number of clever techniques for analyzing and segmenting website visitors — and then optimizing their journeys accordingly. They recently bottled their expertise into a software product, Blue Green Analytics, that is highly tailored to their optimization process.
Their software product:
- Easily plugs into (and is easily pulled out of) existing martech platforms
- Gives Blue Green greater efficiency and effectiveness in their service delivery
- Gives clients ongoing value beyond any one project (and keeps them connected)
- Can be sold independent of a services engagement, which can attract new clients
- Differentiates Blue Green and gives them a competitive advantage
- Helps smooth services revenue streams that can typically be spiky
This is a “best of both worlds” business model: Blue Green harnesses the positive dynamics of software, while clients retain benefits of service-oriented purchases. Clients buy outcomes — but with bonus capabilities beyond a project — and they don’t need to change their martech infrastructure because the Blue Green app plugs into existing open platforms in their stack.
So is Blue Green a software company or a services company? Does it really matter? Their solution works for their clients/customers, who love them, and they’ve built a thriving business.
On the other end of the universe, software companies — especially VC-funded ones — have been discouraged from offering services. Because traditionally, services were (a) not very profitable and (b) not very scalable. At least not in comparison to the economics of the classic kinds of exponentially growing software businesses that VCs love. And there was a concern that good services could mask bad software.
“Let the software stand on its own merits!” As a product person, I can appreciate that.
First, feed a man a fish. Then teach him how to fish. Then collect lifetime recurring revenue.
The major martech platforms have generally left that to their services partners, which has been a rewarding symbiotic relationship for the first golden age of martech. (However, I will point out that, not too long ago, Salesforce started promoting
But for smaller or newer martech companies — the long tail of more specialized martech apps — they may need to provide services of their own to assure prospects that they will receive the help necessary to achieve the outcomes that their software promises. This can reduce friction in the sales process and, ultimately, increase the probability that a customer will be successful with their product, which reduces churn. It’s the transfer of expertise.
I’ve actually seen some VC-backed martech companies embrace this model because, well, it works. But if the second golden age of martech consists of a majority of long tail vendors who aren’t funded by major VCs, but rather create sustainably profitable businesses in specialized markets from conception, then it doesn’t really matter what the VCs think.
Where is the line then between software-powered services firms and service-enabled software companies? I don’t think it matters. We’re going to see a lot more of both.
3. Developers and citizen developers shape the firm.
As Marc Andreessen famously said, “Software is eating the world.” In a digital world, every company will — to some degree — asymptotically become a software company.
Most won’t be selling software products, or at least not things packaged as such. But the products and services that they sell will have software components to them. If a bottle of whiskey can go digital, anything can.
Software increasingly drives customer-facing touchpoints and automated back-office processes, choreographing the front-stage and back-stage elements of a customer’s experience. Inherently, this digital dance is unique to each individual business — and therefore it almost inevitably includes custom code.
We see this today with digital native brands, such as Netflix and Spotify, that have written most of their own customer experience software. But even at digital companies selling non-digital goods — pretty much the entire wave of new direct-to-consumer (D2C) brands — there is a little (or a lot) of their own software in their end-to-end customer experiences.
It’s what helps make them, them.
The whole “growth hacker” movement embodies this very principle: craft the software of the digital product/service itself to achieve “marketing” goals of customer acquisition, conversion, engagement, and retention. The line between product and marketing is blurry.
Traditionally, however, this led to a “build vs. buy” fork in the road.
Companies with software engineering resources on staff could build custom solutions for their exact marketing needs. The upside was that they could tailor it perfectly for their business. The downside was that a lot of what they built was general-purpose functionality that wasn’t really unique to their business at all, and they were wasting comparative advantage by sinking time and talent into it.
But in the first golden age of martech, where most of the general-purpose functionality within commercial marketing software products was not accessible via APIs, they didn’t have much of a choice. They could buy an off-the-shelf product for a certain capability. Or they could build their own solution, customized to their exact needs. But there wasn’t much middle ground.
The shift of the martech industry towards open platforms causes that dichotomy to disappear.
Just as long-tail martech app developers can leverage these platforms to more easily distribute their specialized products — and services — individual brands can leverage them to build their own custom, one-off apps on a common core of the platform’s capabilities.
They get to tap all of the general-purpose functionality of the platform, so they don’t have to reinvent the wheel. But they can augment it with just the additive functionality that is unique to their business. For that matter, as these platform ecosystems mature, they should be able to blend any combination of core platform functionality, third-party apps, and their own custom code — swapping components in or out and orchestrating them in a highly agile fashion.
Now, you might be thinking, “That’s great if you’ve got a bunch of software engineers at your beck and call. But — checking around my desk — that’s not a luxury we have.”
In short, non-technical business users can now use friendly tools to build apps (like with Betty Blocks). Or analyze data (like with Tableau). Or interconnect cloud services (like with Zapier). Or construct digital business process management workflows (like with Pipefy).
I’ve just named one vendor in each category as an example, but there are literally hundreds of companies now empowering “citizen technologists” in one form or another.
The space is seriously hot. The analyst firm ResearchAndMarkets predicts the low-code app development market will increase from $4.32 billion in 2018 to $27.23 billion by 2022, growing around 45% annually during the period. There was even a rumor last week that Amazon may launch a low-code/no-code product to make AWS accessible to business users.
Regular readers might also recognize this dispelling of dichotomies as a continuation of the theme from the”>MarTech conference in San Jose, April 3-5. We’ll have dozens of the leading experts in the field delivering vendor-agnostic, graduate-level presentations, over a hundred martech vendors exhibiting, and more than 2,000 of your peers. There’s no other event like it.