What’s Behind Hubspot’s IPO and Infusionsoft's $55 Million Financing?

by Dan Freeman 
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Two huge events shook the world of marketing technology last week and demonstrated the continued determination to harness marketing data to improve marketing and sales processes.

On Monday, October 6th, Infusionsoft―makers  of marketing automation software serving the small business sector―announced a new $55 million round of funding headed by Bain Capital and Goldman Sachs.

Then on Thursday October 9th, Hubspot went public, raising $125 million in its flotation and becoming the 3rd marketing automation IPO. Eloqua went public in August 2012, raising $92 million, before it was promptly purchased by Oracle in December of that year for $811 million. Then in May of 2013, Marketo went public, raising nearly $80 million.

Infusionsoft's fourth round of financing caps a record year for VC funding in the marketing automation sector.

Below is a chart of selected VC financings for marketing automation related ventures.

In addition to IPOs and venture funding, there’s also been a rash of acquisitions.

Between venture funding, IPOs and acquisitions, no one can argue that marketing automation is not hot.

But what’s behind this level of activity?

Advertising, and more generally marketing, has been in the throes of transformation for decades, or what the economist Joseph Schumpeter called ‘creative destruction’. To understand the transformation taking place, try to image marketing before Social Media, before Google, even before email and the Internet. Content was largely created by a few big ad agencies (think Don Draper) and pushed to consumers. Of course we still have ad agencies doing big TV campaigns but that’s far from the full story.  The Internet browser—Mosaic was the first—made content available to the masses and also spurred a content revolution.

With content vastly more accessible, a virtuous cycle of content creation and sharing was born. And it’s the exponential growth in content that is at the heart of the rise of marketing.  Google (and its predecessors) have transformed marketing from what was largely a top down, indiscriminate, push of content from a few large agencies, to a much more efficient, bottom up, pull from hundreds of millions of consumers via Internet search. That’s how Google has gone from start-up in 1998 to a $400 billion company in a mere 16 years. Of course we still push content, but at a fraction of the cost through Internet advertising and email marketing, and it’s aimed at intricate demographic and behavioral segments, and individuals that are far more likely to purchase.

The vast bulk of content today is created bottom-up, through websites, blogs, and, of course, social platforms. Add to the proliferation of content, the exponential growth in digital interactions, and now marketing has become more data intensive than Wall Street—hence the acquisition of marketing software firms by tech giants like IBM, Oracle, Microsoft and Adobe.

The transformation of marketing is represented both by meteoric rise in content and the ability of marketers to interact with that content. The primary challenge of marketing today—and the focus of many of today’s marketing technology firms—is managing the proliferation of content and interactions, and harnessing this data to put relevant content in the hands of customers and prospects so that products can sell themselves, or, in the case of B2B, at least do the bulk of the selling work before a hand-off to sales is made.

Software-as-a-Service (Saas), aka Cloud Computing

There’s another important factor at play in the rise of marketing; the coming of age of Software-as-a-Service (Saas) or cloud computing. SaaS made it far less costly to start new software ventures, and much cheaper (and less risky) for business users to purchase software. The IT department used to hold enormous sway over software investment dollars. Not so with cloud computing. The combination of vastly increased supply of software products and the release of purchasing power from IT to the marketing department resulted in rapid innovation and a burgeoning marketing for marketing technologies.

At the nexus of data, content, and technology is the sector known as Marketing Automation and it’s gone from red to white hot. Marketing Automation deals with functionality such as streamlining content creation, distributing across multiple channels, attracting web surfers, capturing leads, segmenting prospects, quantifying and responding to digital interactions, etc. To the extent that marketing technology firms can help marketers in this gargantuan effort, they will continue to thrive.

All-In-One Sales and Marketing Platforms Attract Small Business

by Dan Freeman 
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When Stacy Isemann and her husband Todd realized their company’s revenues were flat while costs were rising, they knew he had to do something. With a marketing staff of just one (that would be Stacy), they knew they had to be very selective in what they chose to do.

The couple started STL Rent A Box in 2012, a company that rents out reusable storage boxes for homeowners and companies moving locations.

They had tried their hand at email marketing previously—they’d used MailChimp but found that the purely self-help aspect of the service was not for them. After spending a good amount of time importing data, they sent out about three emails campaigns, then dropped off after lack of activity.

Stacy met Jonathan Herrick, Head of Sales & Marketing at Hatchbuck, at a local networking meeting in St. Louis—home to both companies. After discussing their marketing issues, Stacy decided to try Hatchbuck’s marketing automation software—something she hadn’t heard of before.

Hatchbuck is one of a new breed of marketing automation vendors geared to the small business market. Most marketing automation platforms were designed for the Enterprise market, where CRM systems are dominant and ingrained in the organization. These marketing automation systems must integrate with CRM, multiplying the complexity of implementation, and of day-to-day usage.

Hatchbuck, like Infusionsoft, Ontraport, and others incorporates CRM functionality into the marketing platform, so there’s no need to integrate. The all-in-one sales and marketing platform is an appealing and intuitive concept for a small business owner. As much as vendors claim to have seamless integration between systems, anyone who’s had to push and pull data between systems knows that integration is not simple.

Rent A Box didn’t even have a CRM system—they kept their contacts in Gmail.

Enterprise marketing automation systems also have extensive marketing bells and whistles which are simply not used by small businesses. But more than that, these features can clutter and complicate the user experience.

After some initial hand holding, Stacy was up and running with Hatchbuck in about two weeks and now considers herself proficient. She Skypes with Hatchbuck support whenever she has a question or needs help.

Rent A Box has a list size of about 6,000, the majority of which are real estate companies. They do a monthly email campaign and make frequent use of the system’s segmentation capabilities.

Stacy also gets much usage out of the CRM feature in Hatchbuck. After each client is done with their move, Stacey sends a thank you, and also asks for testimonials.

Business is going really well for Rent A Box. In fact, customers are doubling almost every month and they recently had to invest in new inventory.

As for Hatchbuck, they are growing nicely as well, tapping into the small business market that’s looking for simple yet powerful solutions to help facilitate both the marketing and sales activities.  According to Herrick, “The number of small business opportunities we bring into our sales funnel each month has increased by 250% and our customer base has grown 130% since the beginning of the year as small businesses realize the need for an all in one sales and marketing automation platform.”

For more information about marketing automation including profiles of 12 vendors, see this marketing automation industry overview.

Who’s Winning and Losing in Marketing Automation? Fall 2014 Round-up

by Dan Freeman 
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One of the most important metrics in evaluating the ultimate value of any cloud software product is the customer retention rate, a number that encapsulates the value obtained versus client expectations. Retention rate takes into account usability, support, expectations set, and impact on marketing and/or revenue goals. Companies that receive value in excess of expectations generally renew; those that don’t opt out.

Download a Just Revised Marketing Automation Industry Report Covering Marketo, Eloqua, Pardot Act-On, Infusionsoft, Salesfusion and many others.

Though a valuable indicator for customers considering an investment in marketing automation, don’t expect marketing automation vendors to divulge much about retention. They sometimes publish the number and growth rate of their customer base but not a single one lets on to retention rate, or its inverse—churn.

Not to worry. Another class of marketing technology companies can shed light on the magic retention metric.

Software tracking company Datanyze scans over 18 million of the world’s most-trafficked websites, hunting for JavaScript embeds and web tags that indicate the presence of hosted software—in this case a marketing automation platform. The chart below shows the total number of websites using selected marketing automation platforms as of 9/1/14.

Note that websites do not equate with customers as a single customer may use marketing automation software on dozens or even hundreds of websites. Nevertheless, website count is a good indicator of success.

But not so fast...

It’s not just absolute website count but rather the changes—the additions and loses over time—that are the strongest indication of platform success in the marketplace.

I analyzed the top 20 firms for which we have data—and which fall roughly into the marketing automation space—and calculated the percent change in websites using their software since January 1, 2014.

Change happens quickly in dynamic markets. Demand for marketing automation software is growing overall but aggregates mask marketplace turbulence. According to the data, only two of the 20 firms—Pardot and Act-On—have increased their website count by more than ten percent since the beginning of 2014. Seven of the 20 platforms have actually lost websites, a few by over 20 percent.

The data also implies that churn is higher than many would believe. For the 20 marketing automation platforms, the aggregate ratio of websites adds to drops for the first eight months of 2014 was 1.08, meaning that for every 100 websites that added a marketing automation platform, 92 websites dropped one.

Note that the Datanyze metrics are an indication only only and are by no means a definitive measure of software presence. A few caveats of this data are in order and can be found here.

Great marketing can generate a steady stream of new customers in a growing market, but only positive customer experiences will result in high retention rates. Caveats aside, one thing is clear; rapid change is ahead in the marketing automation sector.

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Marketing Growth Strategies LLC has been engaged in research, analysis, lead generation, and client implementation in the Marketing Automation sector since 2009 and has recently revised its highly successful 2014 Marketing Automation eBook.

Considering implementing marketing automation? Download the 2014 Marketing Automation eBook

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Caveats to Market Share and Retention Data

I've used Datanyze as an indicator of market share and customer retention among software

companies in the marketing automation sector. However, before readers draw too many conclusions, a few caveats are about the data are in order.

First, Datanyze tracks over 15 million sites, which seems like a big enough number. But keep in mind, there are over 900 million websites. So even the Datanyze Universe represents just small fraction of total active sites. Nonetheless, I believe the 15 million covers an overwhelming portion of total commercial websites that would have the budget to invest in marketing automation.

Want to get the Datanyze figures for another marketing automation vendor? Call me now at 201 266-6919. 

Next, the data tracks websites—not customers—so market share headlines should be viewed with some skepticism. A company that installs marketing automation tracking code may put it on single site, or on dozens or even hundreds. That said, as a sanity check, I compared the marketing automation websites tracked by Datanyze with the actual number of customers for several vendors and found the ratio to be within a range of 2.5 - 3.5 to 1. 

Example: Datanyze shows about 33,000 websites using Hubspot. The company said it had 10,195 customers at or near year-end 2013. That’s a ratio is 3:1 websites per customer—a reasonable and believable number. 

There’s also a degree of fuzziness in the data.  

The most significant source of fuzziness in the data may be the use of trials. Since trials frequently don’t convert to sales, vendors that offer free trials (Marketo, for example) may tend to show more adds and drops than those who don’t (Pardot, for example). This can skew the numbers.

Another consideration is that some vendors offer a variety of versions, not all of which should be considered as marketing automation tools. For example, Hubspot has a 'basic' package the includes email marketing and website tracking but not the more salient features of marketing automation such as lead scoring and automated lead nurturing. Nonetheless, these packages will be counted by Datanyze as part of Hubspot's totals.

The last caveat is that in order to identify software packages used, Datanyze analyzes the underlying software code, but there is certainly no foolproof way to find this code and to associate it with a particular vendor. Nonetheless, the company believes they catch the overwhelming majority of instances. 

Caveats and fuzziness aside, the changes in tracked websites over the course of several months or quarters provide valuable insights into which vendors are winning and losing in the marketplace. 

Who's winning in marketing automation? Round-up for 1st half of 2014

by Dan Freeman 
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One of the most important metrics in evaluating the ultimate value of any cloud software product is its customer retention rate, a number that encapsulates the value obtained versus client expectations. Retention rate takes into account usability, support, expectations set, and impact on marketing and/or revenue goals. Companies that receive value in excess of expectations will generally renew; those that don’t will opt out.

Purchase Full VentureBeat Insights Marketing Automation Industry Report Here. 

Though supremely valuable, customer retention is a number that marketing automation vendors are loath to release. Vendors’ sometimes publish data on the number and growth rate of their customer base but not a single one lets on to retention rate, or its inverse—churn.

Not to worry. Another class of marketing technology companies to the rescue.

Software tracking company Datanyze scans over 15 million of the world’s most-trafficked websites, hunting for Javascript embeds and web tags that indicate the presence of hosted software—in this case a marketing automation platform. Website additions/losses over time are an indication of platform success in the marketplace.

The chart below shows the total number of websites using selected marketing automation platforms as of 6/30/14. Note that websites do not equate with customers as a single customer may use marketing automation software on dozens or even hundreds of websites.

But wait.

Further analysis shows that the leader, Hubspot, offers a variety of product packages, including a Basic package that includes many inbound features as well as email marketing, but does not include the most salient marketing automation features such as lead scoring and automated workflows.

I estimate that at least 60% of Hubspot’s customers are Basic and if we reduce their numbers by 60% the chart looks like this.

Using the Datanyze data, I also looked at websites that added and dropped marketing automation software during the first six months of 2014. The chart below shows the website additions (blue), drops (orange), and net changes (grey) among six of the most active marketing automation vendors.

Marketing Automation Customer Retention Q2 2014

by Dan Freeman 
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New numbers are out for changes in marketing automation platform usage, and in dynamic markets, things change quickly. Demand for marketing automation software is growing at a healthy clip, but aggregates can mask marketplace turbulence. Behind the 40 plus percent growth rate lies a multitude of customer experiences that determine the ultimate winners and losers.

As businesses struggle to get a handle on the new world of digital marketing, they experiment with new marketing platforms. Marketers try to master this software—to leverage its promise to generate more and better leads, and to streamline marketing processes. In highly competitive markets like marketing automation software, nuances in product features and ease-of-use can make all the difference. The way a new customer is on-boarded, the support or self-help tools provided, and even the reality of the customer experience versus the expectations set by vendors can have a major impact on retention.

Contact me now to create thought leadership--white papers, eBooks, webinars, newsletters--and a marketing strategy--to reach and engage with your best prospects. 

And in the Software-as-a-Service (SaaS) business model, retention is key. Vendors often lose money on new customers during the first year. It’s not until an annual renewal, or at least a period of several months, that customers become profitable. The most profitable customers are usually those with the longest tenure; they've ramped up usage and generally require less support.

Vendors tout their success with press releases about new customers and sometime even publish customer counts and growth rates. What’s not revealed are the dropped customers—the churn.

Until now, that is.

Working with the tech data sleuth firm, Datanyze, I looked at websites that added and dropped marketing automation software during the first six months of 2014. The results indicate that churn is higher than many would believe. For the top 11 marketing automation platforms, the ratio of websites adds to drops was 1.8, meaning that for every 9 websites that added a marketing automation platform, 5 website dropped one.