About a year ago, I was debating the topic of consolidation in the marketing tech space with Chief Martec himself, Scott Brinker. Not that there was a wide divergence in our views. Scott has said (in the past) that consolidation had failed to materialize, with the number of vendors growing year on year.
I think we ultimately agreed that the growing number of vendors was not simply a sign of expansion. Thanks to the cloud, starting a software business is not like starting a trucking business, an airline, or even a diner. No need for a physical location, a distribution network, or even a store room. I thought that explained the Brinker paradox that consolidation didn’t rule out expansion: the barrier to entry to the market was simply very low.
Now, in a fascinating recent piece, Scott considers the possibility that the marketing tech bubble might be about to burst, and his argument is related to the consolidation/expansion paradox.
There have been a lot of acquistions in the space over the last year. In fact, just before the holidays there were major moves by Terminus (acquired Sigstr), Episerver (InSite Software), and Acquia (AgilOne). It was also suggested (by CaliberMind’s Raviv Turner on LinkedIn) that some of the acquisitions occurring represented “pennies on the dollar,” and Scott agreed that he’s seen “fire-sale prices” in the market, as well as some expensive acquisitions.
This is especially significant for the marketing tech market, simply because its expansion has been fueled by venture capitalists, on the bet that one of the little start-ups they’re funding might grow into a solution with very broad acceptance in the market-place; maybe even a unicorn. The problem with that is that the enormous quantity of solutions now available. The HubSpot App Marketplace alone offers over 1,000.
And of course it’s not as if 1,000 apps do 1,000 different things. If you’re offering an email marketing solution, it might have some different bells and whistles than the next one in line, but is any one solution going to become almost universally used, or dominate email marketing as Google dominates search? It’s unlikely.
So what’s the way forward for a point solution start-up? It’s too become, to use Scott’s term, a “generalist.” I have three examples in mind.
- Sprinklr, that perennial unicorn. When I first covered Sprinklr in 2015, it described itself as “the most complete enterprise social media management technology in the world.” No longer. It’s now a customer experience platform, offering a unified front office solution for all marketing (and advertising) channels. Sure, the roots remain in social, but the bid is to be much more than a point solution for social within a broader stack.
- Movable Ink. It built a business on dynamic email personalization. It’s now a visual experience platform, using the technology is developed for email to create personalized visual experiences across digital channels.
- Zendesk. It still leads with its core customer support product, but it also offers CRM, sales, and customer engagement solutions which are becoming ever more integrated. If that’s not a move towards generalization, I don’t know what it.
The list could be much, much longer.
To be clear, I think each of the vendors I mentioned is pursuing a strategy which makes sense, and which may well prove successful. But here’s the broader problem for the market, in Scott’s words:
The market can sustain thousands of successful martech specialists. But it cannot sustain thousands of billion-dollar generalists. Martech, like most industries, is destined to the power law of a long tail distribution.
In other words, while the market can sustain many competing point solutions (there are indeed thousands of them), it won’t sustain more than relatively few vendors which present themselves as suites or hubs: solutions which dominate a marketing stack. According to his reasonable estimate, the platforms with a very large install base number in the “tens,” trailing off sharply thereafter.
That’s the dilemma, then, constructed upon the earlier paradox. Enter the race to become a generalist solution, knowing that there will be few winners, or remain a specialist solution and leave your investors dissatisfied (yes, of course there are points in between).
Or, of course, get bought by a vendor running the first race.