Convergence analytics companies struggling to differentiate in an evolving market need to verticalize to survive Darwinist twists.
I have just sat down for my morning coffee and paper, and the phone rings in my office. The VC partner on the other end asks for my advice about a deal they're looking at. The conversation starts something like this, "We're looking at the marketing space, specifically at real-time, cross-channel, marketing automation or analytics firms and want to get your thoughts." He's come to the right place.
Over the last few quarters, at Efectyv Digital, ClickZ, and Incisive Media, we've been taking a hard look at the convergence analytics marketplace, with our next report due out in a few weeks at SES SF. We've reviewed the technologies, the people, and the processes, the customers and the benefits, and a few things jump out: the first - a lack of clear product definition/market fit. The second - a deficit of rigor on the part of the vendors who make statements about their product capabilities lacking a clear framework of nomenclature. The two combine creating a toxic mix for the market.
As I mentioned in a public presentation last month for SEMPO at TBWA/ Chait Day / LA, as an analytics company executive, I've targeted my fair share of the less-than-educated buyers, and marketed products that I knew were not perfect. But, unlike those times in the past, it seems today there's an order of hyperbole, fueled by billions of VC dollars looking for an investment; enterprises looking for a quick fix to cut costs, all being promoted by perky vendor company executives lubricated by those funds, extolling the goodness of their Kool-Aid. This perfect storm helped create convergence analytics - with everyone claiming to measure everything. Clearly there are big winners.
In our upcoming report we've identified almost 90 companies that are doing much of the same thing in this sector, but coming from different perspectives. They use many of the same words to describe what they do - using expressions like big data, predictive, real-time, and multi-channel when, in fact, there isn't a good common definition for any of the words, according to our study of almost a half million marketing people. It is certainly compounded when vendors seeking ultimate positioning string all the words together in one big tag line that says really absolutely nothing at all.
There are actually several companies that say they've created a "real-time marketing analytic platform with a predictive, social, and mobile reporting engine." Maybe so, but find out. Ask them what they mean and ask them about how their customers are taking advantage of the products and creating an ROI. In these last months we have been asking for those customer names and use cases to support vendor claims and have unfortunately found too few. There were other companies, like Adobe, who were very candid and detailed.
I mention this to my caller. He wasn't surprised, as he's hearing similar comments from customers where products sit unused. We used to call it shelfware, when there was a box. Today, companies are being acquired, downsized, and restructured across the convergence analytics sector as revenue goals remain elusive and aspirational. I work with many of these firms attempting to "unlock their shareholder" value. It's how I earn my living today after being an operating executive for three decades. I believe a shakeout of sorts is beginning in the sector, due to an abundance of unremarkable companies, with unclear or ambiguous differentiators, and huge looming competitors.
We've seen similar consolidation in every market from operating systems to word processors and spreadsheets; CRM and databases; web analytics firms; and marketing automation companies. Now the marketing suites are being built by four or five big consolidators with "marketing clouds" - Salesforce.com, IBM, Adobe, and Google. The music has stopped for a few smaller companies. It's time for them to find the chair.
I mention this too to my VC caller. He wonders if there are any distressed property "buys" out there, or "roll-up" possibilities he should look at. I reply, "Yes, quite a few."
Investing sobriety is obviously gripping VCs. The first generation of cloud companies, like Salesforce.com, tried to cater to every sector. Thoughtful venture capitalists are now betting on startups that have a narrow focus.
I met recently with my colleague Brian Jacobs, a general partner at Emergence Capital, at his office to talk about his take on convergence analytics. As one of the premier VC firms they have a strong track record in backing disruptive startups like Salesforce.com, Successfactors, Yammer, Yousendit (now Hightail), InsideView, and others. Brian was candid telling me that today they are mainly looking to fund vertical solutions, not horizontal plays. "The cloud has enabled a new breed of vertical industry solutions that are capital efficient and can really meet the needs of customers in a specific industry," he said. I agree.
Convergence analytics companies struggling to differentiate in an evolving market need to verticalize to survive Darwinist twists. According to a recent Venture Beat report, a vertical strategy lets entrepreneurs apply deep domain expertise to an industry and respond to its unique requirements. Beyond Emergence, Andreessen Horowitz and Illuminate Ventures both focus on vertical cloud startups, as opposed to horizontal solutions, where the market leader gets 5 to 10 percent of the market, and expands by attacking more industries. Vertical solutions can become an industry standard and expand by selling more solutions to the same buyer.
Thus, dear readers, consider these do's and don'ts:
After about an hour my morning call ended. This time the VC caller decided to "take a pass" on the deal he called me about, but we agreed to stay in touch regarding other opportunities that may arise from the shakeout. I have a few ideas for him.
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Rand Schulman is a pioneer in digital marketing and new media. He was founder and CEO of one of the first SaaS-based web-analytics companies, Keylime Software (Yahoo) and lead products and strategy at Webtrends; was CMO of WebSideStory(Omniture/Adobe) through its IPO; was general manager of Unica's Internet Division (IBM); and is a co-founder and board director, and is an emeritus board director of the DAA. He's been a trustee of the Direct Marketing Educational Foundation and is an executive-in-residence at the University of the Pacific for New Media and Marketing and was managing partner at SchulmanThorogood Group.
He is currently board member and advises numerous mobile and social media companies and is a managing partner with Efectyv Digital. You can contact Rand at email@example.com or follow him on Twitter at @randschulman.
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