There’s A $10 Billion Opportunity As Marketing Hits The Big Time

Editor’s note: Ajay Agarwal is a managing director at Bain Capital Ventures in Palo Alto where he focuses on early-stage SaaS and mobile investing. 

Marketing is no longer the forgotten stepchild of enterprise software. Traditionally underserved and under-penetrated, marketing is finally receiving its fair share of attention by technologists, founders and investors alike. Gartner famously predicted CMOs would spend more on IT than CIOs by 2017. IDC estimates $32.4 billion in marketing technology spending by 2018, growing at 12.4 percent CAGR. Hundreds of new companies are emerging every year, and thanks to Scott Brinker, marketers now have their own dedicated technology conference.

Three years ago, I wrote a post that called marketing “the next big money sector in technology,” and predicted it will “give rise to several multi-billion-dollar companies.” At the time, Omniture had sold to Adobe for $1.8 billion but was the only marketing-focused technology company with an exit north of $1 billion. All other enterprise categories over the past 30 years have created several multi-billion-dollar software companies across functional application areas: SAP (manufacturing), Oracle (financials), PeopleSoft (HR), Siebel (sales) and Salesforce (sales/CRM).

What’s changed in three years?

While we have yet to see a dominant >$10 billion company emerge in marketing technology, we have seen tremendous changes and progress in this sector driven by digital, mobile, social, analytics and commerce technologies. We have also seen several big exits in the last three years. A quick snapshot:

Company Value Acquirer
ExacTarget $2.57 Billion Salesforce
Criteo $2.54 Billion IPO
Responsys $1.50 Billion Oracle
$1.23 Billion
$1.07 Billion
Eloqua $871 Million Oracle
Neolane $600 Million Adobe

Note: For public companies, these values are as of March 26, 2015.

The hottest standalone category to date has been marketing automation, which has become a “must have” solution for B2B CMOs. The two largest independent players, Hubspot and Marketo are both valued north of $1billion and are growing at rapid rates. Salesforce with its acquisition of Pardot is now a formidable player in the space as is Oracle through its purchase of Eloqua.   

What’s next?

All of this progress now sets the stage for my next prediction: We will see the first $5 billion-plus marketing tech company emerge over the next four years (and likely more than one). Three key drivers will get us there:

  • Predictive analytics and machine learning: The sheer volume of data about buyers, channels and communities that marketers can now harness is astonishing – and it’s the largest opportunity ever seen for CMOs and vendors alike. With sales and marketing automation in place to provide core workflow and plumbing, an ecosystem of new startups and categories has emerged to deliver added value and insight across marketing functions and channels. The best of these companies use machine learning and data science to tap into the marketing and sales automation data sets – and troves of external third-party data – to deliver insights and capabilities. This is especially valuable for B2B companies, where lead times are longer and purchase decisions are more considered. Early pioneers in predictive marketing include Infer, Lattice and 6Sense*.
  • Consumer identity and personalization: For B2C companies, identity is emerging as the backbone of user experience and digital commerce – similar to what lead management and marketing automation are doing for B2B. Most consumer purchases are quick, ephemeral in nature, and done with limited research. New B2C marketing competencies focus on user identity data and personalization, with a goal of having the right content and experience for each user (during the three seconds they are looking at that page on their tablet or mobile device). It’s the difference between a sale and a bounced user. Key players include Bloomreach*, Sailthru, Monetate, Optimizely*, Kahuna, and Appboy – all of which focus on optimizing web pages, mobile apps and/or email to drive the highest conversion and revenue per visitor.
  • Consumer behavior and targeting: Beyond identity, consumer behavior data is becoming increasingly critical for B2C marketing and commerce – location, past purchase behavior, demographics, preferences, household information, etc. This challenge has become increasingly difficult in a cookie-free mobile world, which makes traditional desktop targeting techniques useless. As a result, marketers are relying on vendors that bring cross-device targeting capabilities and others that can ingest anonymous consumer behavior on your website. The best marketers are leveraging this rich information to build massive in-house databases of customer purchase and browsing history. Companies like AgilOne, SmarterHQ, TellApart*, Retention Sciences and others are leading the way on this front.

What this means for marketers

The core infrastructure is now in place to manage online and offline marketing: website and e-commerce management; customer relationship management; mobile applications; email marketing; and sales force and marketing automation.

The new frontiers for CMOs in the coming years will be data science, machine learning and behavioral insights, which then drives optimization and personalization. This represents the largest opportunity ever seen for both vendors and CMOs alike. All of which should set the stage for the first $10 billion-plus marketing tech company.

Note: 6sense, Bloomreach, Optimizely and TellApart are Bain Capital Ventures portfolio companies.