IDC’s Worldwide Marketing Technology 2014-2018 Forecast: $20 Billion and Growing Fast

Organizations worldwide will spend approximately $20.2 billion on software solutions for marketing in 2014. The marketing software market is expected to grow to more than $32.3 billion in 2018. It will be one of the fastest-growing areas in high tech, with a compound annual growth rate (CAGR) of 12.4%. Over the five years from 2014 to 2018, organizations cumulatively will spend $130 billion on software for marketing departments. This forecast includes a wide range of solutions in four broad categories: interaction management, content production and management, data and analytics, and marketing management and administration. (For more information see Worldwide Marketing Software Forecast 2014-2018: $20 Billion and Growing Fast, IDC # DOC #251902, October 2014.)

Worldwide Marketing Technology Spending by Category, 2014–2018


                                                                          Source: IDC 2014
The emergence of Marketing as a Service (MaaS)
While innovation continues, the era of consolidation has begun. Many acquisitions have been made by software industry majors to bring together key pieces of the marketing and advertising software landscape. This activity has been coincident with the transformation of the larger IT industry to what IDC calls the 3rd Platform where technology and maintenance services are offered “as a service.” This model is a game changer for marketers and marketing software suppliers. Even though almost all current marketing solutions are cloud based, they are just beginning to be integrated enough to provide seamless operations and reporting across the diverse activities of a large marketing organization. Furthermore, newer platform solutions can be leveraged by third parties such as agencies and marketing BPOs to provide value-added services in a bundled offering, which IDC calls “marketing as a service.” (For more information on MaaS, see Marketing as a Service (MaaS): A New Route to Market, IDC #247587, March 2014)
5 Action Items for CMOs
  1. Construct a technology road map based on business drivers to guide investment
  2. Consolidate applications into a platform with data and process level integration to improve efficiency and effectiveness
  3. Work to integrate marketing technology with the enterprise infrastructure to reveal deeper insights into customers, partners, and market opportunities
  4. Establish inter-disciplinary teams and processes to combat the silos point solutions can create
  5. Learn to leverage corporate IT to improve vendor management, due diligence, and governance practices
For more information, please contact me at gmurray(at)idc(dot)com. 

2014 Tech Marketing Budgets Showing Strength – Led by the Shift to the 3rd Platform

IDC’s CMO Advisory Service recently completed our 12th annual Tech Marketing Benchmark Survey and just last week had our client and participant webinar readout. With the results in, tech marketers should be excited; there are clear signs that marketing is gaining more respect, more responsibility, and more budget! For the first time since 2006, Tech Marketing Budgets will increase at the same rate as revenues (3.5% increases for budgets, 3.7% for revenues.) Coupled with this, the absolute number of companies increasing their marketing budgets continues to rise. Party time, right?

Well, maybe not quite.

The tech industry has hit an inflection point around the 3rd platform (cloud, social, mobile, and big data & analytics.) In fact, IDC is projecting that within the next 5+ years the 3rd platform will cannibalize revenue growth from the 2nd platform. Meaning, not only will 3rd Platform driven products account for all the revenue growth within the tech industry, but they will take market share from what was previously 2nd platform revenue.

What does this mean for marketers? 

A lot actually, tech marketers are in the fortunate (or fortuitous) position of being smack in the middle of this shift to the 3rd platform. Not only are the technologies being marketed transforming, but the day-to-day job of a marketer is being greatly affected. This is because the true impact of this shift is within next generation types of applications, industries – and ultimately – capabilities that the 3rd platform provides. Moving forward every marketer and every marketing organization must be updating skills, technologies, and processes. A lot is at stake and budgets are a clear indicator;  3rd platform marketing organizations are being funded at 6 to 8 times greater than 2nd platform organizations (see image below). The largest tech companies in the world are shifting to the 3rd platform and often (as they should be) the marketing organizations are exerting significant energy to be a large part of this company-wide shift. IDC sees moving to the 3rd platform as mandatory and marketing is no exception.

What can a marketing organization do to make sure they succeed in transforming rather than succumbing to turmoil?

  1. Understand which parts of the business are 3rd platform: These are the areas that should be supported with stronger marketing spend.  These are the areas to integrate new marketing technologies and processes in first. These areas will make or break your entire company. Use this opportunity to position marketing as a driver for the company’s future success!
  2. Invest in 3rd platform staff and programs: Supporting 3rd platform products is key, but marketing also needs to shift the way it operates. This means investing in 3rd platform technologies and skills like: marketing technology, sales enablement, content marketing, and data & analytics. These areas create leverage and efficiencies for the entire marketing organization. In short, putting the right people, in the right positions, with the right tools  gives your marketing organization its greatest opportunity for success. 
  3. Have a plan, but be realistic and be patient: The larger the company the more time should be allowed for this organizational shift to the 3rd platform. Marketing leaders must definitively set the end vision for their 3rd platform marketing organization, but at the same time must have the patience to see the entire process through. The path may be non-linear and there will certainly be failures and misdirection along the way, but despite the time and effort needed, the end results will pay back the marketing organization (and company) many times over. 

If you are interested in how your company’s marketing organization stacks up as this shift to the 3rd platform continues, reach out to me directly at smelnick (at) IDC (dot) com.

You can follow @SamMelnick on Twitter

Marketing as a Service (MaaS): The next wave of disruption for marketing tech

Marketing technology has seen a remarkable innovation boom over the past 10 years — so much so that the market now boasts over a thousand vendors that IDC organizes into more than 75 categories. IDC believes this structure is unsustainable and over the next three years the forces of consolidation will exert fundamental changes in the way large enterprises provision marketing infrastructure and from whom they provision it. The marketing technology market, like much of the IT industry, will move to a cloud based service model which IDC calls the “third platform.” As the illustration shows, more than 90% of the growth in the IT industry will come from this model.
For marketers, the third platform means the advent of Marketing as a Service (MaaS), which will have transformative affects for IT, IT services, and creative agencies. Key indicators that MaaS is on it way include:
  • Unsustainable complexity: Point solutions have come to market independently leaving it up to marketers to assemble them into rational infrastructures. This is a highly inefficient market model for buyers and sellers.
  • Transition to platforms: The consolidation of point solutions into platforms has already begun. Many noteworthy acquisitions have been made by major vendors such as Adobe, IBM, Oracle, salesforce.com, and SAP. However, this phase of market development will not last long as markets move rapidly from platforms to “… as a Service” models.
  • Digital and creative coming together:AdAge recently named IBM the number one global digital agency in the world. IBM is rapidly hiring from the agency world to build out its creative services. Adobe has deep and long standing technology partnerships with many top agencies. The agency world needs a value proposition that will allow them restore margins and regain strategic relevance.

MaaS includes the fundamental technology, IT services, and creative services that marketing needs in a bundled offering. Bringing these services together delivers significant value to CMOs who have two key sources of pain: On one hand, their agencies cannot effectively execute omnichannel campaigns nor deliver real time attribution reporting. On the other hand, technology has added a great deal of cost and complexity to their operating environments. MaaS enables them to outsource much of the technological complexity, pay for it out of their advertising budgets and get better integrated marketing services from their top agencies. For tech vendors it means gaining access to the advertising budget which dwarfs marketing IT spend by orders of magnitude. As a result, IDC expects this model to be a major route to market for marketing technology in the enterprise segment. It is therefore an urgent action item for tech vendors, system integrators, and agencies — partner now or lose a major channel. 

For more information on this important trend please contact me at gmurray(at)idc(dot)com.


Why Business Executives are the New IT Buying Center

Several times a week the IDC CMO Advisory Service gets inquiries from tech company clients about how to shift their company mindset to a new and different buyer.  IDC’s IT Buyer Experience Study shows that business buyers have 53% of buying influence in the earliest part of buyer’s journey and their influence stays high throughout the entire process.  The tech buyer’s influence, while still important, is comparatively waning.

A successful shift to a business-buyer approach will accelerate if you understand what’s behind it.

Front office automation has more business risk than back office automation.  The 2nd Wave (as IDC calls the client-server era) was mainly about automating things inside your company.  The 3rd Wave (as IDC calls the current era of cloud, mobile, social, and big data) is about automating your connections to the outside world (I call it the company “skin”).  When tech problems happened deep in inside your company, it was frustrating but not devastating.  The worst business tech problem of the 2nd Wave was being too slow to adopt new technology leaving competitors or upstarts to sail past you with business process advances.  That problem is still a concern today.  However, add the horror of screwing up in front of customers, investors, influencers, indeed, the whole world!  Just ask the CEO of Target.  Business executives are forced to pay attention to technology today – whether they want to or not. IDC forecasts that business executive budgets for technology will outstrip IT budgets.

Technology is easier and prettier now. Back in the day it took a real expert to understand the ins and outs of information technology products.  The products were intimidatingly gray and beige and filled with exposed wires and chips.  They hummed, got hot, and sparked out with regularity.  No wonder the finance and marketing execs wanted to leave those suckers alone.  Now most of those wires and chips are moving to the “cloud”.  Doesn’t that sound nicer?  Devices you touch are smooth and have pictures. Better design makes technology 99% invisible (to quote the title of one of my favorite podcasts).

Business executives are smarter and more confident about technology.  Back in the day, technology was a startling thing that business people in the prime of their careers had never seen, much less used.  I remember one intelligent, capable, and admired, C-suite executive who used to have his administrative assistant print out his email because he wasn’t quite sure how to use it.  Now, anyone younger than 60 came of age with PCs and programmable everything.  Information about technology is available at everyone’s fingertips and accessing opinions from your professional network is incredibly easy. While a portion of the population will always be skeptical or frightened about the next new thing – it’s not likely to be IT that they are scared of (drones, anyone?).

Here are some steps you can take to accelerate the shift to a business-buyer focus:

  • Bring focus on the business decision-maker up to par with the technology decision-maker.  This is the Goldilocks strategy – not too much but not too little. For most new tech installations, IT will no longer instigate nor approve nor pay.  However, at some point the business executives will want to bring in their IT partner to take over some aspects of the decision.  Keeping adjusting your investments in content, campaigns, training, etc. until you’ve reached a balance in results.  Because this is a change you will have to overinvest in activity to achieve new results.
  • Take clues from the shifts described above. Focus value propositions on front office business problems.  Build in cloud, mobile, social, and big data messages and capabilities (IDC says 90% of IT growth is coming from these areas). Make the “ugly” of tech 99% invisible – in your customer engagement, your sales discussions, and in the products themselves.  But that doesn’t mean be fluffy. Much of what is called “thought leadership” is astonishingly useless.  People are trying to solve real business problems.
The worm has turned as the saying goes. We are never going back to the old way.  Tech companies who succeed will be the ones to step up to investments they need to make to serve the empowered business buyer.

Measuring Sales and Marketing based on Customer Outcomes

Have you ever used Uber X, the freelance taxi service? Half the cost of a cab and twice the level of service. The cars are immaculate. The drivers are almost overwhelmingly nice. They care deeply about your experience. Not because they want a tip. They want your 5-star feedback. That’s so important to their success that they will do almost anything to make sure you are happy. It is a customer first model that works because customers have the ability to give feedback that has direct business impact. It’s the eBay model applied to real world human interaction.
Think of your salespeople as Uber drivers, they interact with customers every day. Your marketing is like the car – is it in the right place at the right time and taking the customer where they want to go? These things matter tremendously to customers and yet we have no means to empower them to drive the behavior of marketing and sales at the moment of engagement. We have customer satisfaction surveys. They are important but lack immediacy and context for sales and marketing.
I recently came across two articles that may be the proverbial starting gun for measuring customer focus. The first from the HBR blog, “Bonuses Should be Based on Customer Value not Sales Targets,” profiles how GlaxoSmithKline no longer calculates sales bonuses based on prescription drug sales but on a basket of metrics related to patient outcomes. The second on the Forbes blog, “The 5-Star Employee, Why we need a Yelp for Business” presents a provocative picture of why employee ratings should be standard practice.
Clearly there are cultural and generational issues at stake and a lot of education needed to make these transformations acceptable and actionable in a way that improves outcomes for everyone. As customer facing technology coalesces around the CX Cloud model, marketers should think about how to get customer feedback more frequently. It will require innovation born of experimentation. Of course, no one wants to rate every piece of collateral. But maybe every third touch or at specific points in the nurturing process. Companies that figure it out will have the great advantage of being able to monitor customer experience and course correct in flight as opposed to relying on satisfaction surveys that are too little too late. Best of all, customers will feel the power of the relationship, something they won’t get from traditional models. Uber X is not better just because it costs less, it delivers more at the same time.

2013 Tech Marketing Budget Trends: 3rd Platform Companies and Products Lead the Growth

Yesterday, IDC’s CMO Advisory Service had our annual Tech Marketing Benchmark Webinar. This study goes out to close to 100 senior lever marketing executives and represents the largest B2B Tech companies in the world (this year the average company revenue was $9.1B.) The webinar was packed with great information and was a great success. However the overlying question each year is where will marketing budgets sit at the end of the year and what direction are they moving. The results are some good news mixed with trends that point to hard work that marketers need to do around their budgets. 
Good News: More Organizations are Increasing their Marketing Spend Than Decreasing

As seen in the graph below, across the entire tech industry a net of 15% of companies are increasing marketing spend versus those decreasing. While it may not always feel like it, there are marketing budget increases out there to be had!

Challenge for Marketers in 2014: Finding the Right Areas that Should Receive More Marketing Budget

Despite the fact more companies across the tech industry are increasing marketing budgets than decreasing, budgets at the aggregate levels are flat to slightly negative. IDC expects Marketing budgets to decrease 0.5% year-over-year from 2012 to 2013. So that leaves us with an interesting juxtaposition, more companies are increasing budgets than decreasing, but at the aggregate weighted level the data shows a slight decrease in overall budgets. Three reasons we are seeing this:

  1. The largest companies within the Tech Industry are seeing flat to declining marketing budgets due to continued transformation within the industry. This brings the weighted levels down. 
  2. Hardware companies (as seen in the above graph) are the only sector where more companies are decreasing marketing budgets than increasing. Companies within this sector are typically larger and the Hardware industry is feeling more affects from the industry’s transformation. 
  3. 3rd Platform companies and other high growth product lines and business units are driving much of the revenue growth and in turn are receiving much of the increases within marketing budgets. These companies are smaller, so they add the “n” value of companies increasing, but do not affect the weighted average as heavily. 
Illustrating the final point (#3) you can see in the graph below that Cloud Software Vendor’s (who are right smack in the middle of IDC’s 3rd Platform) Revenue Growth, Marketing Investment Growth, and Marketing Budget Ratio (total marketing budget / total revenue) are all at least 3X  that of their on-premise peers. Some of this can be attributed the size of the Cloud Vendors (typically smaller), but the growth being seen in the 3rd Platform areas is undeniable.
Note: If you would like to discuss cloud vendors marketing benchmarks further please email me at smelnick (at) idc (dot) com!
In closing the 3 budget takeaways we are giving for budgets in 2013 – 2014 are:
  1. More companies are increasing (vs. decreasing) marketing spend. (This is good news!)
  2. There is not enough “Peanut Butter” to go around… (so an even spread will not work this year)
  3. Marketing Investment will inevitably find growth areas: products; markets;  segments; or geos. (So, work hard to find those areas and invest wisely)
Sam Melnick is a Research Analyst at IDC’s CMO Advisory Service and manages the entire benchmark survey and study. You can follow him on twitter at @SamMelnick