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

Solution Marketing: Just What Is a “Solution”?

“How do we progress from offering products to offering solutions?” This urgent question has reached the top of many technology CMOs’ initiative list. When IDC interviewed solution marketing experts for the newest report in our CMO Advisory best practice library, they confessed that that the first issue to tackle is agreement on what is a solution.

IDC predicts that by 2016, more than 80% of technology purchases will significantly involve the line-of-business buyer, who will specifically drive 40% of all purchases. These business-oriented buyers have little patience with technology that can’t be easily connected to a business problem. The new buyer increasingly disdains “raw” products that require substantial work to integrate into something usable. The new buyers seek to buy offerings that are closer to meeting their actual business needs (aka “solutions”).

While the specifics about just what is a solution varied among the experts IDC studied, the gestalt of the answer can be easily grasped by comparing a raw turkey and the complete holiday dinner that it will someday crown.

Consider the Turkey Dinner
In the analogy of the raw turkey and the complete dinner, the raw turkey, as a single component to a completed dinner, is like most standalone technology products. People can’t eat raw turkey. If guests were to be served a raw turkey with no intervention from cooks, they would be sadly disappointed. The raw turkey certainly has value! However, its value is to the cook — not to the ultimate consumer, for whom it is inedible. Technology products, like raw turkeys, solve important operational problems for the builders, or cooks, of the ultimate solution.

Just as the raw turkey must be cooked and incorporated into a meal before it can be really appreciated by a guest, so must a great deal of preparation work be conducted before most technology products are useful to the end user (the customer’s business). Only when enough product components (ingredients) combine with sufficient services so that the end result actually solves a business problem can you really call something a solution. Service work can include planning, consulting, implementation, integration, customization, and training as well as providing financial assistance, overcoming legal or standard hurdles, and more.

Avoiding the Bundling Trap
Companies who want to offer solutions must be especially careful not to fall into the bundling trap. Bundling can be an effective strategy for some situations, but a bundle is not a solution — and companies should not fool themselves into thinking these two strategies are interchangeable. Expanding on the turkey and completed dinner analogy, to host a successful holiday dinner, customers need all the components for the full meal — ingredients, recipes, and equipment to produce it. Then they also need to set a table, decorate the house, put music on, and be ready on time. A good host is concerned about the whole dinner experience for the guests, not just whether the turkey comes out right.

If a company supplies only operational-level technology (e.g. raw turkeys), it must figure out how all the other elements can be put together in a way that can be easily used by the customer. The company must partner with other suppliers and provide orchestration among them.

Solutions require a much more complex go-to-market proposition than products. However, the upside is that solutions offer an even higher value to the customer. By helping customers to have a delightful experience, you create a loyal customer who is more willing to pay a premium and become a proponent of your brand.

How bright is the silver lining of Salesforce.com’s Marketing Cloud?

At their annual Dreamforce shindig last week Salesforce.com announced the formalization of their marketing capabilities as the Marketing Cloud. Essentially it is a coupling of four key pillars of Salesforce.com’s front end:
  1. Customer intelligence: Data.com enriches contact and account information with fresh feeds from sources such as LinkedIn and many others. Enables both sales and marketing to create detailed contact profiles for segmentation, targeting and campaign management.
  2. Social advertising and content management: The recent Buddy Media acquisition provides support for a wide range of social channels (social, web, mobile) and formats including contests, videos, and photos. Users can coordinate their publishing and advertising activity and measure impact throughout the social sphere.
  3. Social listening and analytical tools: Radian 6 monitors popular social services such as Twitter, Facebook, LinkedIn, YouTube, as well as blogs, forums, communities and more. Supports 17 languages and mobile access.
  4. Core CRM functionality: Salesforce.com consolidates resources to provide sales reps with a single source that can connect them with other applications, contacts, colleagues and workflows. Pulls data together into account/opportunity context. Delivers reporting data to sales and sales managers and can provide opportunity and pipeline performance data into other systems such as marketing and order management.

Salesforce.com is taking its “Social Business” mantra to heart by building its marketing functionality with a “social first” philosophy. The question is: will this be enough to satisfy Salesforce.com customers (and the company itself)? The answer is probably not. The functionality you won’t find in Marketing Cloud is significant – the core campaign management tools, workflows, analytics and more offered by marketing automation vendors (e.g. Eloqua, Marketo, Neolane, Pardot, etc.) Even though there are fewer seats to be sold to marketers as opposed to sales, these two worlds are rapidly converging. The systems needed to automate them will need to do likewise, as evidenced by the tight integration of most marketing automation systems with Salesforce.com and the recent announcement of Chatter for Eloqua.
But Marketing Cloud is undoubtedly only the first step, in fact it’s well beyond the first step for Salesforce.com and the only issue going forward is how do they continue to expand functionality in this area?  The build or buy equation for Salesforce.com currently favors the build approach as valuations for marketing automation vendors are sky high, at least in terms of an acquisition. Salesforce.com has plenty of time to creep into the marketing automation arena, establish itself as a more serious threat and then re-evaluate its strategic decision around marketing functionality.
In the meantime, marketing automation vendors have their work cut out for them. They must stay well ahead of where Salesforce.com’s Marketing Cloud may go. They must continue to grow rapidly, prove their staying power and market value. Customers, however, should have no illusions that Marketing Cloud is an enterprise marketing automation platform in its current state. There is much more to marketing than social engagement especially for B2B models. Waiting for Marketing Cloud to evolve or for social to mature is simply not a choice, there is way too high a price to be paid in terms of market share, growth, and profitability. So if you’re considering marketing automation don’t delay or change course because of Marketing Cloud. Charge ahead full steam and should the social engagement of Marketing Cloud pop your ROI, by all means add it to your arsenal. 

Technology Buyers Tell Us How to Speed Up the Buying Cycle

IT leaders making enterprise-level technology purchases report that their buying cycle has increased by more than 20% in the last three years, according to IDC’s 2012 Buyer Experience study. They are not happy about this fact and were not shy about telling IDC about how vendors can speed things up.

IDC’s 2012 Buyer Experience Study reveals that CIO’s making enterprise-level technology purchases report that their buying cycle is now longer than five months when multiple vendors are competing for their business.

I find several things interesting about this fact.

1. The length of the B2B tech buying cycle continues to increase.  In 2009, the buying cycle was about 4.5 months and is now 5.4 months. It has increased more than 20% in three years.

2. IT executives have consistently told IDC that they would like their buying cycle to be shorter. Three months seems to feel about right to them – which is 40% less than what they currently experience. The CIO’s readily admit that their own companies are to blame for most of the delays – 60.8% of the delay they attribute to their own buying process complexity.  More people are now involved in each decision, for example. However, 35.6% of the delay, IT leaders say is caused by poor marketing and sales processes on the part of the vendors.

Clare Gillan, IDC Senior Vice President of Executive and Go-to-Market Programs, told the audience at the recent IDC CMO Advisory client meeting that survey participants were very clear on how vendors could help them speed up the buying cycle. Here is advice from the IT leaders along with just a few quotes:

  • Listen: “Listen to what we are asking and what we want before presenting a cookie-cutter one-size-fits-all solution.”
  • Justify: “Help us write the business case.”
  • Honesty: “Put everything about your product on the table, including the short-comings.”
  • Pricing: “Provide all available options with associated pricing up-front.”

 Respect, service, and transparency – these are the communication attributes I perceive when I read the survey results. Are these attributes in your persona descriptions?

3. One more thing I find interesting about the reported length of the buying cycle:  Does five-plus months seem short to you? In contrast, marketing and sales leaders reported that 19 months is their average sales cycle for enterprise-type deals according to IDC’s 2011 Tech Marketing and Sales Productivity Benchmark studies.  I don’t think I have ever heard a B2B tech marketer or sales leader report a sales cycle of just a couple months – except for small ticket items, repeat purchases (which would not be included in this survey question’s category) or the occasional purveyor of some super-hot-can’t-wait solution.

My guess is that buyers have a different definition of when the buying cycle starts than do marketers and sales people.  What does this mean to marketers who are engaged with buyers in very early stage conversations? Something to think about.

 

Six Key Table Stakes for B2B Sales and Marketing Alignment

The IDC CMO and Sales advisory services held their most recent client leadership meeting in Santa Clara on June 5th. One of the key topics of the day was sales enablement. The ensuing dialog between the sales and marketing execs in the room was as impassioned as it was ineffective. Many of the usual themes were expressed (in the nicest possible way): “marketing leads are crap”, “sales doesn’t follow up”, etc. etc.

Whenever I hear this conversation it always sounds like the two sides are talking past one another. Neither really understands how to express their frustration in a way that has any meaning to the other. What’s missing are some basic table stakes:

Sales 

1. Train marketing on sales process. It is impossible to effectively contribute to, much less consistently improve, an unknown process. No marketing team should be expected to deliver effective collateral or leads to a sales organization until they have been fully trained on sales process and methodology. In a large organization with multiple business units and product lines there will be many sales processes and the marketing teams charged with supported them must receive the same depth and cadence of training that the sales reps get.

Marketing 

2. Treat the sales force like a market segment. There are great variations in the needs of different kinds of reps in your organization and you must understand them on a rep by rep basis no less urgently than you do for your external marketing targets. The needs of an enterprise rep with two accounts are radically different than an SMB rep with 400 accounts or a territory where they may not know all the potential customers. Don’t throw 10,000 leads a month at both of them. You get the idea. Nurture your sales reps like any other targets and tune the metrics accordingly.

3. Market sales collateral like solutions. Marketing tends to market its wares to the sales force like products whose benefits are self evident. Assets are often “published” or “distributed” generically with tags to help reps “find” them. Imagine what would happen to the funnel if that was the extent of external marketing efforts! Sales support assets should be marketed through targeted nurture campaigns. Once you get going on #2 above, you can start to address the needs of each rep and market your leads, collateral and other assets as solutions to the right sales problem at the right time!

4. Take an account centric approach to lead generation. Marketing is generally great at understanding the world in terms of segments and contacts. These are fundamental concepts for planning, budgeting, and executing marketing activity. However, sales reps think of the world in terms of accounts. Marketing needs to make leads more relevant to reps by delivering them in an account context.

Sales and Marketing

5. Define customer creation as an enterprise process. This is the most effective way to change the corporate culture and gain executive support for addressing the many alignment issues across all customer facing functions in the enterprise. The analogy here is supply chain. Before it was defined as an enterprise process the people, processes, technology, data, and budgets within it were managed on a purely departmental basis. Defining it as an enterprise process made it possible to optimize and continually improve the supply chain based on overall business performance. The customer creation process – from prospecting to closing to upselling – needs to be owned and measured in the same way.

6. Implement customer data as an enterprise service. Once customer creation is established as an enterprise process, it requires an enterprise approach to customer data management in order for the optimization and continuous improvement to take place based on core business metrics and not on a collection of disassociated departmental KPIs.

These six table stakes should be treated as urgent action items for all high tech Sales Operations and Marketing Operations personnel. Some organizations are doing some of these things, but no one has implemented all of them as organizational norms.

Dreamforce ’10 – the don’t Miss Event of the Year … for CIOs

Salesforce.com held its annual user conference December 6th to 9th in San Francisco. It was unusual in that very little of the messaging from Salesforce.com itself was aimed at sales people. The company has clearly and emphatically hammered its stake in the ground as the cloud platform provider for the enterprise. Marc Benioff and other top SFDC execs spent all of the general session keynotes on four key ideas:

  • Platform
  • Cloud
  • Social
  • Mobile

If that were a word cloud of the transcripts of the keynotes “platform” would be the biggest and boldest of the four. The company made several significant announcements about how it is enhancing and building out the enterprise cloud computing platform of the future – much of it aimed at CIOs and developers. First however, there were a couple of items that will be of interest to sales and marketing people:

Full integration of Jigsaw. Jigsaw, the “crowdsourced” contact database will now provide dynamic updates to records, greatly reducing blank or incomplete record status and making it easier for sales and marketing people to contact the right individuals within their target accounts – to the extent that Jigsaw can provide clean data.

Chatter Free. Announced earlier this year, Chatter is the SFDC collaboration app. SFDC cited user numbers in the 10,000s at NBC, Qualcomm, and Nikon, and 100,000s at Dell. With Chatter Free, limited Chatter functionality will now be available to people that don’t have SFDC licenses. Users can add SFDC features for $15/user/month w/o the need for a SFDC license. Salesforce.com clearly expects Chatter to make SFDC adoption a viral phenomenon. What Chatter adds to the picture beyond being “Facebook for the enterprise” is the ability to follow not only people, but groups, accounts, and contacts – potentially any record in the SFDC.com database. Chatter will help companies share tribal knowledge as well as better coordinate the outreach multiple business units may have with key contacts and accounts – both very good things that go way beyond being Facebook Friends with all of your customers and employees. Regardless of whether it drives more licenses, it sets the stage for the platform sell that’s coming next.

Platform as a Service (the CIO part)
Database.com. Significantly, SFDC claims database.com is open to any environment, any programming language, and any device. It provides relational data services, full text search, user management, row level security, triggered and stored procedures, authentication, support for APIs (db to db calls), as well as a myriad of other features such as the ability for each record to have a profile that supports followers and feeds (see http://wiki.database.com/page/FAQ for more info.) Touting the power of the cloud, SFDC presented statistics showing that in the last year the number of transactions grew 50%, the number of records doubled from 10 billion to 20 billion, and average response time decreased.

Open Apex. Salesforce.com has launched an open programming language for the cloud that supports multi-tenancy. Now developers can work in the cloud to customize and enhance Salesforce.com apps as well as develop a host of other independent enterprise applications for any function – marketing, accounting, services, provisioning, HR, etc. This should fundamentally change the perspective of the IT department about cloud computing – it’s open, has its own IDE and database, supports web and mobile development. You no longer have to have code on premises to manage and customize your enterprise functionality.

Ruby on Rails. Web development is native to the salesforce.com cloud platform. Java support is provided by vmForce and acquisition of Heroku provides both a hosting platform and an IDE for native Ruby on Rails development in the cloud. This greatly eases the process of making enterprise apps web and mobile ready.

“Now we’re finally a real platform company”

SFDC now comprises: salesforce, serviceforce, chatter, jigsaw, database.com, appforce, siteforce, vmforce, Ruby, Apex, Eclipse IDE, ISV force, and more. The mantra heard repeatedly from senior SFDC execs was that Salesforce.com is now a real platfom company.

The big picture for Salesforce.com is to provide all the layers of the IT computing environment as a shared service that is managed, tuned, updated, and upgraded automatically. This greatly reduces the administrative overhead for IT while providing all the application and data control they need to rapidly respond to business requirements (and not having hundreds of rogue DIY projects all over the place.) All good things, but the risk is whether the platform can be trusted to provide all that without failure or outage or providing a conveniently centralized target for cyber attack.

While SFDC sets its sights on becoming all things to all people in the cloud, it is not intending to be the single source for automating the response to revenue process. Recent IDC research shows that 75% of SFDC customers also use up to five other sales and marketing automation solutions (see Marketing Automation: The Rise of Revenue, IDC #225860, Dec 2010.) The Expo floor featured representatives from the entire sales and marketing ecosystem – marketing automation, customer intelligence, list and database management, sales enablement, forecasting tools, proposal tools, and many others. As a result, customers will continue to be in the position of cobbling together “best of breed” solutions, and having to integrate the data, systems, and workflows required to manage and measure the performance of the customer creation process.