June 01, 2018
Does Market Consolidation Even Apply to Marketing Tech?
For several years we all debated whether the future of marketing tech lay in comprehensive suites or collections of best-in-breed solutions. It was a fun argument, and it turned out both sides were wrong, as the bigger suites and hubs were subtly transfigured into eco-systems of home-grown, purchased, and third party tools.
And then we needed something else to argue about, and Scott Brinker set the scene last year by arguing that consolidation was an unlikely future for the marketing tech market — and a good thing too, he said. I demurred, not least because it seemed to me that some segments within the market marketing automation, for example were indeed consolidating; in the sense, at least, that while hopeful new entries were still appearing, the overwhelming bulk of the market seemed to be dominated by a handful of big players.
I also suggested that many of the start-ups incorporated in the ever-growing Marketing Tech Landscape Supergraphic “…are built around a niche technological solution, and don’t have anything approaching the look of long-term viable businesses.”
The “myth” of consolidation
As Scott is currently doubling down on his consolidation argument, I thought I should clarify that half-formed thought; but first, let’s see what the current claims are. On May 7, he suggested that the “myth” of marketing tech consolidation is “now dead.” Acknowledging that the big players are getting bigger, and eating or crushing many smaller players, “(e)ven if a cataclysmic ‘martech armageddon’ wiped out half of the landscape in a single year, there’d still be thousands of martech companies left. And new ones would instantly spring up.” The market may have a “fat head,” but it has a long, long tail.
Following up on May 20, he noted a recent spate of acquisitions and closures. But that didn’t shake his conclusion, which, for him, is based on simple empiricism. His landscape grew by 27% this year, and it now counts all the way up to “6,829 different martech solutions.” Solutions, note.
Consolidation and maturity
Forget marketing tech just for a moment. Traditionally speaking, consolidation is just one sign of a market reaching maturity. Other signs include:
- Slowing evolution of customer needs
- Product innovation no longer a key driver
- New entrants gain market share only slowly, and quickly top out
- Market shares of leading brands are established, and change gradually if at all
And indeed the cost of entering a mature market can be dismayingly high for new entrants, who need to establish brand reputation, lure customers from established brands, and invest in R&D, marketing, and distribution.
“Bingo!” I imagine Scott crying. In marketing tech, customer needs are changing at dizzyingly velocity, start-ups are almost by definition innovative, and a good idea can take off like a rocket. Right: but what I just described is a mature market in the traditional sense. A mature market for soap, cars, or canned soup. The definition is just about irrelevant when it comes to marketing tech (or, I suspect, software-driven categories generally).
One reason is, quite simply, the cloud. The other reason is the fuzzy distinction, tacitly accepted in Scott’s own description of the space, between brands and solutions. One reason the landscape is growing at a steadily faster rate is that many of the new entrants, at least, are companies which deliver one specific solution. In other words, they’re apps, organized as business entities. Without naming names, some of them seem to be little more than micro-services.
The relevance of the cloud is that it makes it cheap, easy, and practically instantaneous to distribute a piece of software. No factory, no warehouse, no fleet of trucks, no packaging, no retail partners. It must be much more difficult these days to launch a brand of wafels than to launch an app which segments audiences by their ante-penultimate purchase and hair color.
In short, the classic definition of market maturity — including consolidation — doesn’t apply here. Or: if the marketing tech market was rapidly maturing, this is just what we’d expect it to look like.
Certainly, some of those thousand-plus new entrants in the past year will survive as fully fledged businesses. But what many (most?) of them are doing is actually R&D for the big players. They’re developing niche apps or micro-services in the hope or expectation of being acquired; and the bar to entry is relatively low because of the nature of the product and the distribution network.
If the tail ever starts to shorten, it will be because the need and appetite for better point solutions has dried up. Why should that ever happen? But to infer from the length of the tail that this is anything like, say, the wafel business would be, if hundreds of new wafel manufacturers appeared every year, is to rely on a business model which is just not relevant here.
It’s more like hundreds of individual companies, not making and distributing wafels, but just offering one new and unusual flavor.