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Falling Prices At Low End Of Marketing Automation Sector Bring Pain, Pressure For Emerging Category

Raab_VEST_PricesAs interest in the marketing automation sector continues to increase, so do the competitive pressures for vendors to grab market share. Despite being a young, emerging category, there is already heated competition and pricing pressure, particularly at the lower end of the market.

Where most vendors had seen average deal sizes of approximately $1,500 per month, price points for marketing automation are now dipping below $500 per month in many cases. Some vendors are already feeling pressure on profits and there is a growing concern the value perception of the still emerging market could suffer from discounting.

“I do think it’s dangerous for companies to continually undercut one another as this begins to devalue marketing automation technology,” noted Paul Teshima, VP Product Marketing, Eloqua. “Vendors across the industry are putting tremendous amounts of time and money into their businesses and their products. The innovation across this space is huge…I have no doubt that marketing automation vendors will continue to invest in R&D and add more functionality and power to their products. At the same time, I think customers will start to realize ‘you get what you pay for.’"

Industry insiders point to several factors, including the freemium model, launched by both Genius and Loopfuse in 2010. Most recently, in a move to serve the rapidly growing SMB sector, Marketo launched its Spark product, a marketing automation platform branded specifically for smaller marketing teams positioned as a separate brand and offering from Marketo, Spark is reportedly priced at $750 a month for 30,000 emails per month, with no annual contract.

“There’s a lot of pressure at the lower end of the market for the smaller deals,” noted David Raab, Principal of Raab Associates. “There’s a real dogfight going on down there. Marketo has always been aggressive on discounting. HubSpot also is competing on some level [with marketing automation vendors] so there’s this immense pressure to get those clients and show growth, as well as an increase in the number of accounts…To keep their own investors happy and have perceived momentum in the market, vendors want to sell a lot. It’s easier to sell a $500 a month account than it is to sell a $2,5000 a month account. Vendors are trying to get the number of accounts sold up. The easiest way to do that is to put pressure at the lower end.”

Raab also pointed out that the competitive drivers involved in pricing decisions are a factor in the maturation of the category. “It may take some discounting at [an early] stage for vendors to establish themselves as a leader, and then they’ll be able to raise prices later on once they’ve gotten rid of some competition. That’s a strategy that I think they’re all very comfortable with.”

Vendors are feeling the effects of the pricing battle, particularly those that are positioned to serve the SMB segment. SalesFUSION, which entered the market with a $450 monthly entry-level price point, and has recently increased its base cost to $500, according to CMO, Kevin Miller. He added the company’s most popular price tier is $950 per month,

“More competitors are always a factor and we have been aggressive on pricing ourselves, but one of the main issues vendors in this space face is the simple fact that the majority of the market acquiring marketing automation software are mid-market companies that have historically been using low-cost bulk email solutions, like Constant Contact, and are conditioned to pay a few hundred dollars pre month for email marketing,” Miller told Demand Gen Report. “This has slowed the adoption of solutions in the $3,000-$5,000-per month range.”

Vendors also acknowledge the potential long-term implications of a continued price war, as it relates to customer attrition.

“There are a couple possible impacts [of dropping prices],” noted Jeff Erramouspe, President, Manticore Technology. “First, the low price is causing a lot of people to take a look at marketing automation platforms who otherwise might not. The closer the pricing gets to that of an Email Service Provider (ESP), the more likely people are to buy up.” 

Additionally, Erramouspe emphasized the potential business model pressures for some, due to low monthly cost and the ability for customers to cancel the contract with no strings attached.

The marketing automation pricing and adoption conversation has been compared to that of an ESP vendor. From an user-education standpoint, a majority of marketers are still not realizing the full value of their investment due to a skills gap.

 “Unfortunately, many of those that do trade up (from an ESP) don’t necessarily have all the skills they need to take full advantage of the technology they are purchasing,” Erramouspe said. “I believe that this could ultimately cause a higher percentage of failed marketing automation implementations. We already struggle with this as an industry, and I think this could add more to the perception that it is difficult to get value from an marketing automation platform.” 

Other industry insiders note the positioning of the marketing automation category, as it relates to the evolution of pricing for CRM platforms is a factor, as well.

“At the end of the day, so much value is derived from integrating marketing to sales…hence the focus on integrating marketing automation with CRM,” Miller said. “But the marketing automation system is always going to be a subset of CRM in a way, and most companies would not pay more for the marketing app than they do the CRM app. So if you have a company paying a million dollars for CRM, then $100,000 for marketing automation is logical. But if someone is paying $15,000 a year CRM, then $30,000 for automation software seems like a bit of a stretch.”

Raab Associates 2012 B2B Marketing Automation Vendor Selection Tool (VEST) Report, an ongoing trend tracker, profiles 21 vendors, each based on more than 200 data points relating to features, pricing, growth rate and vendor background.

“What we saw in the VEST report is a huge growth by Act-On Software,” Raab said. “[The company] is out there at a very low price point.”

Act-On Software’s Chief Revenue Officer, Shawn Naggiar, noted that buyers expect a clear, straightforward, predictable price for the level of value they anticipate realizing.

“Many vendors built their business on over-selling results to justify application complexity and higher price tags,” he told DemandGen Report. “In addition, some of these vendors are repackaging these same services at lower price points to gain market share. In the end the market will decide what it will bear, not the vendors.”

The one vendor that seems to be steering clear of the pricing pressures at the lower end of the market is Eloqua, as the VEST Report showed the company had declining activity at the lower end of the market.

“Figures from the new VEST report show that Marketo had about the same number of 'micro' clients (under $5 million) at the start of 2011 and 2012,” he said. “Their growth nearly all came in the $20-$500 million segment, plus some among bigger companies. Eloqua shrank sharply in the 'micro' segment to almost nothing; they had substantial growth in the upper two segments…I was very surprised to see how, over the past year, Eloqua’s numbers and percentage in the small business end of the market has dropped dramatically. They’ve had huge growth at the enterprise level.”

While the Raab report showed Eloqua had a drop in activity at the lower end of the market, Teshima stated that Eloqua is still making a concentrated effort to serve all customers with a variety of pricing options.

 “There is no one size fits all pricing model when it comes to marketing automation,” he told DemandGen Report. “Companies of all sizes, in a wide range of industries are turning to marketing automation to help solve their unique business challenges – these challenges are complicated and require both technology and process change. Pricing obviously depends on what a company is trying to accomplish, what the marketing and sales goals are for the company.”

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