Marketo delivers the numbers; now deliver the noise!

SUMMARY:

Marketo has the credentials, the pedigree and the trademark in the marketing cloud space. But in the face of increasing competition from the likes of Oracle and Salesforce.com, do we need to hear it make more noise?

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Marketo’s Fernandez

“It’s a lot of good to have the trademark in marketing cloud.”

So reckons Marketo CEO Phil Fernandez as he looks out at a landscape where the battle for marketing cloud mindshare is being fought over by the likes of Adobe, Oracle, Infor and Salesforce.com as analyst firms such as Gartner hype up the role of the CMO as critical IT decision maker over the next few years.

Ahead of this flurry of recent activity, Marketo itself has been ploughing its own furrow in this space for years of course, going public earlier this year in a successful IPO.

This week it reported its first earnings as a public company – and managed to keep Wall Street rather happy with shares up 22% following the announcement.

Revenues rose 62% from the year-earlier quarter to $22.5 million, well above the consensus estimate of $14 million. Marketo reported a per-share loss of 26 cents minus items, comfortably ahead of the 49-cent loss consensus estimate of analysts.

Untapped opportunities

The numbers are indicative perhaps of what Fernandez calls a “very dynamic and active” market segment in which Marketo can stake a claim to have set an agenda before the Salesforce.coms and Adobes came knocking.

It’s also still a fundamentally untapped market space, he adds:

“Depending exactly how you count it, it’s 2% or 3% or 4% penetrated. So there are just tremendous green field opportunities. There have been earlier technology waves of marketing technology that we do often replace across all of our customers. Often an email marketing solution gets replaced with a broader marketing platform and with some frequency we see an earlier generation of technology getting replaced.

“But this is a market that is – maybe [less than] some of the other cloud application spaces – driven less by replacement [but] by green field investments. Customers are still coping with just rapidly emerging omni-presence into the marketing channels and realizing they need a platform to cope with it.”

Budget for such investment is coming from different sources as well, adds Fernandez, with Marketo able to fulfill inbound demand rather than at a sales level create demand. (One would of course hope this would be the case for a marketing specialist firm…)

He states:

“Our sales team doesn’t spend a lot of time convincing people to free up budget because people who find their ways to us through online advertising and other strong leadership programmes, have already chosen to allocate the budget.

“Our products come from the budget that pays for Google advertising and email marketing and bill boards and TV ads and all that stuff. As a result it becomes an allocation of what is a very large [budget], if you add advertising and go to market budget. It typically get treated a little differently than when the CFO and the CIO need to find budget for an initiative in other department.”

Nonetheless there needs to be a business case of course, but this is also being driven by increased awareness on the part of the customers themselves. Fernandez posits:

“Our sweet spot is where the customer has woken up to the notion that building relationships with their customers over time and across every channel – web, email, mobile, text, in-bound, outbound, social, twitter, Facebook etc –  represents long-term customer value.

“[It’s] where they could have premium on the value they can extract from this large customer database, customer behavior and really being able to present the right message at the right time to the right customer across all of these channels.

“And if woken up to that, the customer starts to look for new generation platform that does that and there is only a couple in the market. Then it becomes really a feature function, integration, partner ecosystem kind of battle.”

B2C rising

To date Marketo has seen most traction in the B2B space, but Fernandez counters that the firm is now seeing increasing levels of engagement with B2C firms, citing one of the world’s largest cosmetic brands which chose Marketo for a new social media marketing application. That went live last weekend less than 45 days after the contract was signed, he adds.

But it is early days in the B2C play, he concedes:

“It’s a long term journey. Broadly speaking, B2C markets are two thirds of the global economy. We are seeing this tremendous crossover [where] B2C [firms] realize that the same customer interaction and big data capabilities we have in our B2B platform apply directly to customer acquisition and customer loyalty in their markets. So as a result we see this awakening in the B2C space as to how our products apply to the business problems there.

“And as you look across our customer base we actually have many, many B2C names already, education and health care and consumer brands and media etc. We have not made projections about the exact distribution quarter-to-quarter and year-to-year, but I think the basic notion that we are in a very large adjustable market and as we get stronger in B2C that market expands by a factor of three, [which] we think bodes very well for the future.”

In anticipation of increased activity in the marketing cloud space, Marketo has been beefing up its behind-the-curtain infrastructure to cope with anticipated additional demand. It’s completed the first phase of a data center transition that has seen the shuttering of some legacy centers as well as an upgrade to its email delivery infrastructure.

All of this is necessary as well in order to enable the firm to move into potential new areas of the marketing arena, explains Fernandez:

“We think this upgrade to a much lower cost and more robust email infrastructures [is] particularly important in context of the rapidly declining market price points and margins we see for email.

“As we articulated in the past our strategy also includes pursuits for select strategic acquisitions in the highly fragmented marketing technology space. We continue to actively evaluate interesting opportunities, particularly the tuck-in nature which will be complementary to our platform strategy in current channels.”

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Coming to a CMO near you

But what about all that fresh competition coming after the same business? Salesforce.com’s ecosystem is tightly tied to Marketo’s, but Salesforce.com now has its own marketing ambition. So too do Oracle and Adobe and Infor and more and more.

It’s an increasingly crowded market sector – and one that’s been characterised of late by merger and acquisition from providers with deep pockets.

So is there still room for a best-of-breed player like Marketo in a market sector where others increasingly play the integrated suite angle? Fernandez argues pedigree will out:

“Customers really do seem to be looking for the thought leader and the opinion leader and the innovator in the space and I think we are just clearly continuing to step [ahead] particularly as others maybe are distracted a little bit with that continuing pace of innovation.

“I don’t see customers necessarily looking to make a suite purchase as opposed to really looking for best-of-breed and knowing they can integrate together very effect in the cloud.

“We just have tremendous awareness [among] people that are choosing to want to do business with what we bring to the market.

“We are only in the early innings of the emergence at this marketing software category and I believe the immense size of this market and our position as a leader will service well for many years to come.”

Verdict

Some nice numbers to make Wall Street happy from the people who really do own the marketing cloud – or at least the trademark!

In the whirlwind of recent cloud-related marketing mergers and acquisitions – with Neolone formally falling to Adobe just this week – Marketo has a strong message to deliver in terms of pedigree and longevity (or relative longevity at any rate).

The gathering CMO focus of so many applications players – most notably Salesforce.com – plays nicely to Marketo’s own sweet spot and should leave it well positioned to deliver continuing success.

But I really would like to see a bit more bravado and noise from the firm. It’s got that proven pedigree, it’s got those cracking credentials – shout about them a bit more. Show the market that you’re the thought leader in this space as you claim.

All through the various manoeuvrings and market repositioning from Oracle and Adobe and Salesforce.com et al, Marketo has remained bafflingly tight-lipped, missing out on opportunities to be position itself as a sector pioneer suddenly joined by newly acquired competitors.

In short, Marketo needs to make more noise to be heard above the din that the likes of Oracle and Adobe and Salesforce.com are making.

The end result of silence is inevitably uncountered and unanswered speculation and scuttlebutt that Marketo itself will end up as a takeover target. (“When, not if,” one sector analyst told me recently.) That can’t be healthy long term, surely?

There’s a big mindshare battle to be won here and Marketo needs to start punching above its weight a bit more. There’s a cracking marketing story to be told here guys – tell it to us!

As the marketing cloud wars hot up, it’s pertinent perhaps to recall that quality alone doesn’t always win out – commentators still regard Ingres as the superior database product to earlier versions of Oracle, but Ingres failed to counter the Oracle sales and marketing onslaught.

Just worth bearing in mind perhaps?

Disclosure: at time of writing, Oracle and Salesforce.com are premium partners of diginomica.