Why are marketing automation platforms getting so much VC funding?

Originally posted on cio.com.

Software that aims to automate specific touch-points of the customer acquisition and retention processes have evolved into ubiquitous enterprise tools employed by marketing departments of virtually every size and industry.

With Optimove's recent $20 million raise from Israel Growth Partners, industry experts are asking what it is about marketing automation platforms that makes them such magnets for VC funding.

Since HubSpot's founding in 2006, marketing automation platforms — software that aims to automate specific touch-points of the customer acquisition and retention processes — have evolved into ubiquitous enterprise tools, employed by marketing departments of virtually every size and industry.

The long tail of providers

According to marketing research firm Asend2, a full 42 percent of firms now use such tools. And while the majority of those have adopted platforms that are household names (at least to CMOs) such as HubSpot, Eloqua, and Marketo, the rest of the market comprises a panoply of offerings often differentiating themselves through targeting specific niches within the marketing software market.

But why such a long tail in the first place?

As a recent review of the marketing automation software illustrates, although certain functions remain core to the marketing automation toolkit (these include fine-tuning landing pages and email marketing campaigns), other martech offerings include features that straddle the divide between CRM systems, or incorporate functions from entire separate areas such as web analytics and even project management.

The result is a surprisingly fragmented landscape of competitors competing under a rubric that is still far from standardization.

Unfulfilled expectations

Despite this preponderance of systems, however, one thing is clear.

Whether through typical feature-bloat or the sheer unwieldiness created by a well-intentioned effort to merge various enterprise silos into one 'do it all' software package, the majority of systems are fundamentally failing to provide the solution that marketers are seeking when turning to these tools.

According to industry expert David Raab, a full 70 percent of marketers are either dissatisfied or only marginally happy with their present marketing automation package. Worse, and to the undoubted displeasure of the accounting department, only 7 percent are seeing tangible ROI from their use of the systems.

Today's marketing automation softwares have successfully bulked up with features — but users report the bulk to be cumbersome. Tomorrow's generation of solutions will focus instead on instead predictive modeling and set delivering a sleeker, more powerful, solution to the user as their top priority.

Investor appetite remains undiminished

Given the above, it is perhaps understandable how a search within the marketing automation category of Angel.co turns up over 200,000 users following the space, 18,000 investors listed as investing in it, and affords an average valuation of $4.3 million to its startups.

Marketing automation platforms are, by nature, almost entirely-cloud based. The journey from the server-room to the cloud is still ongoing, and VCs realize that the ongoing state of flux in enterprise IT will continue to have ramifications across all major business units.

Although data from cloud solutions provider RightScale showed that 93 percent of U.S. businesses are now using the cloud in some form, an equally turbulent second wave of cloud adoption involving transitioning mission-critical data to the systems is expected to be just as disruptive as the first.

This will mean retrospectively-focused efforts to coordinate the cloud IT stack across the organization. Such a review will likely have knock-on effects for less business-critical systems already deployed — such as marketing and sales tools.

Given the evidently unmatched demand from marketers for an intuitive but powerful platform capable of automating all levels of the marketing stack, it is not surprising that martech startups managed to raise $17 billion last year — and marketing automation software continues to rank among the top business models in the category.

Personalized messaging remains key to effective marketing. Given the tendency for larger revenue businesses to more proactively seek out high-tech solutions, scalability, through automation, will not diminish as a prime concern for purchasers.

In an industry expected to be worth $5.5 billion within three years, there is much business at play.

Despite what, at first glance, looks like a rapidly saturating market, too much enterprise spend on these technologies has evidently been directed at keeping up with the Jones’.

A new crop of forward-thinking, leaner tools will emerge in the coming years.

This could significantly displace some of the market share that the current crop of titans enjoy.

The door remains open for new entrants to the marketing automation space. VCs realize this and are continuing to invest in the game-changers of tomorrow.