Marketing Technology and Communications
While advancements in technology have impacted nearly all industries, there may be no other sector that has been impacted as much as marketing and advertising. The evolving and increased use of electronic communications, the Internet, social media and SaaS business models has dramatically impacted the way businesses communicate with, target and analyze their customers, whether that customer is an individual consumer or a business. The now pervasive use of laptops, PDAs, readers, iPads and other hybrid devices that all provide remote wireless access to information and tools, has forced businesses to rethink the way they are communicating. Marketing communications are now integrated and targeted.
There is virtually no marketing business model that is not affected. Where outdoor advertising was once solely characterized by a few men with paint rollers, it is now dynamic electronic messages and images provided from a remote location. Television has shifted from communication to a captive, broadly defined audience to a DVR intensive, Internet integrated medium focused on targeted audiences. Market research, previously consisting of focus groups in conference rooms is now click path tracking and web analytics. Brand building was exclusively magazine advertisements and is now social networks and Internet advertising. Direct marketing is no longer thought of as a U.S. Postal Service business but instead as email, text or paid search marketing.
Due to the impact of technology on every marketing category, businesses that were traditionally silos of options for marketing executives are now increasingly viewed as requiring an integrated multichannel marketing strategy. These “silos” are therefore increasingly merging, albeit from various business models both traditional and new.
Traditional, Non-Direct Marketing
Nearly every form of traditional media has been in decline including television, newspapers, magazines, radio and outdoor. The only traditional form of media that did not decline in the 2010 was television which most believe will show a decline in 2011. However, these forms of advertising and communications still represent enormous markets. The Winterberry Group estimates the following market sizes: television — $56.4 billion, newspapers — $23.4 billion, magazines — $14.6 billion, radio — $13.5 billion and outdoor — $6.1 billion. This compares to the entire digital media sector at $27.7 billion and online search, the largest digital media sub-sector, at $15.6 billion. Therefore, these traditional channels are still garnering the largest portion of marketing communication spend. The issue is clearly the declining market share, and in some cases the rapid rate of decline, with newspapers leading the way with nearly double digit percentage declines. As e-book readers become more prevalent, content becomes the only long-term value in newspapers and magazines as the production and distribution shifts to digital converters of content. The television landscape has and will continue to shift as scheduled content competes with on-demand programming, Internet integration and addressable television advertising. With the explosion of options on both television and radio, these mediums have become more direct and more targeted than indirect and broad.
The Direct Marketing Association defines direct marketing to include direct mail, catalog inserts, telesales, email and paid search advertising. Direct Marketing accounts for over 50% of all advertising spending in the U.S. Within the Direct Marketing category, spending in direct mail is forecast to rise 3.6% annually between 2011 and 2014.
Teleservices is estimated to be a nearly $40 billion market. This channel, as other traditional channels, has been impacted greatly by technology, both causing issues and opportunity. The biggest challenge has come from the rapid growth and dominance of wireless, mobile phones and PDAs. Home phones, once the primary form of communication for households, are often rarely used or even non-existent. Many young adults, and some old, maintain no landlines at all. Telecommunications are mobile and often in text form. Marketers have been forced to become innovative in the manner in which they aggregate numbers, indentify mobile users and collect useful data for targeting messages. For several years, U.S. companies have had to deal with the threat of significant and widely publicized foreign competition, forcing them to become increasingly innovative and efficient, utilizing all available technologies. Additionally, the industry has become increasingly regulated and the fines handed down for not following regulations have been significant. The largest players in this sector, once simply known as call center businesses, are now repositioning themselves as BPOs for all forms of communications.
For traditional direct mail companies, the environment has become significantly more challenging as technology has provided new avenues to communicate with customers at lowers costs. However, traditional print is still a large player in direct marketing and is still an effective tool in driving revenue. It represents a market over $45 billion which is expected to grow in the mid-single digits in the upcoming years. While digital technologies are proving to be lower cost with superior abilities to track ROIs, traditional direct mail is still a proven method for delivering targeted communications that can also be effective in integrated digital campaigns.
Data Management is Key — The primary challenge for marketing businesses, that have a foundation in print, is that the process of printing, inserting and mailing has become highly commoditized on its own. Successful companies in this arena are those that provide significant value-add in the way of data management. By investing and emphasizing data management capabilities, these companies provide an important outsourcing service that assist their customers in better targeting and improving the impact of the communication, regardless of its ultimate output form; print or electronic. These companies are able to proactively manage customer data, and place variable, targeted messages that increase ROIs. Most of these companies have, or are currently developing, electronic delivery capabilities to manage the delivery regardless of the customer’s preferred form of output. As the amount of electronic delivery has increased, the operational challenge for many print-based companies has been to manage their fixed asset investments in printing and inserting equipment as the volume mix has shifted toward e-delivery. Statement delivery companies are squarely in the middle of this shifting dynamic as the statement has been astutely identified as a primary communication in which to integrate marketing messages due to the fact that printed or electronically delivered statements are rarely ignored.
One of the more widely used forms of marketing technology today is email marketing. Every business that currently has a large direct mail spend is, or should be, evaluating the relative benefit of email due to its relative cost, tracking and cross-technology integration capabilities. It is currently the most cost efficient marketing channel available with distribution costs at nearly zero once an email campaign is designed and created. The cost of email marketing is estimated to be $7 per order received, well below paid search marketing at $27 per order. Email marketing returns more than $50 per dollar spent.
Adjacent Marketing Services
The email communications industry is poised for significant growth. Various studies have indicated that permission based email is dramatically preferred by consumers to other methods of communication such as postal mail or telemarketing. However, despite broad applicability, and over 50 million domestic organizations utilizing it today, email marketing remains a small portion of overall marketing spend currently at about $1.4 billion per annum.
Email marketing is also a more economically resistant offering. Email marketing is one of the last marketing channels impacted in tough economic times thanks to a strong cost-benefit ratio. According to eMetrics, despite 54% of advertising budgets shrinking, over 90% of businesses are planning to increase or maintain their spending on email advertising. Forecasts have online advertising growing in the double digits over the next few years, growing to over $37 billion in 2013.
It is important to distinguish permission based email communication from what is called SPAM email. In December of 2003, George Bush signed the CAN-SPAM Act in response to consumer complaints about email marketing. CAN-SPAM provides guidelines that companies must follow when emailing marketing messages. These regulations include offering an “unsubscribe” option within each email, maintaining an unsubscribe list and accurately identifying the message sender. CAN-SPAM also regulates the content that can be included in email marketing messages. Repeated CAN-SPAM violations can result in heavy fines. As a result, CAN-SPAM is driving the adoption of formal email marketing tools and services, because general email management programs like Microsoft Outlook cannot guarantee compliance with the regulations. So, while email can be a very useful tool for contacting new potential customers as well as existing customers, it is very important to do so in a controlled and legal manner.
Online Search & Display
Online advertising includes banner ads, paid search and other web-based outreach. Online advertising has proven to be more resilient during tough economic times than most forms of offline media. Forecasts have online advertising growing in the double digits over the next few years, growing to over $37 billion in 2013. In 2010, the Winterberry Group estimated online search to be a $15.6 billion market and online display to be a $9.3 billion market. These are currently the largest areas of digital advertising spend with email trailing a distant third. Online advertising is no longer confined to large organizations. Borrell Associates estimates that small and medium size businesses now spend 11% of their advertising dollars online versus less than 4% just a few years ago. Total medium-sized business spending on online advertising totals over $7.0 billion. A few of the reasons for the large spend online is the heightened ability to target audiences versus other methods, a substantially better ability to measure the ROI and continuing improvements in the “experience”. As technology continues to advance and improve these advantages are only expected to increase.
Social Media in Online Marketing
Probably the most intriguing avenue for marketing that is still evolving rapidly is social media. The largest social media sites have a staggering number of users. All marketing technology and communications companies are searching for ways to best integrate and utilize these sites. While new relative to other marketing options, it is by no means a small market. U.S. marketers will spend $3.1 billion to advertise on social networking sites in 2011 according to eMarketer, a 55% increase over 2010. Worldwide spending on social networks is expected to rise 71.6% to $6.0 billion, which equates to about 8.7% of total expected spend for online marketing. Social media is also on its way to being a pervasive platform for advertising, as 80% of companies with 100 or more employees now allocating funds for this purpose, according to eMarketer. Therefore, companies in the business of delivering communications for customer acquisition or retention need to have a plan with regards to social media integration.
Probably the most intriguing aspect of all online marketing is the ability to target messages by best understanding the universe of users and dissecting them to get the right message to the right person at the right time. Of course, this is all contingent upon the ability to track and garner various forms of data regarding the potential audience. Below is a list of the primary forms of data being gathered.
And, all this data clearly leads to other issues that have to be addressed by those who are investing in these capabilities.
Mergers & Acquistions
The marketing technology market for mergers and acquisitions has been increasingly active over the past twelve months. In Q4 2010, the marketing technology industry had approximately 100 transactions representing a total deal value of over $4.0 billion, up from only 34 transactions with a total deal value of $980 million in the same quarter of 2009. The split between the number of transactions to strategic buyer versus a financial buyer was approximately 50-50; however, the total deal value in Q4 2010 for the strategic buyer transactions was over $3.6 billion, compared to approximately $450 million for financial buyer transactions.