Jeff Erramouspe, President of Manticore Technology , and was recently quoted in a DemandGen Report article on the trends around the average selling price of marketing automation solutions and the possible impact for the future of the market. Following is the complete interview:
DemandGen Report: We have heard a lot of volatility and competitive pressure in terms of pricing in the marketing automation space. While we heard Average Selling Prices were starting to recover in August around Dreamforce, we’ve heard they have started to dip down again in the fall and toward the end of the year. Have you seen this trend and what do you attribute it to? What’s driving the change/pricing pressure? Are some marketing automation vendors being more aggressive?
Jeff Erramouspe: We have seen selling prices drop over the past six months, particularly at the lower end of the market. That is, companies with revenues less than $20M are looking at an increased number of solutions with price points less than $1000 per month. A lot of this was driven by the Spark by Marketo announcement, and in order to continue to win business, we are required to respond to it. Fortunately, we target customers who are between $20M - $150M in revenue. As you get higher in revenue, there is less price sensitivity, but there is still some downward pressure driven by the lower priced products. Marketo, Act-On, and Pardot are all pretty aggressive on the pricing in the small business segment. Vendors have also gotten more aggressive on payment terms, offering month-to-month agreements with no long term contract required.
DGR: What impact it could have on the marketing automation market—long-term?
JE: There are a couple possible impacts. 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, the more likely people are to buy up. Unfortunately, many of those that do buy up don’t necessarily have all the skills they need to take full advantage of the technology they are purchasing. I believe that this could ultimately cause a higher percentage of failed marketing automation implementations. We are ready struggle with this as an industry, and I think this could add more to the perception that it is difficult to get value from a marketing automation platform. At the higher end of the market where we target, we have fewer problems with this because we deal with more sophisticated marketing departments who understand the investment they need to make to take full advantage of our platform’s capabilities.
The second issue is that the low monthly cost and the ability to cancel the contract with no strings attached will put a tremendous amount of pressure on the business models of some vendors. Implementation and training can be both expensive and time consuming to provide to a customer. Incurring that expense with a less sophisticated customer who could possibly walk away at a moment’s notice is difficult to justify. Those vendors that have the easiest product to use and provide the right online and automated tools will be in the best position to serve those customers profitably. Our latest release, Manticore Winter 2012, was designed from the ground up to help us better thrive in such a competitive environment. It will dramatically decrease our costs of onboarding new customers.
DGR: What are customers and prospects now expecting to pay for a marketing automation solution –what is the perceived value? What should customers expect to pay for a marketing automation solution?
JE: We are seeing some deals being done below $1000 per month in our smallest customers. However, we’re still seeing plenty of business at$25,000+ per year, paid annually up front. We believe that over time, we will be able to justify the value that we provide to our customers and will see overall price per customer increasing.
DGR: Are there comparisons to CRM, Email or other technology platforms?
JE: I think at the low-end, marketing automation platforms get compared to email marketing platforms all the time, mostly due to the similar capabilities. We are starting to see some marketing automation vendors adopt a pricing strategy based on email volume. In fact, the typical $750/month price you see is somewhat misleading as some vendors have an email volume kicker sitting on top of that. We have not restricted our customers email volume in such a way.
JE: For marketing automation vendors, the hard part is that there are many more users or seats that get sold in CRM implementations. Most companies have far more sales and customer facing employees than they do marketing employees. Seat based pricing doesn’t have any real way to scale in a marketing department. One way that this can happen is if there is a part of the marketing automation solution that sales might use. Again, some of the low-cost products require you to pay extra for the sales oriented functionality. Like with email volume, we provide our sales functionality as a standard part of our product and do not charge extra for it.
DGR: We’ve heard industry anecdotes about concerns of a “race to the bottom,” in that if vendors aggressively shoot to be the lowest price solution, that drives the category down and devalues the technology in general. What are your thoughts on that?
JE: In my view, there is some truth to this. It seems really early in the evolution of the market for all of us to be competing on price. Estimates are that only 25% - 30% of the B2B marketers who need a marketing automation solution have one, so there is a lot of untilled soil out there for us to go farm. It is clear that some vendors believe that the best way to gain market share is to be the low price provider.
DGR: From a customer and user standpoint, what are the concerns about the service experience? Have you seen this in the market? How has it affected your brand?
JE: We have acquired some customers from other vendors as a result of a poor initial service experience. As I stated above, this low cost model puts pressure on margins that could cause some vendors to provide a less than optimal user experience. When we sign up a customer we are fully committed to their success. If we can’t do that, we won’t take their business. I think the advantage that we have in service has very positively impacted our brand.
DGR: What other concerns do you have with regard to pricing and how it will affect the market?
JE: I’ve stated most of them, but my biggest concern is that as an industry we will create the impression that marketing automation is low-value, low-cost software. If we all focused on delivering value rather than competing on price, it is possible that the market would actually grow faster and be more sustainable than it already is.
To see the full DemandGen Report article visit here: Falling Prices At Low End Of Marketing Automation Sector Bring Pain, Pressure For Emerging Category