Techaisle Blog

We have covered Marketing Automation as a major topic, especially through the Techaisle SMB Marketing Automation Study conducted in US, UK, Germany and several blog posts, commenting on the rapid growth and consolidation in the market. In one fell swoop Oracle is now addressing a US$3.5 billion opportunity in the US by 2015 and US$6.0 billion opportunity globally.

Oracle’s announcement that it would acquire Eloqua for $871M, a leading Marketing Automation vendor, seems a little odd at first, mainly because majority of Eloqua’s customers are said to be using Salesforce.com as their CRM platform, and because Oracle competes with Siebel-on-Demand and recently released its’ own Fusion CRM product.

In the typical Oracle fashion of acquiring existing market leaders, i.e. Siebel Systems, PeopleSoft and JDE, Oracle snatched up another jewel for the Ellison crown, apparently valuing B2B and Enterprise-level functionality over SMB and Social Media Marketing automation that have been the focus of arch-rival Salesforce.com. It also sends a message to Redmond, whose recent acquisition of MarketingPilot seems to offer a substantial list of features and functions, but does not carry the weight of Eloqua’s brand. In the short term, it kind of looks like a mixed bag; the repercussions of the purchase seem to revolve along these areas:

SMB Customers:

1)     Oracle says they will continue to support third party applications, but they have a huge vested interest in on-premise CRM in Siebel and other solutions that will compete for resources,

2)     Enterprise customers who still have a staff to manage applications may be open to another level of integration with a combined Fusion/Eloqua/Siebel offer, but for those SMBs already on SFDC, it is very unlikely that there would be a compelling reason to move from SaaS to an on-premise model; getting away from capital purchases, IT headcount, maintenance fees and software upgrades was the main reason for going with Salesforce.com from the beginning. Same for those who are already managing their marketing campaigns and customer communication programs using Eloqua; it is hard to take that away without some revenue risk and employee dissatisfaction.

3)      In a recent Techaisle survey, 77% of SMBs interviewed stated they were looking for vendors to reduce complexity. The type and level of integration of Eloqua into the larger Siebel suite will either make things more or less complicated depending on the approach taken by product managers to create a seamless experience.

Competitors:

4)     Oracle denies access to Eloqua’s technology to Salesforce.com, which would have been a very good fit both in terms of customer acquisition/migration and start up culture. This may well be the most important (short-term) advantage gained by Oracle. This moves Marketo, SliverPop and others up the ladder as the large independents in the space, with Hubspot and Marketo obvious next-in-line M&A targets, in a market that has seen scores of start-ups, mergers and acquisitions over the past few years.

5)     Despite a 30% premium paid by Oracle for Eloqua ($23/share over the market $17), there is already a class action suit alleging that the board should have shopped a buyer more aggressively, suggesting a $27 price as more reasonable. No comment.

6)     Over the longer term the implications are larger in a market that is moving fast, which will be influenced increasingly by Big Data, Automation and Optimization -  Enterprise capabilities to compete with the big players like IBM,  Salesforce.com and  SAP, who will be bringing competition and automation to a new level in the next few years. A recent Wikibon Post is a good example of how hardware and software are evolving to meet these emerging real time challenges. The post describes how fast the bar is rising in optimization in general and online advertising in particular:

“Many commercial Web publishers make space available on their Web pages for banner and display advertisements. Typically, when a user opens such a Web page, the browser reaches out to an online ad exchange network and requests an ad unit to serve to that user. The ad exchange broadcasts this information, often enriched with behavior data specific to the user in question, to multiple advertisers. Each advertiser compares the information against its internal ad inventory and existing ad campaigns to determine what that ad impression is "worth" to them. It then decides whether to place a bid and at what amount. Bids are returned to the ad exchange, which determines who the highest bidder is and delivers the winning advertisement.”
- Wikibon

All without noticeable lag to the user. These are the kind of industrial strength capabilities that are on the way as the market compounds at almost 130%, dominated by Mobile spending as devices grow by the hundreds of millions, as shown in this Kleiner-Perkins forecast.

Who’s Next?

So in our opinion this is a significant acquisition for Oracle, mainly because Eloqua has a strong base of satisfied users and a strong brand, and strong technology that can be applied to Oracle’s stack in the long run. The $871M price tag was not enough to prevent a lawsuit for some shareholders, but represents a sizable investment for Oracle as they strive to define the ultimate Customer-Centric, Multi-Channel Relationship Management platform in their race against the large horizontal vendors in the space (IBM, SAP, SAS, Google, Teradata).  To this end Oracle has acquired eight companies in the last two years (ATG, FatWire. Endeca, RightNow, Inquira, Vitrue, Collective Intellect, and finally with this announcement, Eloqua). The scope of what used to be called the “360ᴼ customer perspective” has evolved to include pre-sales, sales, post-sales, customer service and lifetime customer value application components, with a relentless push to automate and integrate each piece of the puzzle.

In the wake of this acquisition, an obvious question is who's next? As mentioned earlier, Marketo is an obvious choice, as are Silverpop Hubspot, Responsys, and others.  Will SFDC respond in kind or continue to focus on the lower end of the market and Social Media acquisitions? Regardless, we think 2013 will continue to see a rich market for Marketing Automation M&A activity, following two years that have seen scores of transactions in the space.

 

Techaisle’s SMB Cloud Adoption survey shows that SMBs that are using Cloud applications are experiencing tremendous improvement in customer acquisition, retention and work satisfaction. In fact, 1 in 4 SMBs say that customer retention has improved, and nearly 1 in 3 says that customer acquisition has improved.

In general SMBs have experienced improved customer acquisition and retention after using cloud applications, however, SBs (1-99 employees) and MBs (100-999 employees) differ. Typically, SBs are more hard-pressed to acquire customers, a top business issue for them. With the adoption of cloud, 32 percent SBs say that they have seen improvement. MBs on the other hand, have better direct sales force for customer acquisition, but after equipping the sales force and marketing with cloud applications they have seen marked improvement in customer retention. Additionally, an important point to note is that 29 percent of SBs have reported improved group productivity and 34 percent improved employee satisfaction.

The survey also showed that B2C and B2B SMBs have had different experiences in customer acquisition and retention.  Specifically, B2B SMBs have reported nearly twice as high improved experiences as B2C SMBs. Many B2C SMBs are using social media platforms such as Facebook and twitter and marketing automation solutions to build a set of followers to improve their customer retention and acquisition. On the other hand, comparatively higher percentage of B2B SMBs are using LinkedIn, Twitter and specialized platforms such as Chatter, Yammer and GageIn to track news and conversations with their customersaction.

CRM has become the central application and the core around which other features and functionality are deployed as required by an SMB organization, department within an SMB or an individual user within the SMB. CRM is that core cloud business application. After the SMB CRM base has been built (or simultaneously), the order of implementation depends on the SMB’s focus but is likely to be business intelligence, marketing automation, Financials, HR/Payroll, customer service for service companies, ERP, fulfillment (SCM) and industry vertical applications.

There are four key areas of SMB cloud usage and deployment. Each has got many sub-sets of applications. These four areas are:

1. Infrastructure and Platforms (US$13.0 Billion SMB Opportunity by 2016)


2. Communications and Collaboration (US$7.9 Billion SMB Opportunity by 2016)


3. Business productivity & Applications (US$15.5 Billion SMB Opportunity by 2016)


4. Industry specific applications ((US$2.7 Billion SMB Opportunity by 2016)

While there are many niche vendors addressing each niche area, the complexity grows manifold as businesses move from one application to another, from one device to multiple devices. As Cloud computing adoption among SMBs grows, the real issue of data integration continues to come into play and it will become imperative for each of the four areas to communicate with the other. And once that “integration enlightenment” happens SMBs will witness even higher improvements in productivity, satisfaction, acquisition and retention.

Anurag Agrawal
Techaisle

“Clouds come floating into my life, no longer to carry rain or usher storm,
but to add color to my sunset sky.”
- Rabindranath Tagore

 

The Global SMB Cloud Computing market will reach $23.5B this year and double to $47B by 2016, according to our latest forecast which is being updated using several thousands of survey responses and results of and segmentation and predictive analytics studies conducted in the first three quarters of 2012.

Rapid market growth in the Cloud Computing arena, especially for SMBs, is not a surprise to those watching the market, but our latest forecast shows that several segments will offer more than $1B in opportunity, as shown in the attached chart. Among those that will cross the $1B threshold are Other SaaS, ERP/SCM and Storage, the latter growing at ~30% CAGR. Keep in mind that the five types of arrows show relative growth relationships; the actual rates are very healthy and range from 10% to over 30%.

Other important points in the forecast include:

Approximately 60% of the volume growth is expected to come from North American SMBs, or $14B of the incremental volume of the global $23B, while Western Europe is expected to add $3.7B growing at a rate of 11%, and Asia/Pacific (excluding Japan) continues to develop rapidly – in the 20% range - on the back of China’s expansion and Korea’s continued economic strength in IT and global production, and is expected to add almost as much total volume as Western Europe, or about $3.4B vs. the $3.7B mentioned above.

Eastern Europe is expected to develop into a ~$1B market over the forecast period as is Latin America, both growing rapidly from a relatively small base. And as has historically been the case, Africa and the Middle East continue to lag with a very small share of both volume and growth.

“A picture is worth a thousand words.”
- Napoleon Bonapart

With all the movement around VDI, as analysts we tend to think in abstract terms about what is means to the market at large and our clients. With my daughter home from college this week I got a firsthand look at what the next generation is doing with technology and how real it actually is.

The scenario went like this:

With a week before finals in Organic Chemistry and a major paper due after Thanksgiving break, my daughter needed some freeware called ChemSketch, but it does not run native on her MacBook. Nonplussed, she downloaded an Oracle VirtualBox client, Windows XP, and the ChemSketch, created a new system disk and shared folder and was working on her chemistry paper, drawing molecules and all the other things that I don’t pretend to understand.  While I was proud to see how quickly she overcame the problem, what really struck me was that thirty years ago I was in front of a blinking CRT using a timeshare network learning FORTRAN with a prompt – the C: prompt that my daughter used triggered the memory and caused a major episode of deja vu. It is really amazing to see how both the context and content change over time.

We at Techaisle want to wish all of our friends a Happy Thanksgiving and  beginning of the Holiday Season!

In India, SMBs’ awareness of cloud computing trails only slightly behind mature markets. Predictably, awareness is significantly higher among mid-market businesses than small businesses. However, awareness of the term increases significantly among companies with 20 or more employees suggesting interest in cloud computing jumps once businesses grow beyond a certain size. In addition, mid-market businesses with 250-999 employees have the highest awareness about cloud computing as these firms have are still building their in-house IT infrastructure and are evaluating all options to meet their IT needs. SMBs also agree largely on what the term means – about half of all SMBs surveyed agreed that the term included all of the following aspects.

• Subscribe to IT services that are hosted by third-party

 

• Subscribe to Servers hosted by a third-party

 

• Subscribe to applications hosted by third-party

 

• Access applications using a web based interface

 

• Subscribe to storage and security hosted and provided by third parties

Over the last few years, as the market has evolved and more vendors have entered the fray, a number of new terms have become commonplace each meant to either truly represent a component of the market or a marketing gimmick by some vendors to try and create and legitimize a niche for themselves. The rising sophistication of SMBs is evident in that they are at least familiar with the various terms being bandied about. This is not to say that SMBs do not differ in their views of what each term actually means.

Familiarity with the term cloud computing is rising among SMBs suggesting vendors’ evangelism activities are having some effect in terms of recognition and awareness. However, a good understanding of the benefits of cloud computing varies significantly among the SMBs. More importantly, awareness among channels that serve the SMB segment is limited with pockets of misinformation. Even if the SMBs and channels know about the benefits of cloud computing they still worry about security and data privacy.

Cloud computing has been touted as the next big thing but as far as the Indian market is concerned while there is a lot of hype and interest generated around this technology the ground realities reflect a more sobering truth: that SMBs in India are still some way off from shifting to the cloud in a big way and that the initial vendor push is more oriented to the upper mid-market businesses and large enterprises.

In India, Infrastructure, also known as IaaS, has the potential to change the way IT hardware is purchased, designed and used. With its promise of infinite scalability and a pay-as-you-go pricing model, the primary benefit that cloud IaaS services extends to the SMBs is efficiency at lower IT costs. It lowers the barriers to market growth by lowering technology costs and upfront investments. This is true both for small and mid-market businesses for many applications. The picture is substantially different for mid-market businesses and small businesses taken separately. Mid-market businesses display a greater willingness to adopt hosted infrastructure and platform solutions than small businesses which is understandable.  Small businesses prefer business appliacations and industry vertical solutions. Cloud platform vendors should therefore actively seek partnerships with such vertical ISVs in order to drive utilization of their own services and data center resources.

Gitika Bajaj
Techaisle