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The Investment Outlook for Insights: A View from the Capital Markets

The U.S. venture capital funding market has been on a tear. But what is going on specifically in the Marketing Technology & Services sector?

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Editor’s Note: One of the major sources of insight into thinking about the future of any industry is watching capital markets. It’s easy to get tunnel vision when our heads are down working to complete the tasks in front of us, but that is a dubious luxury during times of rapid change. Where money is flowing in and around our industry should be something all leaders in our space are cognizant of on a regular basis.

Following what investors are betting on (especially large VC firms) as well as M&A activity is a powerful tool for foresight. In the MR space there are only a handful of firms that pay attention to this: Cambiar Consulting (their Capital Funding Index is required reading), Forrester, and investment bankers England & Company. I also pay attention to Outsell and their work around market sizing and segmentation to help look at total size of MR and closely aligned or overlapping industriesThere may be a few more, but these are the folks I am aware of and pay attention to.

At IIeX in Atlanta we invited Simon Chadwick from Cambiar, Harry Henry of Outsell and the author of today’s article, Corey Luskin of England & Company, to present on their views of the marketplace and where it is going. THey were amazing sessions and chock full of great information for everyone in the MR value chain, especially entrepreneurs and investors.  I asked Corey to build on the themes he presented on in Atlanta in what I hope will be the first of a series of posts exploring this macro view of trends from an investment perspective. The result is today’s post: it is an important one and I think you’ll enjoy it.

 

By Corey Luskin, England & Company

The U.S. venture capital funding market has been on a tear. The first quarter saw roughly $10 billion in VC investments across all sectors, making it the busiest quarter in several years. The second quarter shattered this level with almost $14 billion invested. It’s fair to say that the early-stage investing scene is brisk.

But what is going on specifically in the Marketing Technology & Services sector? At England & Company, we track this activity. It can give advertisers and marketers a feel for the pace of new innovation in the industry. This directly impacts how these professionals will do their jobs in the future. The data also provides new technology and services companies (who might be seeking investment or acquisition) with an understanding of where the commitments are being made.

New venture investment into Marketing Technology and Services companies has mirrored the overall acceleration. In 2014 so far, more than $1.7 billion in new venture capital has been invested into early-stage companies that, one way or another, are trying to transform the practice of marketing.

This $1.7 billion practically matches the total level in all of 2013 and we’re only halfway through the year. This year will inevitably cap off a growth trend that has been underway since the markets began their recovery in 2010.

 

Insights Investment Trends

 

Who received all this capital? It went to almost 120 companies ranging from seed-stage startups through later-stage, pre-IPO success stories. Common sense tells us that there is no practical way for marketers to interact with this many tech and service companies, particularly since the incumbents are also innovating. Many of these 120 will fail, some will be acquired and consolidated, and a few will emerge as new leaders in their respective marketing niches.

But what sorts of of new companies, specifically, are we seeing in this mix? It’s an assortment that we can broadly drill down into. It’s impossible to delineate categories that will neatly separate every company, but we have been grouping them as follows:

  • Advertising Technology: Companies that are primarily concerned with display and search advertising.
  • Analytics, CRM, Database: Companies whose offering is primarily marketing data and/or platforms for managing and analyzing that data.
  • Social Analytics & Marketing: Companies that provide analytics, campaign management or other services specifically within the major social media platforms.
  • Customer Experience: Companies that address specific aspects of the customer interaction such as Customer Service, Product Recommendations, Loyalty, etc.
  • Marketing Automation: Software companies that deliver platforms for the planning, execution and evaluation of complex, multi-channel marketing campaigns.
  • Content Marketing: An emerging category of companies that help advertisers and marketers create, collect, publish and evaluate content at scale.
  • Market Research: Companies that, one way or another, are in the business of asking consumer questions, measuring consumer behavior in a direct fashion, or providing platforms to facilitate these processes.

Anyone that hasn’t been living under a rock will expect that these categories are not all getting equal treatment and, in fact, this is exactly what the numbers show:

 

Market Research related investment levels

 

 

A few things emerge from this segmentation:

  1. Despite various challenges, Ad Tech remains a very strong category. Many feel the channel is over-invested; privacy is an open issue; there is evidence regarding “banner blindness”, “viewability” and other forms of ineffectiveness; and Google, with its grip on the search market, periodically changes the rules on providers, sometimes whipsawing them right out of business. Still, the promise of efficiently targeting consumers and deploying ad dollars is great enough to outweigh these concerns. Also, significant capital is being dedicated to the retooling of infrastructure from desktop to mobile. AdTech remains one of the most active niches, although the 2014 contribution is somewhat skewed by a single, large investment.
  2. As far as VCs are concerned, Big Data lives up to the hype. While there is still no universal definition for this label, we perceive some loose consistency in the kinds of companies that receive it. Many companies in our Analytics and Social categories could be thought of as “Big Data” companies. The specific applications include influence analysis, social CRM, online psychometrics, social listening, data integration, predictive analytics and numerous others. Collectively, they signal a forceful trend for the Market Research community. If research and insights professionals are being pummeled for “better, faster, cheaper”, they can thank Big Data for the challenge. 
  3. Content Marketing has emerged as an important technology niche. While the idea of “content marketing” is as old as the hills, the context has changed: With consumers in a constantly-connected state, brands and agencies are turning to new technology and services to keep up with the volume requirements and “refresh” rates inherent in social media. They also need new tools to try and measure the effectiveness of this content and adjust campaigns accordingly.
  4. Market Research is pretty small. The industry is still big, but in terms of new investment, there just isn’t a lot going on. Now, some might lump one or two of our other categories under the MR umbrella and argue that there is a great deal of new activity. That’s fine. But the distinction I drew earlier is useful. From the investment community’s perspective, “Market Research” connotes a company that works with a sample group to directly ask questions or measure behavior. While this is still important (and probably underappreciated), it isn’t demanding the kind of new capital that we’re seeing in the other categories. There have been very few major investments in the space over the past few years.

This divergence between “old” and “new” is also evident the market when you look at M&A activity, Private Equity activity and public company valuations. We covered these topics at the IIEX Conference in Atlanta a few weeks ago and can come back to them for an update another day.

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2 Responses to “The Investment Outlook for Insights: A View from the Capital Markets”

  1. Ellen Woods says:

    July 14th, 2014 at 7:55 am

    Perhaps with MR the definitions have been defined so long that not only does the name sound old school but also the potential content. Once the stuff made of magic, it now seem old school because its limitations are so well understood.

    What the industry needs is a fusion with some of the newer and more fact based technologies forming the hypothesis. If you expand on a solid base rather than on opinions (stated data) the insights become much more interesting to those expending capital. When there were no alternatives, the speed and directional nature of MR was a significant advantage. Today, MR has shifted to a corollary channel that is largely second line and more of a rule out process that a discovery asset.

    As long as the industry continues to build new techniques from the same perspective it will remain a second line defense. By using the speed and volume of big data to advantage, the ability to become granular with specific segments identified within the data is a direct path to profitability and an ROI can be established. That ROI frees MR of its chains and creates white space that is valuable and capable of producing investment monies. There is a risk in standing apart from the long arms of marketing, but a necessary that produces both equity and funding because it enhances the bottom line in a measurable way.

    Intellectual capital, like most things, is an inert substance until it can be used to advantage. Advantage rarely is apparent with traditional MR, but a smart organization can direct it to brilliance by applying it to existing real time assets and industry data. The answers are simply “blowin in the wind” of change. The real value is in creating answers, not more questions.

  2. Brett Watkins says:

    July 23rd, 2014 at 10:16 am

    Corey, tremendous value to this information, thanks. While the old saying “…follow the money” applied to political scandal, it can also apply to innovation and where the likely future is heading. This provides a clear picture without question of what investors are seeing…and from that, we should start looking in the mirror to do our own self evaluation.

    It is also raises the question for traditional MR and how it is largely being ignored: there’s a lot of reasons for this IMO. One is the fragmented nature of the industry, with many small businesses/SOHO’s that dominate the landscape. Acquisitions today in MR are rarely to expand market offerings, usually they are purchasing market share. A big part of the MR landscape is also government research…it will be interesting to see how MR changes as the government glacially evolves from the 70’s standards OMB (primarily) has set forth. But I will share that our space is looking like other service industry niches (e.g. training) that are proving challenging in their fragmentation and inability to see long term growth of companies, even through acquisition.

    I don’t profess to know how MR should position itself to increase its relevancy/have a stake at the bigger table, but I believe some companies are heading in the right direction by starting to position themselves as think tank/insights leaders versus fact reporters, and building their teams around deeper dives into psychology and human behavior vs. statistical analyses or traditional MR space. I also think that separating away from marketing could be a huge error, particularly in the qualitative space, where long term impact and being highly relevant to the bottom line is doable if we would stop seeing our work as a laboratory, and more as a relationship builder. There’s tremendous potential to make qual an entree into the bigger marketing picture if we would look at respondents less as subjects, and more as consumers with stories to tell that with our help, MR could connect the organization back to its users and build relationships and loyalty. Like work I once did in BTB space, it requires stake holders to value a holistic approach, and it requires us to explain to those stake holders how their long term growth will improve if we don’t treat consumers via MR as ad hoc commodities.

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