Will the next Digital M&A wave be in the Customer Intelligence segment?

Digital M&A activity in customer intelligence

The digital M&A activity in B2B Digital Marketing segment is continuing to expand.In recent times, marketers are setting higher budgets for Customer Intelligence spending as they are seeing a higher demand for these services. This is surprising because in the past acquirers have shown scant appetite for companies selling analytics software to B2B marketers.
The M&A activity in Digital marketing segment have been characterized by tuck-in acquisitions or acq-hires.The higher spending in the Customer intelligence segment can trigger more significant M&A deals than the conventional tuck-in acquisitions.This is because many companies offering Customer intelligence software have expanded in the recent past and have also rebuilt their products.
The spending in Customer Intelligence has increased is substantiated by the fact that their percentage in B2B marketing budgets have increased in the past couple of years.Customer intelligence is a top priority for sales and marketing spending.
As B2B marketing functions are investing heavily in data driven marketing, this has created demand for startups with roots in predictive analytics for B2B companies.Apart from the fact that there is a higher spending in this market segment, the players have also expanded, pivoted and have generated meaningful revenues.
Larger software companies will wait for clear winners to emerge from this nascent segment before placing a big bet.

Past digital M&A Transactions

• In the past, many startups have launched the idea of applying Machine learning techniques to optimize the Sales and marketing processes that included Lead scoring, Discovery and outreach.
• As B2B marketers tend to have sparse and fewer datasets when compared to B2C companies, the attempt of adding algorithms on top of the same datasets that marketers have long relied on for lead scoring did not produce compelling results.
• It is the focus on the data and not algorithms that provides more value to the marketers.The marketers expect value proposition to extend beyond basic functionality like lead scoring to data management, integration and cleansing.

Potential Digital M&A buyers

• Companies that have strong demand for Customer Intelligence software solutions would be either Enterprise software vendors or Business data service providers.
• For data service providers, acquiring B2B Customer intelligence firms would enable them to expand into marketing while also strengthening their data collection methods.
• For enterprise software vendors that provide sales and marketing platforms, they would prefer to acquire a software company rather than a data provider.This is because these companies are focused on selling software and not data.In the case of advertising software business where third party data is the core element of most campaigns, there is a possibility of leveraging B2B Customer Intelligence software providers to build a data cloud offering.
• It is likely that software providers will acquire software companies if they decide to move towards B2B Customer intelligence offering.For instance, SAP spent $2.5 billion on CallidiusCloud – A software vendor.Acquiring a Customer intelligence software would align SAP’s historical strength in data management to create a software product that extended Callidius sales suite to marketing by offering data to other large marketing clouds.
• For Adobe which acquired Marketo for $4.75 billion to enter into B2B marketing segment, acquisition of customer intelligence company would help Adobe to cross sell its offering Analytics.Adobe has strong suite of customer data tools built around its Adobe analytics products but as B2B marketers sell to accounts and not website visitors, they need data that link these together.
• Microsoft has surprisingly not entered into B2B Marketing segment though it has an extensive sales software business with its products – Dynamics CRM and LinkedIn.Acquiring a customer intelligence startup would help Microsoft to push data from Dynamics CRM and LinkedIn into major B2B marketing clouds.

Conclusion

• The digital M&A activity for Customer intelligence software segment is expanding.Among B2B marketers, customer data is the top most budget priority.
• Hence customer data platforms will have the highest investments in next 12 months.This will trigger M&A activity in this space.