The following is adapted from an article submitted to the National Venture Capital Association, for publication in their newsletter...
US Marketers will spend over $127 billion on measured media advertising in 2016, and another $164 billion on direct and digital marketing. Both figures are up meaningfully from the prior year. Deal activity in the MarTech space surged recently to $16.4 billion, as major players such as Oracle, Adobe, and Salesforce.com jockey to fill gaps in their portfolios. That total doesn’t even count the $26.2B that Microsoft spent acquiring LinkedIn.
Data-driven Marketing firms are riding these economic waves toward value creation. They grow by helping marketers to be more productive in their spending, and are finding welcoming arms among industry heavyweights that covet their IP, technology, teams, and market presence.
This generational trend, still in its early stages, is being driven by the confluence of the need to prove and improve the efficacy of all that marketing spending, and the emergence of big data technology tools able to derive actionable insights from myriad sources of information on consumer spending and behavior. Marketing technology spending at this intersection is predicted by IDC to increase from over $20B in 2014, to $32B in 2018.
This is great stuff for entrepreneurs and venture investors.
Add to all that the rich opportunities for continued innovation in both technology and business models, and the investment case for data-driven marketing enterprises is clear. The challenge? Fighting through all the buzz, clutter, and market noise in what’s become a crowded space. Let’s see where to look…
Where’s the Market?
Just about any B2C or B2B2C company doing business here can benefit from real-time insights into the behavior of America’s consumers. Rendered in actionable form, these insights can inform not only marketing decisions, but guide strategy and execution across the enterprise.
That said, at present we’re finding the most attractive opportunities in National Retail and Consumer Brand categories, among the largest spenders on marketing and promotion (discounts, an expense for retailers more than double the advertising figures cited above, with efficacy just as tough to prove). Not only do they spend big, they are all fighting through the disruptive effects of e-commerce. As a result, they are in critical need of marketing tools that operate across and between brick-and-mortar, online, and mobile channels.
Affinity’s business model creatively connects these marketers with the financial institutions that, in seeking to deliver benefits to their consumers, are the source of consumer spending data sets.
We also see great opportunity among market watchers, insurance providers, and government agencies: all interested in understanding consumer trends.
What are the Use Cases?
Its use cases are as diverse as its market opportunities, but the Data-driven Marketing solutions we’re focused on include, principally:
· Insights–The derivation and presentation of fact-based and actionable insights to guide decisions on product, pricing, promotion, channel, geography, and more. These provide marketers with the ability to spot and act on both challenges and opportunities in their competitive market spaces.
· Precision-targeting–The ability to deliver tuned marketing and promotional messages to “the right consumer, at the right time, through the right channels.” The key: to go beyond traditional demographic-based segments and audiences by identifying, based on their spending actions, exactly who is in market, right now, for the product or service being marketed, and reach them with the highest possible impact, through the right channel. Brooks Robinson, the CEO of Springbot puts it well, “…most importantly, targeted and timely marketing drives more conversions.”
· Measurement and Attribution– “I know that I waste half the money I spend on advertising, I just don’t know which half,” complained John Wanamaker, the founder of the eponymous department store chain over a century ago. Well, Mr. Wanamaker, we do know today, since we can connect marketing actions to revenue outcomes, even across channels, with greater precision than ever before possible.
Who will be the Winners?
Warren Buffet frames this question around “castles” and “moats.” (Economic engines, protected by sustainable advantages.) Let’s follow his lead…
How to spot a “Castle” in this Space?
The most attractive businesses in data-driven marketing will have some combination of the following:
· Long-term, sticky customer relationships–You can’t win business here without the trust that’s involved in handling sensitive data sets. Once won, that trust turns into solid partnerships.
· Recurring Revenue Streams–Those partnerships are often built around predictable and recurring, subscription-based revenue streams.
· Open Platform, Partner Leverage–We believe a winning formula to be the creation of an open product platform, and partner-friendly go-to-market policies, which together create strong operating leverage.
Now, about protecting your castle…
What about the “Moat”?
Of course this will vary from company to company, reflecting their various strategies. In Affinity Solutions’ case, we’re relying on our unique combination of assets, and deep experience in a challenging business to protect the value we’re creating.
We enjoy unprecedented access and usage rights to consumer spending data. We’ve developed powerful analytics tools to pull insights from that data, and a secure and scalable technology platform to apply them. Finally, we’ve earned trusted relationships with leading players all around the ecosystem, and have the depth of experience gained over the past twelve years of doing business with them. Not easy to cross that moat…
Wrapping up, some notes that should be of value to entrepreneurs and their backers:
· Relationships matter in this business. You’re dealing with sensitive data, with the potential of not just gain by, but possible reputational risk to others.
· As my friend, Tom Hawkins, founder and Managing Partner of Forté Ventures notes, “Multi-sided business models are the norm here. The ability to conceive and manage those models so that all stakeholders in the involved partnerships (retailers, brands, agencies, banks, processors, consumers, etc.) win is critical to value creation and long-term success in this space.”
· Unique Data Access = Unique Value Creation Opportunity. Trusted availability and usage rights to consumer data is foundational. Great analytics and technology won’t make up for gaps in data, or in related rights. To maintain access, it’s critical to operate, as one of our partners put it recently, “squarely on the side of angels,” ensuring that privacy is 100% respected, value is shared equitably (especially to the consumer), and that the highest standards of security are in place.
This is an exciting space, at an exciting time. I wish you great fortune in finding and cultivating value here.