Marketers are under pressure to demonstrate ROI from their technology spend. And now it is clear from a Which-50 investigation that pressure is being passed along to marketing technology (martech) vendors, to actively investigate changes to the way they charge for their software.

In the words of Gartner analyst Noah Elkin: “Regardless of the approach all martech vendors face some headwinds due to the fact that marketing leaders are under greater pressure to demonstrate the ROI their technology investments deliver to the business.”

The big marketing cloud providers have taken this message on board and are considering new pricing strategies.

But while there is largely a consensus that pricing must change, there is no consensus around what that change should be.

Typically email marketing, which tends to form the foundation of wider digital marketing efforts, is charged on a cost per thousand basis, or based on the number of contacts in a database size. The larger marketing clouds also have the ability to sell complementary products, thanks to the different point solutions they have acquired in recent years.

Steve Lucas, CEO of Marketo told Which-50 that while Marketo has no immediate plans to change its pricing model it is “exploring different avenues and options”.

“We are looking at new ways to get technology that we create into the hands of marketers more in mass. That is not a short-term exercise,” Lucas told Which-50 in a recent interview in San Francisco.

Marketo CEO, Steve Lucas

Marketo, whose pricing model is an annual fee based on database size has more recently begun offering enterprise license agreements in response to customer demand.

“A lot of customers are asking us for broad-based, all you can eat enterprise license agreements now… that provides, especially for our larger customers, a lot more flexibility as they grow,” Lucas said.

Lucas said there will always be premium pricing for a premium product. But he also suggested in an interview with Which-50 that there was plenty of opportunities for Marketo to be “economically disruptive”.

“The reality is that we’ve looked at ways to give customers much more flexibility in terms of how many contacts, the type of contacts, enterprise license agreements, and the like. And I think we’ll continue to do that.”

Oracle Marketing Cloud is also investigating how it charges for its martech and Shashi Seth senior vice president OMC, said pricing models where very likely to change to be more performance-based in future.

“Even our best customers don’t have a way to model when they should keep going and when they should stop. And most of our clients are leaving too much money on the table because they are too conservative with their spend,” Seth said during a recent visit to Sydney.

He suggested the average marketer is leaving as much as 50 per cent of the money on the table because they stop when they should keep going.

“The ROI is smaller every step but you should only stop when it’s a zero-sum game.”

Seth said that adopting this mindset might see money flowing away from some of the traditional digital or non digital sources.

And that, he acknowledged, would also bring about a reckoning on price.

“The pricing model needs to change. And we have already started down this route.  We have to move away from traditional B2B models such as seat based, or contact based towards usage based.”

According to Seth, “Our incentive to our customers should be to let them use any of these products any which way they want.”

He suggested as an example that there may be a model where for ‘X’ millions of dollars a company gets to use billions of transactions. “It shouldn’t matter if those transactions are SMS or email or DM or ads. They are all fungible and the brand should be able to use them any which way they want.“

Seth said customers will force providers like Oracle and its competitors to truly move to performance-oriented pricing.

“I’d rather we get there first. We have already spent a ton of time thinking about how we go about that.”

Derek Laney, Head of Product Marketing, Salesforce APAC, echoed that sentiment.

“An advantage of the Marketing Cloud is utilisation can be shared across many channels, for example, mobile app, sms, email and advertising.”

For Salesforce marketing cloud pricing is based on a subscription and then utilisation (contacts and/or volume).

“Higher volume use of the platform attracts pricing advantages compared to acquiring these solutions through separate disconnected tools,” he said.

The industry’s leading marketing cloud, Adobe, made a change to its pricing a few years ago to discourage marketers from blasting more emails, simply to meet a pre-paid volume.

“Adobe moved away from CPM pricing a few years ago in order to allow marketers to focus on more targeted, cross-channel communications based on customer engagement preference and context. This leads to transparency for marketers, and ultimately a more personalised and relevant experience for customers,” said Kristin Naragon, Director of Product Marketing for Adobe Campaign.

Suites Versus Best of Breed

The ability to sell complimentary solutions or charge based on interactions outside of email doesn’t necessarily give the marketing clouds an unassailable lead over the smaller best of breed competitors. As Which-50 has reported, many Australian ecommerce companies prefer to assemble their own marketing tech stacks from different vendors, rather than go all in with a suite.

“Email is typically the on-ramp to more advanced multichannel marketing, so from a land-and-expand perspective, enterprise marketing clouds have the ability to sell in complementary solutions,” Gartner’s Noah Elkin told Which-50.

“That said because some organisations don’t like to go all-in with a single vendor or face internal inertia in overhauling their marketing technology stacks, an opening exists for best-of-breed solutions. Similarly, to the extent that enterprise marketing clouds aspire to be like Swiss Army knives, it means that they are stronger in some channels than others, and that, too, provides an opening to point solutions,” Elkin said.

Pay by performance

One way for a vendor to disrupt the marketing tech space would be to charge based on performance, for an email campaign that could mean marketers only pay for emails which were opened or clicked on, not how many they sent or who they sent them to.

That model, which is not common, has critics in the industry. Derek Laney from Salesforce, argues that view ignores the broader marketing picture.

“While open or click rates are two valid performance indicators for email performance, most marketers are moving their focus to the outcome of the entire journey rather than the performance of an individual step,” he said.

Joe Colopy the founder of commerce marketing platform Bronto, which is now owned by Oracle, argued a purely performance model would ultimately need to be measured by lifetime customer value – but that’s tricky to measure.

“I am a fan of performance metrics but I don’t think that email marketing pricing should be modeled after metrics like opens and clicks. There are inherent challenges with both methods and they miss the point,” Colopy told Which-50.

And that point, he suggests at least in ecommerce, is to drive revenue. “Revenue would be the best performance metric but it is very difficult to attribute revenue properly.”

Colopy, who now invests in start-ups, argued the industry should shift away from CPM/number of emails sent pricing to database size.

“The industry should trend to pricing by number of contacts/database size-based because increasingly these email marketing/marketing automation platforms are being used as “marketing CRMs”, especially in ecommerce. The successful brands build relationships with their contacts over time that eventually leads to revenue. It’s about making a lifetime customer versus a one-time buyer.”

Similarly, Jason VandeBoom, founder and CEO of ActiveCampaign thinks it’s unlikely that email would shift to a performance mode based on clicks or open.  Instead, he sees metrics like conversions, new revenue, and other deeper forms of performance becoming more common.

ActiveCampaign, which is opening its first Australian office in Sydney later this year caters for small to medium-sized businesses and charges based on the number of contacts and the product plan tier.

“We believe in fair billing for active contacts though. Meaning — unlike some competitors — we do not charge for contacts that are unsubscribed nor for contacts who are subscribed to multiple lists,” he said.

The adtech industry is also facing pressures

According to Evan Simeone, SVP product at supply-side platform PubMatic, his company is already responding to the customer need for new ways of paying.

Currently, key technology companies like PubMatic take as much as 25 per cent of the transaction but the industry expects that figure to drop as low as 15 per cent over time. That’s a big hit to revenue and is leading to discussions with clients about alternative models.

On a visit to Australia in March, he told Which-50, “One of the things PubMatic has done over the last few years is offer a new business model to publishers as an alternative to the rev share model where they take a piece of the transaction.”

He said a focus on efficiency and technology meant they could offer their product for rent at “favourable prices”. According to Simeone this method is much cheaper than a revenue sharing model

“We can provide a complete platform as a solution with all the ads and integration points.”

The industry change seems to have been driven by a growing recognition of the importance of companies like PubMatic to brands.

“We originally talked to CROs (chief revenue officers) but then we started talking to the CEO and CTO and they wanted to understand what they needed to do to stay competitive and differentiate themselves,” Simeone said.

“So they would ask, ‘How much are you saying you would let us run this platform for?’ and suddenly things started to change.”

Simeone said this is especially so in the last six months.  “We are starting to charge more and more of these platform as a service deals for very low CPMs or even a flat fee.”

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