Why the marketing space is vital to enterprise software players

Julie Langley, partner at Results International, publishes her first M&A opinion column

The enterprise software players should really have little interest in the world of marketing services, or so you might imagine. After all, their business is selling software, which is high gross margin and highly scalable. They have always shied away from selling services, which can only be scaled by adding more people. As such, any services they have offered have generally been seen as a necessary evil to ensure software sales. However, as technology starts to replace services in the marketing function an ever-greater proportion of the marketing budget becomes accessible to companies such as SAP, Oracle and Salesforce and they have this firmly in their sights.

Why has the threat from enterprise players been ignored?

Despite the software vendors devoting significant M&A spend to the marketing sector in recent years (through acquisitions of marketing technology), the incumbents such as WPP, Omnicom, IPG and Dentsu don’t yet seem to view these players as a particular threat. They are, understandably, more concerned with their most immediate challenges—the impact of Google, Facebook and Amazon on their business model, the impact of fraud and lack of transparency on advertiser spending.

Meanwhile, remaining concerns have largely been focused on the high profile incursions into the marketing sphere by the management consultancies. This is not without merit—the consultancies’ revenues in the sector are growing, and they are often bidding against the large media holding companies for the same acquisition targets. They also appear to generate higher revenues per head in marketing services than most of the large media holding companies.

It would be very short-sighted to underestimate the software players’ interest in the sector though. Over the past decade, every major function in the enterprise has become dominated by one or two platforms—think SAP and Oracle in finance or Workday in HR. Marketing is the last remaining function within large enterprises where numerous disparate platforms—including Excel—are the norm. Given the large enterprise software vendors are now experiencing low single digit growth in their core markets, turning their attention to the marketing function makes perfect sense. The annual global spend on marketing and advertising services is estimated to be over $1 trillion.

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