LUMApresentsourannualStateofDigitalMarketing,whichcoversourviewsonthemarket,industrytrends,andthefutureoftheecosystemwithaspecificfocusondigitalmarketing.Wehopeyouenjoyit.

Meet the Senior LUMA TeamTerence Kawaja Brian Andersen Mark Greenbaum Dick Filippini Conor McKenna Gayle Meyers

Founder & CEO Partner Partner Partner Vice President CMO

Terry leads strategy,banking and content for LUMA.

He’s also head comedy writer and performer.

Brian is LUMA’s marketing technology guru.

He excels at coaching both little league and big clients.

Mark runs M&A strategy and execution for LUMA.

He’s never met a term sheet he couldn’t improve.

Dick leads LUMA’s mobile and gaming banking coverage.

You can find him holding court every February in Barcelona.

Conor ties it all together, managing LUMA's junior teams.

He also wrangles the senior team together.

Gayle runs LUMA’s marketing, events, and partnerships.

Think of her as top of the LUMA funnel.

Theperiodsincethepresidentialelectionhasbeensolidforpublicmarketsoverall,withtheNASDAQup~30%overthelasttwelvemonths.MarTechcontinuedtobeastrongcategorybehindShopify’s continuedrun,whichisupover150%tonearly$10billionmarketcap.AdTechcompanieshadalsobeentradingabovemarketgrowthuntilrecentQ3earningsmisstepshitacrossalmostalltheplayers.

Look– anIPOmarket!Strongequitymarketfinallywelcomedanumberofnewentrantslastyear,including…

Yesterday’sdebutofemailmarketerSendGrid,whichpricedabovetherange,toa6xtrailingmultiplebeforerisinganother12%inyesterday’strading.

Whichhasuswonderingwhowillbenextwithanumberofscaledplayersqueuingupinthepipeline.

Alongwithnewentrants,otheractivityhasreallyreshapedthepublicmarketsforAdTechandMarTech.Let’sfaceit,publicmarketshavebeenfairlyunfriendly,especiallyforAdTech.

Ifwelookback5years,adollarinvestedintheNASDAQwouldhavedoubledwhileadollarinvestedintheAdTechplayerswouldhavelostalmosttwo-thirdsitsvalue.ThisstartedwhenMillennialMediawentpubliconthepremiseofmobileandthenpromptlymisseditsfirstquarter.

ThisfirstmisstepbyMillennialMediademonstratedthatlegacymediaI/Obasedmodelslackedthepredictabilitypublicmarketsvalueandthustaintedthefollowersevenasbusinessmodelsevolved.Somuchsothatin2014wepublished“ColorbyNumbers”tohighlightthedifferencesandvaluationimplicationsamongbusinessmodelsrangingfromnetwork,toprogrammatic,ultimatelytotrueSaaS,whichpublicmarketsappearedtostruggletodifferentiate.

2017sawtheGreatAdTechCleanup,withalltheremainingI/Obasedbusinesseshavingbeenacquired,leavingapubliccompanycohortwithplatformbusinessmodelsprovidingamoreattractivecompuniverse.

Sothat’salotaboutthepublicmarkets,butlet’sgetreal,M&Aremainstheprimarysourceofliquidityandremainsveryactive.

Importantly,lookingatscaledexitsover$100million,wesaw45deals.

While2017lackedsomeofthe+$1billiondealsoftheprioryear,wesawverysolidexitsacrossAdTechandMarTechcategories.

AlotofwhatishappeninginMarTechisbeingdrivenbywhat’shappeningintheadvertisingecosystem.Greatnews:digitalmediacontinuesitsgrowth.Consumers’timecontinuestoshifttowardsdigitalconsumptionchannelsandadspendcontinuestogrow.

However,thereisconcernthatGoogleandFacebookaretakingabiganddominantshareofthegrowth.TheDuopolyhasover60%marketshareofalladspendindigitalandalmostallofthegrowth.

Ifthistrendcontinues,itwillmakeourlifemakingLUMAscapes aloteasiersinceitwilljustbedowntoacoupleofcompanies,ormaybethreewithnewentrant,Amazon.

SpeakingofAmazon,thiscompanyhasproducedrevenueswithanincredible76%compoundgrowthoverthepasttwentyplusyears.Compoundgrowthlikethisfor20yearsishardtodo!

Amazonisanabsolutebeast,andthemarketisrecognizingthis.Thestockhasbeenonatearwhiletherestofretailisbeingevisceratedinitspath.

OneofAmazon’smainrevenuedriversisthesubscriptionprogram“Prime”,whichnowhasover80millionsubscribers.NotonlydoesPrimeprovideAmazonapredictablerevenuestream,butitalsoincreasestheaverageamountanAmazoncustomerspendsandcreates“stickiness”.

EvenmoreincredibleisthattheyhavemanagedtocircumventGoogle.Withitsubiquitoussearchbar,Googleusedtoownthethetoppartofthefunnel,butAmazonhasquietlybecomethetopchoiceforsearchingproductstobuy.AccordingtoastudybyBloomreach,overhalfofshoppersstarttheirsearchonAmazonratherthanGoogle.

Amazoniswellontheirwaytobeingamajorplayer.Inaworldofconsumertouchpoints,Amazonhasanamazingarrayofabilitiestointeractwiththeconsumer,whetherit’sthroughthee-commerceapp,videooroneofthefastestgrowingandpotentiallymostdisruptivenewformsofmedia,voice.

BacktoFacebookandGoogle,whoownalmosttwo-thirdsoftheshareofdigitaladspend,leavingapaltry37%foreverybodyelse.However,37%ofa$83billionmarketis$31billion,whichisstillprettybiganditisnotstatic.Thereisaconstantshiftbetweenplayersinthatsliceofthepie,whichgivesnewplayersopportunitiesinaverydynamicmarketplace.MoreimportantlyistheopportunitycomingfromtheaddressabilityofTV,anenormousmarketwheretheDuopolyhavesubstantiallylessshare.

Combined,digitalandTVisa$155billionmarket,wherecompaniesoutsideoftheDuopolycontrolovertwo-thirdsofthemarket.

Nodoubtthoseopportunitiesareoneofthereasonswhythissectorhasattractedacquisitioninvestmentfromawidevarietyofdeep-pocketedstrategics fromavarietyofdifferentsectors.

Atthebeginningof2017,reportscameoutthatproclaimedthesectorwasfinished,spurredfromthesubstantialdeclineinventurecapitalinvestmentsgoingintothesector.Whatthesereportsneglectedtopointoutwasthefactthatwhileventurecapitalwasgoingdown,privateequitywasgoingupinahugewaywithover$12billioninvestedinAdTechandMarTechinthelast24months.

Privateequityismuchlaterstagefocused,andwebelieveisevidencethatweareseeingthebeginningphasesofthematurationinthisindustry.Thisisincrediblynaturalandhappensineveryindustry.AdTechislogicallygoingthroughamaturationphasewherewewillseearationalizationandconsolidationofcompanies.

OneofthechallengesisthattheAdTechandMarTechecosystemsaremassivelyfragmented;5,000companiesacross18LUMAscapes.Wedidafour-yearlookbackandforthefirsttimewenotedthattherearemoreacquisitionsthantherearenewcompaniesappearingontheLUMAscapes.Netconsolidationishere!

Tothinkaboutthemarketopportunity,let’slookatfractionalmath.WejusttalkedaboutafurthermigrationtowardsdigitalandthisbigopportunitycalledTV,whichrepresentsthenumeratorgettinglarger.Atthesametime,withthematurationphaseandtheconsolidationofplayers,thedenominatorisgettingsmaller.Sowhathappenswhenthenumeratorgetsbiggeranddenominatorgetssmaller?Massivewealthcreationforafewcompanies.

Theneedfordifferentiationisevenfurtherhighlightedbythesechanges,providedwedon’tblowit.Bythis,Imeanthereisanepidemicofchallengestotheadvertisingsupplychain.They’vebeenthereforawhilebutnowthey’regarneringconsequences.

MarkPritchard,CMOofProctor&Gamble,hasbeenonarampage.He’sbeenonatourforthelastyeartalkingaboutthechallengesinthedigitaladvertisingecosystemanditallreallyboilsdowntoonething:trust.Thisisarealissueandithaseconomicconsequences.

Thischartillustratestheeconomicimpactofsomeoftheseissues.Thebluebarrepresentsallmediaimpressions.Adsareservedtomostofitandblockedforothers.Youlosesomeoftheadsservedtofraud,othersbecausetheyarenotviewabledependingonthestandardandsoon.Thishaseconomicconsequencesbecausethemarketerloseseverythingthat’spaidforbutnotseenbyahumanwhereaspublisherslosewhatisblockedandlosttofraud.

Proctor&Gambleannouncedtheypulledback$100millionandreportedthatithadnoeffectongrowth.Thisisextremelytroublingwhenyouhavethelargestadvertiserintheworldsayasignificantdropinadvertisingspenddidn’tmatterandshouldserveasacall-to-actiontoacceleratethecleanup.

Thisbehoovespeopletolimitvulnerabilitytosometheseexogenousforces,whetherit’sthesupplychainandfraudorchangeshappeninginthebrowserenvironmentthatarelimitingyourabilitytotrackdataorprivacyregulations.

It’sthelastissue,Europe’sGeneralDataProtectionRegulation(GDPR),thatwasinfactadealrationalebehindthelatestsignificantacquisitioninthesectorwhenSAPboughtGigya for$350million.Theywerelookingto“GDPR-proof”theirbusinesswithGigya,whichfocusesonidentity.

Itfeelslikewe’reinascenariowhereMarTechisneededtohealAdTech.TheproblemsofAdTech,whetherit’sfraud,viewability ortheverification,arebeingsolvedbycompaniesinMarTech withidentitycapabilities.

Webelievethatidentityisthecoreofmarketing.Thisusedtobeastackwhereyouwouldstartyourplanning,executecampaigns,measurethemandthenplanagainthenextyear.Today,it’sareal-timecirclewhereidentityisatthecoreandworkstojointhecapabilitiesanddatafromAdTechandMarTechsolutionsinrealtime.

Weliketoremindourselvesthatmarketersarenotlookingfortechnologyfortechnology’ssake.Theyareinsteadfocusedononeoverarchinggoal:todrivemorerevenuesatthelowestcost.

Fromthelargemarketingcloudstothestart-ups,technologyvendorsaimtoassistenterprisestodrivemorerevenuesbyoptimizingthecustomerexperiencethroughdeliveringtherightmessageattherighttimetotherightperson.

InAdTech,obviouslytherightmessageisnotgettingthroughifitisnotviewable,oris“viewed”byabot.WeareseeingMarTech solutionsfromcompaniessuchasMoat,IAS,WhiteOps andDoubleVerify providesolutionstoaddresstheseissues.InMarTech,wefeeltherearethreehigh-levelcapabilitiesnecessary:data,identityandorchestration.Dataandorchestrationenabletherightmessageattherighttime,andidentitysolutionsenablethemessagetobedeliveredtotherightpersonacrossdevices.

SincetherearedifferentdynamicsandvendorsinB2Bvs.B2CMarketing,wearegoingtoaddressthemseparately.

Inpastpresentationswehavediscussedthecriticalthreecapabilities:data,identityandorchestration,whichmarketersmustassembletocoordinatetheirmarketingactivities,andintegratethemwiththeirexecutionchannels.

Thefoundationshouldbeacommondatalayer.

However,MarTech haslongbeena“bestofbreed”environment.Therefore,marketersutilizemanychannel-centricsystems– eachwiththeirowndatastore.Theissuewiththisisthatthereisnosingleviewofthecustomer,sincedataassetsaredistributedandnotcoordinated.

Thisisamajorissueformarketers.InthiseMarketer survey,thereisbroadagreementthatasingleviewofthecustomerisimportant.

However,only5%ofrespondentsclaimtohaveasingleplatformthatmanagesdataacrossmultiplechannels.

Sothatraisesaquestion:Ifmarketersneedasingleviewoftheircustomers,whatmakesupthecustomerrecord?Itisinformation,suchasname,addressandpurchasehistory.Itshouldalsoincludeadditionalinformation(consistentovertime)suchassizes,segments,brandaffinitiesandincome.Inordertoproviderelevantcommunicationsateachpointintime,thecustomerrecordshouldalsoincludemoredynamicdata,suchasinteractionswithemails,ads,socialmentionsandcurrent(orrecent)websitebrowsing.

Ifthereisonesystemthatprovidesthesingleviewofthecustomer/managesthecustomerrecord,whoownsthis?

InB2Bmarketing,itisclear.Thecustomerrecordismanagedbycustomerrelationshipmanagement(CRM)systems,suchasSalesforce,MicrosoftDynamics,Netsuite,etc.ButtherehasnottraditionallybeenasinglesystemforthisinB2Cmarketing.

ButwefeelthatthelogicalB2Csystemformanagingthecustomerrecordisemerging,whichisthe“customerdataplatform”(CDP)category.Thesesystemspulldatafromallthedatasilos,normalizeit,andthenapplyintelligencetothedata(typicallyusingmachinelearning/AItechnologies)todeterminetheappropriatenextactionacrosschannels.

The“CDP”categoryhasemergedinthepastyeartobeingarecognizedcategory.WethereforehaverevisedtheMarketingTechnologyLUMAscape toreflectthis.

Ingeneral,theCDPhasthreemainfunctions.First,itcollects,normalizesandunifiesdatafromavarietyofsystemssuchasemailplatforms,websites,mobileapps,callcenterlogs,eCommerce systems,etc.Second,itappliesintelligencetothisdatatosegmenttheusersanddeterminethenextbestaction,suchasaproductrecommendationoroffer.Finally,itsyndicatesthenextactionbacktotheexecutionplatformstoenabletheinteractionwiththeconsumeracrosstouchpoints.

Therefore,afull-featuredCDPwillenableboththe“data”layerand“orchestration”capabilitiesthatwefeelarecriticalformarketing.

WeviewtheCDPcategoryashavingtwomainsegments:commerce-focusedandtheotherappliedacrossverticals.ThoseontherightincludecompaniesthatwerefoundedasaCDP(suchasLytics),whileothersarefocusedondatacollection/movement,suchasformertagmanagementplayers(Tealium)aswellasmParticle andSegment.Althoughnotaperfectsegmentation,mostofthecompaniesontheleftareDRfocused,whilethoseontherightaremorebrand-oriented.

Afinalcommentonthe“orchestration”layer.ThelargemarketingcloudscurrentlydonothaveasystemthatcanbeclassifiedasaCDP.However,IBM,SalesforceandAdobearealltoutingtheirA.I.capabilitieswithWatson,EinsteinandSensei.Whilenascent,thesetechnologieswilllikelyserveastheorchestrationcapabilityinthefutureforthesevendors.

However,itisinterestingtonotethatoneofmainmarketingclouds– Oracle– recentlypannedtheircompetitors,sayingthatwhentheyclaimtheyareinA.I.“mostofthetimeit’sjustnonsense.”

MovingtocommentaryonB2Bmarketing…

AtthelastDigitalMarketingSummit,wesummarizedthestateofB2Bmarketingwiththisslide,wherewesawtherebeingthreemainkeytrends:1)theadoptionofaccountbasedmarketingtoenabletherightmessageattherighttimetotherightaccounts,2)theuseofpredictiveanalyticstohelpsalesteamsidentifyandengagewiththeaccountswiththehighestlikelihoodtopurchase,and3)theconvergenceofmarketingtechnologiesandsalestechnologies.Westillviewtheseasthekeytrendsin2017.

Theoneareathatreallyunifiesthesetrendsistheadoptionofaccount-basedmarketing.ThevendorsinB2Bmarketinghaveallembracedthetermandmethodologies,andareactivelytoutingtheircapabilities.

WeareoftenaskedwhetherwefeelfeeltheMarketingCloudswill“win,”orifthemarketwillstayfocusedon“best-of-breed.”

Tostartwiththemarketingclouds,theyobviouslywerecreatedbystitchingtogethermultipleacquisitions.

Therearemanydetractorsoftheseefforts,withquestionsofwhethermarketingcloudsshouldexist,oriftheyareservingtheircustomerswellwithlogical,integratedsuites.

“Nonintegratedtechplatforms”istheleadingobstacletointegratingmarketingactivities,pereMarketer.

Anditisnotsurprisingthatmarketersstilllargelyoperatesiloed,non-integrated,best-of-breedsystems.Neeraj AgrawalfromBatteryVentures(oneofthemostsuccessfulMarTech investors)believesthatthisisduetotheinherentnatureofmarketersbeingfocusedon“incrementallift”fromeachsystem.Duetothismentality(drivenfromtheirmarketingKPIs),hefeelsmarketingtechuniquelywillalwaysfavorbest-of-breed.

However,thereisacaseforthemarketingclouds.WhenIworkedatenterprisesoftwarecompanies,weconsistentlyheardfromlargeenterprisesthattheyprefer“onethroattochoke”withvendorsthatcanofferpre-integratedsystems.Andthemarketingcloudsareshowingsuccess,withAdobeontracktoachieve$2Binrevenues,andSalesforce$1.2Binrevenues,fromtheirmarketingcloudsin2017.

Earlierthisyear,Ciscopublishedits“DigitalEngagement”stackthatshowsallthevendorstheyusefortheirmarketingandsalesactivities.

Ifyoubreakdowntheirstack,theyhaveessentiallyused:1)theirowntechnologies,2)Adobefortheir“experience”applications,and3)best-of-breedforeverythingelse.

Sowhichwins?Intheultimatecop-out,webelieveboth.Aslongasthemarketingcloudsareabletocombinecomplementaryassetswithintegrationsthatbenefittheircustomers(asAdobehasdoneintheCiscoexample),thenvendorswilllikelyoptforthesesuites.However,best-of-breedvendorswillalwaysthriveinemergingareasthatenterprisesoftwarevendorshavenotyetaddressed,orifthemarketingcloudsdonotprovidevaluableintegrationsandtheirproductsatrophyovertime(anddon’tmaintaintheirbest-of-breedstatusasstand-aloneproducts).

ThemissionoftheLUMACorporatePartnersprogramistoprovideeducation,insightsandmarketdevelopmenttoallconstituentsofthedigitalecosystem.LUMA’sCorporatePartnersarecomprisedofleadingmedia,marketingandtechnologycompaniesforwhomLUMA’sleadershipteamprovidesstrategicadviceonthelatestindustrytrendsandafreshperspectivetoaidinmakingcriticalgrowthdecisions.LUMA’sproprietaryinsights,research,contentandeventsinitiativesaffordpersonalizedguidanceandeducationatleadershipoff-sites,teach-insandcustomerevents.IfLUMAcanhelpyourorganizationsortthroughthiscomplicatedanddynamicsector,contactGayleMeyers,CMOatGayle@lumapartners.com.