Digital Marketing poised to benefit from 2009 slowdown

The Digital Marketing software industry has had a rough ride. First, it was associated with CRM and the vendors that failed to deliver on over-inflated CRM expectations around millennium time. Since then sales growth has been good for marketing-specialist companies such as Unica, Chordiant, Omniture and Aprimo, but profitability has not been so good. (Interestingly enough, for digital marketing services providers, building web sites and cleaning databases etc, both sales and profitability have been good).

Given the economic crisis, investors might be concerned. For example, Unica’s market capitalisation (c. $100m) is well below its annual revenues (c. $120m). The question they are asking is “if you can’t make money when times are good (i.e. during 2006, 7, 8), how are you going to make money when times are bad (like now)? Who is going to spend money on digital marketing software in a recession for heaven’s sake?!” This is a very good question, and the somewhat surprising answer is . . . “you (end customers) are”.

Most Marketing Directors and managers are quaking in their boots. The CEO’s traditional knee jerk reaction to recession is usually “let’s save ourselves some money and get rid of Marketing. We’ll save ourselves the headcount costs and also they won’t be here to spend our hard-earned cash!” But this may not be the best way to go this time around, according to McKinsey. They reckon that digital marketing reveals the real value that Marketing brings to the party. McKinsey says that if the CEO has visibility into the real $ contribution that marketers make to profitability, then Marketing (or at least parts of it) should be saved.

CEOs and CFOs are coming around to the idea that marketing can be measured and accountable using digital marketing to measure its activities. “After all, it works for the web site, so why not for other areas of marketing activity?” they ask. True. You can access ‘measurable marketing’ software over a SaaS model with virtually zero implementation cost, and you don’t have to pay money up front. So you can measure ROI on marketing expenditures, eradicate wasteful marketing costs and focus only on profitable marketing activities. In addition, doing marketing over the Internet costs a fraction of what paper, brochures, envelopes and stamps and other traditional marketing methods cost.

So don’t expect many flashy advertising campaigns on TV in 2009, as the ROI from such campaigns is pure guesswork. The smart companies will be using highly measurable low-cost digital marketing techniques to drive profitable real-time ‘recessionary marketing tactics’ focused on tightly-defined market segments. The best-run companies have already worked this out, and have the mechanisms in place.

Sure, marketing budgets will likely be cut by 30%. But digital marketing spend will increase from its 10% to 15% 2008 level to around 1/3rd of reduced 2009 marketing budgets as CEOs and CFOs buy into ‘measurable marketing’. As a CMO from a leading world-wide analytics company (who should know) told me “when we did the numbers, overnight we increased our digital marketing spend from 12% to 30% of our marketing budget. The results were too compelling”.

So maybe Ebenezer Scrooge (the Accountants) will finally see the light and stop saying “Bah! Humbug!” to investments in marketing. Perhaps the best for digital marketing is not Christmas Past nor Christmas Present, but Christmas Yet To Come 😉

And a very Merry Xmas to all the readers of IT Director and IT Analysis too!