Just 6 quarters in and this space continues to heat up with nearly 30 vendors. We’ve done over four due diligence calls with VCs in this space in last 30 days, and Altimeter are helping a couple of brands short list their vendors for RFP inclusions –brands know they need an enterprise solution.
This scope of this post is for the pure play vendors and does not include the numerous entrants that will explode into this space from the incumbent software category. To help move the industry forward, here’s my perspective on the space, all which I’m telling buyers as well as investors.
Matrix: Challenges and Opportunities Abound for Social Media Management Systems
-VC Funding for Rapid Growth
-Demand increases as brands adopt more accounts
-Overall small space, with 30 vendors, few enterprise incumbents, yet
-Low switching costs: easy to unplug now.
–Lack of market differentiation
-Rapidly changing data sets and APIs, hard to measure
-Commodity feature set
-M&A in incumbents move in, rapid exit.
-Integration yields new value
-Future state is customer intelligence platform or multi communications tool
-New entrant can ramp in 5 quarters, or incumbents can quickly build
-Incumbents will move in from many sectors: CRM, Brand Monitoring, Web Analytics, BI, Support Software, Email Marketing, Community Platform
Buyers Must Understand This Rapidly Changing Market
Corporations who are seeking to buy in this space must place their bets carefully, they need to factor in the following three future trends that are starting out now, buyers must:
- Expect only a handful of Enterprise class “Pure Plays” to Remain Standing. In most emerging technology categories there’s only enough room for three vendors: First, better, and different, and that will come to be true here as well. In the long run there will only be a handful of true enterprise pure plays that will stand the test of time. Compare to the community platform space where we see dominance from just two players now –the rest have gone into niche verticals, or platform integration strategies. Buyers must be very careful on who they choose now as unplugging these systems will be difficult as the ‘seats’ will roll out across the enterprise, and if your business units don’t like your choice, they will adopt another vendor without your agreement.
- Expect Pricing To Remain Low Until Brands Move Into Multiple Hub and Spoke “Dandelion”. Altimeter’s data indicates that the average enterprise company now has 178 corporate social media accounts,Vendors know to keep pricing low in this rapid market, given the number of entrants and VC injections, ‘growth’ is the primary goal. Buyers need to be aware that switching costs increase considerably as the company moves from centralized to hub and spoke to “dandelion”, and the SMMS tool spreads into many business units (see all five org models). Expect pricing strategies to change as your company moves into a higher adoption rate, and check contracts now. Seek packages for ‘all you can eat’ packages as your company moves into this model.
- Look Carefully at Partnerships and Investors to See How They Will Integrate. System integration will be a deciding factor for buyers, as most are realizing the need to integrate these systems into legacy support, email, CRM systems. In fact, Altimeter’s data indicates that integration is one of the top spends ($272k annually) for self reported advanced companies indicating that this will be the primary goal as the market integrates social as a horizontal. To understand, ask your vendors to show their roadmap, indicate their partnerships. Look further by understanding who their investors are, who will often broker partnerships and even foster M&A marriages. Lastly, ask about the SMMS’ platform strategy to connecting to existing APIs and how they’ll offer their own for partners to use.
To learn more, read all my posts tagged Social Media Management Systems.