In a couple months there will only be one pure play CMP vendor left standing. Everyone else will be acquired, out of business, or a zombie company. Sad truth about the category.Shafqat Islam
I wrote a longer reply, but here is the short version relevant to this post: …this is one of those interesting cases where there is a need for the product – but […] the businesses are struggling“. He then replied with this absolute gem, which kept me up last night (emphasis mine):
Yup, agreed. The need is there but it’s been a lot more challenging to scale a business in this category (for a variety or reasons). I think companies were over funded in the early days pre-product market fit. We retrenched for a couple years, chose to obsess over customers (gross retention, NPS) and now scaling and enjoying growth again. But we managed our cash through this whole process. And a category, given the huge amounts of funding, cash wasn’t managed well. I tell my team that outlasting everyone is a winning strategy since there is still a need and $$$ out there.Shafqat Islam
That one really made me think, because many of the underlying issues in a business can often be traced to the capitalization structure and how that money was spent – rather than the need or quality of the product. What kept me up at night was the realization that the WCM market has some of the same dynamics, but on a slightly larger scale.
So, that said, let’s dig into the WCM market and look at a few example vendors, the demands put upon them, and how this affects you, the buyer.
Publicly-traded companies such as Adobe are beholden to the street (and often a compintel dream) because they outline not only past performance “Adobe Experience Cloud revenue of $2.44 billion increased by $413.4 million, or 20% (down from 24%), during fiscal 2018” (Adobe 10-K, FY18, Page 41) often down to a geography and product segment, but also indicate some expectation of where growth will come from in the future.
In addition, when used in this report, the words “will,” “expects,” “could,” “would,” “may,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “targets,” “estimates,” “looks for,” “looks to,” “continues” and similar expressions, as well as statements regarding our focus for the future, are generally intended to identify forward-looking statements.Adobe (and pretty much any other annual report)
Do a search on any of those terms in an annual report and you get a decent sense of corporate priorities and concerns going forward. For example, in the case of Adobe, page 9 of the annual report is a particularly interesting read to understand where Adobe fears competition “Google, IBM, Oracle, salesforce.com, SAP, SAS, Teradata, Shopify” and “Creative and digital agencies, as well as SIs, are increasingly investing in acquiring their own digital experience technology to complement their creative services offerings.” (which also echos a conversation I had with Scott Liewehr recently).
In general, these larger platform vendors can be extremely clever with their strategy. Because they are looking at overall growth, they get to allocate resources and capital effectively to deal with specific market conditions. What does that mean in practice? They can do things that standalone vendors cannot, like aggressive discounting or bundling less competitive offerings in order to gain market share. Often, they have a significant “moat” they can take advantage of; in Adobe’s case, this is the relationship with the CMO and creative agencies due to near monopoly dominance in creative tools. Salesforce has a similar dominance in CRM and back-office processes of companies. Of course, this also means that if a vendor achieves dominance in this field, do they then throttle back investment in the product or start messing with the terms of the renewal?
Next, you’ve got the category of those that have raised capital. Now, in most cases, taking VC/PE money is a great idea – and often even nessesary in a red-ocean market where you need scale to compete. But a critical factor is making sure the VC/PE team adds underlying value. Examples of this include; Accel-KKR acquiring both Episerver and Ektron – they managed actually achieve that elusive business concept – synergy – in that Episerver had a good product, but primarily a presence in Europe. Similarly, Ektron had a mostly North American partner and customer base, and they combined both product and business aspects from both and managed to succeed in migrating the Ektron customers they wanted to keep and continue growing the business.
Similarly, Contentful has also chosen wisely. Their Series C and D rounds added experienced and relevant talent to the board and importantly includes investment from potential suitors SAP and Salesforce.
Dave Kellogg has a great article on “Career Decisions: What To Look For In a Software Startup” that has some excellent wisdom that also serves to help understand the incentives and pitfalls of money and corporate structure that apply equally to a client/vendor relationship.
At this point, the market has grown to the point that any vendor of scale needed to take the capital to buy/grow that market share (one need only look at the market and mindshare comparison of Contentful and Contentstack to see the difference external funding makes in growth) – which is, of course, an arms race where those businesses with VC/PE money need to be chasing 40% growth in an industry that is only providing 17% (as per Melissa Webster, IDC). Note that Adobe, the market leader only achieved 20% growth in this segment (down from 24% on year previous). This means in practice there is a risk factor in that those vendors will either try to steal market share (risky, expensive) or have to deploy capital into new markets – hosting, services, adjacent businesses, etc. which typically lie outside their core competencies.
This is related to Shafqat’s point: “outlasting everyone is a winning strategy” and even Contentful CEO Sascha Konietzke said “We had just raised our last round about a year ago. We still had plenty of cash in our bank account and we didn’t need to raise as of now. But we saw a lot of economic uncertainty, so we thought it might be a good moment in time to recharge.” echoing the need to potentially have investment and access to non-equity capital (i.e. debt) with lower return expectations simply to ride out some of the coming marketplace battles.
Analyst firms do a varying job of outlining these vendor (as opposed to product) structural risks; Gartner and Forrester write specific vendor cautions, Real Story Group tends to articulate risk around the age and relevance of tech stack.
So what can you do as a client? It means that in addition to looking at a simple technology purchase decision, you also need to consider overall company strategy and plan appropriately. Vendors in different financial positions have varying pressures which may or may not align with your software purchase strategy. Some vendors may prioritize growth and new features over supporting existing clients. Others (such as OpenText), do literally the exact opposite. However, often the financial internals and even overall strategy of a company can be pretty opaque. You can keep up to date with industry press releases of yearly financials or fundraising rounds which often will make CMSWire or similar trade publications. Sometimes a client call to your analyst firm can provide some background and a level of detail that you won’t necessarily get in your MQ or Wave. But the main bits of advice I would give would be to keep your vendor on a short leash and ensure you’ve got a good contingency plan in place. This means the following;
- Understand your long-term priorities and those of your chosen vendor(s). Are they focusing on innovation, growth and new customers – or are they focusing on keeping existing customers happy and successful. It’s very difficult to do both. Which approach suits your organizational style? Does their market approach take into account larger trends within the industry?
- Consider your bundles very carefully. Just because your large marketing cloud vendor has a WCM they will “throw in, cheap” don’t skimp on the requirements-gathering phase. WCM is complex enough and many features often go unused (even in those platforms you actively select!) so be sure to choose wisely. “Free, as in puppy” is great if you wanted – and got – a Doberman because you needed a guard dog, probably a lot less fine if you got a Pug. Software cost is usually the smallest fraction of overall TCO, so if your implementation costs skyrocket from poor product fit, this could very easily cost more than you would save in licensing. Best-of-breed is more and more common, and accepts the reality that more often you are beholden to the skillset of the people you have or can get (and what they are agile and comfortable with) rather than buying on features or price.
- De-link software from services. Just because a vendor offers hosting, or implementation/consulting services, it doesn’t necessarily mean they are the best fit to deliver that for your organization. If you do one-stop-shop (and often there is good reason to seriously evaluate this option, for example tools like Acquia Cloud Site Factory make management far easier), work to keep these contracts separate and continually evaluate best fit. As an example, as an open-source vendor, Acquia is somewhat “forced” to do this by nature given that the product can be deployed by anyone – including those with no partnership with the company – and as a result they need to compete hard for hosting and services and have to regularly say so. (I will take a moment here to plug Dataweavers.io – I expect this type of cloud middleware/devops to take off, especially as multi-cloud becomes more of a strategy within larger organizations… which is related to the next point).
- Always be thinking about migration strategy. This isn’t just to potentially change vendors (in case of technology or licensing changes) – but even vendor upgrades often require a lot of planning and consideration. This means adhering to some best practices like not putting mission-critical business logic in the WCM, properly separating content from presentation, etc. Also, a good migration strategy is also closely related to a good content strategy – if you can understand and abstract your content and processes outside of the CMS, you are forced to do a level of planning and understanding that is portable and will also make any WCM implementation smoother.