Inflation, rising interest rates and the war in Ukraine have stoked fears of a recession. While 2021 marked a year of record funding, rising stock prices, low unemployment and The Great Resignation, 2022 has marked a reversal and a retraction. Recession fears can create a domino effect in which companies stop hiring and slow investments simply because their competitors are doing so.
The economic downturn and recession fears also put pressure on publicly-traded equities and the market uncertainty has inhibited deal making. These trends of lower investment were seen in LUMA’s Q2 2022 Market Report on the digital media and marketing sectors. LUMA’s report analyzed M&A activity, public markets activity and private financing activity in the AdTech, MarTech and digital content industries.
LUMA’s report found that Q1 2022 was the first quarter since the start of the pandemic that both AdTech and MarTech M&A were down. On a quarter-over-quarter basis, M&A activity decreased 48 percent for AdTech, and 9 percent for MarTech. M&A activity in the digital content industry increased 31 percent quarter-over-quarter, driven by M&A activity in the gaming sector.
The MarTech Landscape
We believe the marketing technology landscape will continue to grow, albeit at a slower paced amid current economic conditions.
The 2022 Marketing Technology Landscape saw 972 vendors removed and 2,904 added, for a total of 9,932 vendors in 49 categories. The largest increases in growth were in content & experience (34%), commerce & sales (24%), and management (67%).
We predict continued growth in a five-year period from 2022 to 2027. However, as noted in the LUMA Q2 2022 Market Report, M&A activity, public markets activity and private financing activity are down. We anticipate a continued slowdown, with few new entrants to the MarTech vendor landscape.In the short term, this dynamic of a “known vendor market” may create more clarity to buyers of MarTech solutions.
The Customer Data Platform Landscape
According to the July 2022 CDP Industry report from CDP Institute, the Customer Data Platform (CDP) industry saw strong growth in the first half of 2022. An additional eleven vendors were added to the sector, and projected industry revenues are expected to eclipse $2 billion by the end of the year.
Currently, the CDP industry has experienced seven funding events throughout 2022, as compared to 21 events throughout the year prior. Like the MarTech industry as a whole, we expect that there will be limited M&A or private funding activity. Instead, existing CDP vendors will reconsider and reprioritize their offerings, developing new angles to market their offerings.
“There’s a challenge right now, where the definitions in the category are very broad. Like, we could look at 10 different CDPs and they do 10 very different things,” Scott Brinker, Chiefmartec, said on a recent episode of Customer Data Perspectives. “Some of them are almost marketing automation platforms that call themselves CDPs. There’s others on the other end of the spectrum that are really almost like a sort of data infrastructure. Then there’s others in between.”
Brinker notes that this fluidity in understanding what a CDP is can be confusing to buyers. For example, if a business expands their CRM to become a CDP or built their own analytics tools on top of a data warehouse, it that a CDP?
It’s incumbent on CDP vendors to state the value proposition of their offerings and make it easy for prospective customers to understand what they are. Describe precisely what use cases you’re best for and what capabilities are available. Don’t get tricky with your messaging in order to become all things to all people.
How Economic Uncertainty Affects CIOs and Marketers
In times of economic uncertainty, marketers, data professionals, and IT leaders need to rethink their budgets and strategy, with a renewed focus on efficiency.
During an economic downturn, CIOs must be more fiscally conservative and more closely evaluate all IT investments. Now that we’re in the second half of 2022, CIOs will be pressured by their CEOs and boards to deliver bottom-line results with their technology investments. IT teams will be expected to demonstrate short-term payoff for their investments in technology.
We believe that CIOs will focus on five priorities and challenges during this economic downturn:
- Cloud migration
- Tech stack consolidation
- Embracing of emerging technology
- Cost management
- Centralized data management
CIOs should focus on centralized data management, since it can be leveraged for additional revenue sources and a fundamental part of fueling more connected and efficient data management operations. As businesses migrate to the cloud, the need for a centralized data management solution to gather and make sense of all the data increases significantly.
What it Means for Marketers
While marketing budgets tend to be trimmed during periods of economic downturn, the percentage that marketing budgets receive relative to overall company revenue is on the rise. According to the Gartner 2022 CMO Spend and Strategy Survey, marketing budgets have increased to 9.5 percent of overall company revenue in 2022, up from 6.4 percent in 2021.
In the current economic environment, marketers will be expected to meet their targets for marketing qualified leads (MQL), opportunities and pipeline, all while spending more efficiently in order to achieve those goals. Marketers can do more with less by using advanced marketing technology solutions to communicate with customers more effectively, optimize marketing operations and use marketing automation capabilities to support overloaded teams.
In addition, CMOs will look to MarTech solutions powered by artificial intelligence (AI) and machine learning (ML) capabilities to provide sophisticated analytic visualizations and speed up time to insight.
These are interesting and challenging times. Despite the dark clouds on the horizon, we think we’ll come out of this facing sunny skies.
