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Playing the Power Shift to the CMO

Mark Holder
September 26, 2013

Over the next 5-years, the marketing department is expected to spend more on technology than the IT department. This dynamic could create a shuffle in the C-suite during this time period that might impact the decision making process for software developers.

The forecast by research firms such as Gartner that the chief marketing officer, or CMO, will become more important than the chief technology officer, or CTO, by 2017 is already starting to impact the development plans of software firms. The very real possibility exists that CMOs will seek alternative ways to buy technology, such as partnering with outside vendors rather than with the CIO. Software firms must adapt to not only the marketing department needing advanced analytic technology, but also the CMO might lead the buying decision making.

In order to prepare for that expected shift, firms from (NYSE: CRM) to Adobe Systems have made large purchases of marketing firms. spent a significant $2.5 billion on ExactTarget and Adobe bolstered its position with a $600 million purchase of Neolane, which sells ad-campaign software. So while some of the bigger firms have been bought out, a couple of interesting stocks remain: Responsys (NASDAQ: MKTG) and Marketo (NASDAQ: MKTO). These marketing cloud software firms offer huge potential rewards, but major risks exist after the stocks have made large runs this year.

Best of breed solution
The age old adage that customers, whether businesses or consumers, prefer a complete stack approach over a best-of-breed solution will once again be tested in the marketing cloud area. Oracle has absorbed Eloqua into its solution and stack so now customers can choose whether to obtain all CRM needs from Oracle or best-of-breed by pulling in for sales and Marketo for marketing. Typically customers want best-of-breed solutions unless the products aren't differentiated. In that case, firms such as Responsys and Marketo have the opportunity to compete in a market where the large enterprises such as Adobe Systems and Oracle compete. The ability to have a focused solution can typically win out in the early days when products are being developed and before reaching critical mass.

Forging partnerships
Marketo is a leading cloud-based marketing platform for companies to build and sustain customer relationships. The company focuses on being the marketer to marketers with the goal of maximizing customer loyalty and lifetime value by improving sales effectiveness and providing analytical insight into the contribution to revenue growth of marketing plans via social marketing automation. The company offers several solutions including Marketo Lead Management, Marketo Social Marketing, Marketo Sales Insight, and Marketo Revenue Cycle Analytics. It also has a highly interactive community of over 30,000 marketing users that collaborate in the Marketing Nation plus over 150 partners in the Marketo LaunchPoint partner ecosystem.

The products are clearly drawing customer attention leading to 62% revenue growth in the latest quarter. In addition, the advanced marketing solutions have attracted over 2,500 customers. As with most cloud software firms, the company isn't profitable yet, but the recent growth rates should have it on a solid path to long-term profitability. The only concern is that at a market cap of $1.2 billion, Marketo has a very rich valuation for a company only expecting $90 million in revenue this year.

Years of digital marketing experience
Responsys is a marketing cloud software and services leader that has a considerably larger corporation footprint than Marketo, but the company actually has a smaller market cap due to slower growth. It started as an email marketing platform back in 1999 and now provides a digital marketing suite via the Responsys Interact Marketing Cloud that delivers the right marketing to their customers across email, mobile, social, display and the web. The company appears to lack the breadth and quality of the