MarTech King & Queen: Behind the Silicon Valley Wall

Game of Thrones fan or not, seasons are divided here in Silicon Valley and for those technology companies stuck ‘behind the winter wall’ there is little chance of a thaw. Whilst the Knights Watch of Venture Capitalists are doing there upmost to protect their investments in marketing technology companies – those businesses that are literally burning through cash to keep warm – others are enjoying spring and summer climates in the land of profitable kings, watching their native flowers bloom.

The Long Winter: Innovation and Ecosystem Pros and Cons

With close to over 5000 companies battling for success in an over-crowded, and in some cases fragmented, marketing technology landscape it is inevitable that some will fail. For those companies the winter is dark and cold. For some Marketing technology (MarTech) startups funding is difficult to get and for those who cannot show a balance between profitability and sustainability within their business models, their outcomes are set to freeze.

For some MarTech companies this means announcements of layoffs and RIF (reduction-in-workforce). A sign of the times and an indicator that valuations often expand and contract in the tech industry. And it’s not only some MarTech companies that can be feeling the chill. Back in 2015 the shift in funding environments began with the bumpy IPO of Pure Storage and layoffs at Twitter, Snapchat and many more. Last year, Dropbox had hinted at an IPO that never occurred, signifying an attempt to become profitable before it drives for an outcome (more on than later). Post IPO companies have also been hit when you look at the huge losses of companies and subsequent reporting of negative cash flow.

The Short Game is Over: Long-term partners, Financial Strength and Security

Unicorns are mythical creatures and valuation is one of Silicon Valley’s mythical metrics. The over valuation of companies has produced those much-talked-about unicorns. However, these are now just as mythical as they are legendary. It is vastly becoming apparent that for many companies raising more capital than is needed and burning cash is not only bad for employee’s shareholders - who see their share options dilute – but it is also limits any viable exit plans for investors and start-up entrepreneurs who have built these companies.

Product strategy lies at the heart of successful technology companies and building technology that fails to be adopted by customer’s derails future plans. For example, DropBox had to send an apology to its loyal customer’s after dropping products Carousel and Mailbox (which is acquired for 100 million!). Hard decisions are being made all across the valley which started a few years back with Twitter closing down product lines and API’s in an attempt to monetize its platform and build a sustainable platform.

Land of the Kings: The Other Side of the Wall

For MarTech businesses with proven business models the current landscape presents massive opportunity. Native flowers are blooming for companies that secured investment before the downturn and managed cash flow to grow profitable businesses. In Q3 of 2016, U.S. companies raised $41.3 billion in 2,802 venture capital deals this year. In the San Francisco Bay Area alone, there were 916 deals, representing $16.9 billion. (Source: VentureBeat)

Successful MarTech companies are the ones that have taken measures to safeguard their future and while many companies are struggling, some are thriving that focused on three key areas of business performance;

· Business operations

· Non-optional technology

· Investing in customer success

In an over-crowded Marketing Technology landscape the clear winners are companies that can build sustainable businesses for the long term. Whilst complexity can be a challenge, opportunity is ripe.

For example, according to Jim Emerich, CFO at BrightEdge customer success is driving continued growth and making major investments in servicing customers is key to becoming a durable, long-term MarTech partner.

The focus on product innovation around performance and multiple platform integration and the application of AI and machine learning may hold the key to the MarTech kingdom.

According to Michelle Robbins, SVP of content and marketing technology at third door media "The field of MarTech remains crowded, and ongoing innovation - specifically in AI and machine learning - will sustain continued growth. The companies that succeed in either attracting venture capital or becoming acquisition targets will be the ones that can clearly demonstrate product differentiation along with ease of integration into larger MarTech stacks.

As the massive pool of global investment capital starts to normalize, venture capitalists and investors are becoming a smarter and wider with their investments - with many favoring MarTech investments compared with its predecessor in Adtech. Funding models can vary (source Scott Brinker) and it is becoming clear, to me, that consolidation in the MarTech industry is needed for some companies to survive and thrive. Only then can, the natural next development, of MarTech and Adtech convergence can begin.

Delivering innovation, results and success still requires major, but sensible, financial investments. It will be interesting to see those who thrive, those happy to just survive and those who don’t survive in the land of multiple Kings and Queens.

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