Database Marketing Services Companies Position for the Future
By Gib Bassett, Analytic Strategy
Both current and prospective customers of Database Marketing Services (DBMS) providers should take note of the changing market landscape to help direct short term and long term outsourcing decisions. Over the coming years, DBMS providers with the vision and resources to achieve their full service aspirations will become less recognized for database services and more for marketing solutions.
For many organizations, both business to consumer and business to business, database marketing services (DBMS) providers have become trusted and valued partners to their marketing departments. Firms lacking the technical, marketing and analytical skills necessary to develop a database for customer or prospect marketing have turned to DBMS providers to not only develop, host and maintain these databases, but also provide insight into distinct segments to target for achieving a greater return on direct marketing investments.
Customers of DBMS providers typically fund these efforts at more than $1 M USD each year, yet despite this significant investment, marketers often require additional services, not all of which can be sourced from their primary providers. Data appending is one such service that helps marketers better understand the attributes of customer segments, or can be used as an input to models for predicting churn or cross/upsell propensities. Industry-specific analytical and marketing services are another component of many customers' database marketing strategy to, for example, develop best practice lifetime value models, for focusing marketing dollars on most valuable customers. Many providers also offer business services around the execution of direct marketing programs, such as creative, fulfillment and telephone follow-up.
For many marketers the best source of these services are often not their primary provider; thus organizations that outsource their marketing database must manage multiple relationships that over time have resulted in redundancies and inefficiencies. In fact, Forrester Research reports that many DBMS customers must manage nine such vendors and that two thirds of these would like to consolidate. Of the group surveyed, just 20 percent for Fortune 500 firms indicated a desire to consolidate vendors, a relatively low figure no doubt due to the difficultly in reducing supplier dependencies. This trend promises to continue given that many DBMS provider customers have requirements that are maturing beyond single channel direct marketing.
Leaders Seek to Redefine the Market
Within the last year DBMS providers have taken notice of these trends. Executives in leading providers such as Acxiom and Harte Hanks have publicly stated their intent to pursue acquisitions in order to better serve the broader needs of their customers. And they have done so. But their statements are not altogether altruistic. Market realities facing the top providers have them attempting to redefine their space in the marketing services market. Consider:
- Demand is strongest for DBMS in the U.S. and the Asia Pacific Region. These geographies are targets for off shore services companies that have demonstrated skill in highly process-driven services such as contact centers. It is only a matter of time before core database marketing services become a viable offshore service, delivered with a lower cost structure. DBMSP who successfully build a portfolio of both technical and consultive business services around their core offering will be better able to defend market share. Provider examples include:
o Experian, Harte Hanks and InfoUSA have all added direct email technology and related services capabilities to their offerings.
o Fair Isaac purchased Braun Consulting, a business and technology CRM services company to build out their professional services capabilities.
o Alliance Data Systems purchased Epsilon, a premium provider of DBMS.
- Similar to what has occurred in the CRM software market, growth among the typically large customers on which DBMS providers depend is reaching a point of saturation. At the same time, small to mid-market organizations are increasingly recognizing the value of database marketing. These customers are more receptive to single source solutions, and thus DBMSP who make market-appropriate additions to their portfolios can access a growing market opportunity. Provider examples include:
o Acxiom, known best for its large managed customer and prospect databases and IT outsourcing, purchased a full service direct marketing agency with a specialization in the middle market.
Some providers are better equipped than others to make the transition to a broad marketing services company. Providers with balanced services portfolios are in the best position
Providers with Balanced Portfolios
Examples: Experian, Fair Isaac, InfoUSA
These companies are not as dependent on managed database services as others. Their business models can be characterized as hierarchical in that they provide a mixture of low volume/high margin and high volume/low margin services. Wall Street analyst firms peg compounded growth in EBIT for these firms in the 15-30 percent range. Experience in diverse services areas and less reliance on their installed base of managed database customers places these firms in a good position to make the transition to a full marketing services company. Less structural change to their business model is required to integrate complementary marketing services capabilities. Their balanced approach to business includes some of the following attributes: proprietary data for appending, services tailored to variable customer sizes, strong focus on analytics.
Providers Dependent on Legacy Business
Examples: Acxiom, Harte Hanks, BeNow, Merkle
These companies derive the majority of their revenue from managed databases, although most also offer proprietary data and analytical services as well as business consulting. While the largest of these firms have the financial resources to acquire more diverse services, their business model may inhibit their ability to successful make the transition to a full marketing services firm. Wall Street analyst firms peg compounded growth in EBIT for these firms in the 12-20 percent range. Structural change due to a more focused business model should prove more challenging for these firms, yet those with the financial resources to build out capabilities have a greater chance of success than their smaller, more focused competition. These smaller firms are probable acquisition candidates that can help consolidate market share among the larger providers.
Recommendations
Current customers of DBMS providers should consider the following actions in light of the evolving market:
- Request details of provider services portfolio strategy, including consolidation services to reduce multi-supplier dependencies.
- Customers that have evolving marketing requirements should take advantage of commercial CRM applications, if offered by their provider. Harte Hanks and KnowledgeBase Marketing offer hosted versions of Epiphany for example. Applications such as this offer best practice process and scale to meet more evolved customer marketing requirements.
- Customers of niche providers should evaluate the potential that their provider will be acquired.
- Customers interested in moving beyond direct marketing to multi-channel customer relationship optimization should take advantage of provider relationships with consulting firms, if available. Acxiom has a partnership with Accenture, whereby the two go to market with a mix of Acxiom's data related services and Accenture's business process, analytical and application expertise. These same customers should look to their providers for Customer Data Integration (CDI) services and software to aid in these projects. Harte Hanks (Trillium) and Acxiom (Abilitec) are two providers that compete with software firms in the CDI space.
- Database marketing is a very process oriented discipline not unlike the emerging market for software to help automate and manage marketing processes (Marketing Resource Management). Customers should look to their provider to offer hosted versions of leading MRM applications.
- Customers with multi-channel marketing requirements (direct mail, email, telephone, publication, etc.), should request marketing mix analytical services from their provider. These services can help customers develop the most optimal combination of medium investment to meet their objectives.
- Customer data privacy is a key issue in the DBMS provider market; ensure that you fully understand your provider's privacy policy, security measures, and the sources of the information within compiled databases.
Organizations considering outsourcing their marketing database should take the following actions:
- To minimize risk and ensure service continuity avoid niche providers that may be acquisition candidates.
- Seek out among the leading providers those that have the best blend of services as well as relevant industry expertise to meet your requirements.
- Customers new to DBMS need to quickly develop an understanding of customer privacy issues and work with only those providers with well defined, accountable and secure data policies.
Conclusion
Long viewed as a tactical service to execute direct marketing more effectively, database marketing is quickly evolving into a broad portfolio approach to providing marketing services. Customer requirements for fewer vendor dependencies, and their evolving marketing maturity are driving DBMS providers to build out from their core business of marketing databases. Provider actions are being spurred in part by the threat of commoditization from offshore firms as well as the need to enter new markets for growth. Customers should evaluate their providers for the validity of their evolving portfolios and newcomers should carefully select providers to ensure both services breadth and viability. Providers able to acquire and integrate the necessary capabilities successfully are the probable winners in the race to meet current and future customer requirements.
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