In a recent conversation with a chief technology officer, he asserted all digital technology changes in his organisation were being led by IT and not by marketing. It made me wonder: How long a marketing function like this could survive?
Teradata’s decision to sell-off its marketing applications business and focus purely on data and analytics has divided the media and industry community watching the exponential rise of marketing technology globally.
During its Q3 results presentation last week, Teradata CEO, Mike Koehler, surprised many by revealing plans to sell off the vendor’s enterprise marketing applications business, a decision he said was prompted by an internal review of its portfolio and market penetration.
In the three months to September 30, Teradata’s marketing applications business generated US$49 million in revenue, down $4m on last year’s corresponding quarter. The data and analytics business, meanwhile, chalked up $557m, down from $614m in 2014.
“Over the past year or so, we’ve been digging more deeply into our internal operations and into the markets we play in,” Koehler said. “We have key initiatives underway to improve the performance of our company, both shorter term and longer term. While we have not completed the entire process, we're already starting to take some significant actions.
“After a thorough analysis of Teradata's portfolio and opportunities, we have concluded it's in the best interest of the company and our shareholders to focus on our core data and analytics business and to exit our marketing applications business. We believe our marketing applications business can thrive under the right ownership.”
Despite the overall revenue drop, Koehler claimed marketing applications had improved in 2015, with revenue growth increasing by 22 per cent in the third quarter, and recurring revenue growth of 13 per cent in the year to date.
“We have leading solutions, as evidenced by the industry analyst rankings, with our marketing resource management solution being the leader in its segment,” he said. “Our marketing applications portfolio operates on a very attractive market and we’re starting the process to find the right owner.”
The decision to sell-off its marketing offering came out of the blue for a couple of industry commentators, who claimed the enterprise offering held a specific place in the marketing technology landscape. They also pointed to Teradata’s recent acquisitions as suggestive of an ongoing strategy of investment and growth.
The news comes just over a month after the vendor confirmed its purchase of data management platform provider (DMP), FLVone. Teradata also acquired Israeli-based mobile marketing technology startup, Appoxee, earlier this year.
Teradata’s marketing applications business was created off the back of its acquisition of marketing automation vendor, Aprimo, in 2011. Under the umbrella are marketing resource management (MRM), campaign management and digital marketing management (based on the original eCircle offering).
Forrester’s Brian Hopkins, for one, was quoted by Direct Marketing as being flummoxed by the news. However, he pointed to the fact that open source in the data management space had been hitting enterprise software vendors hard, and negatively impacting Teradata’s core data and analytics business.
Who would buy the business?
Gartner’s Kimberly Collins was also surprised by Teradata’s decision to sell its marketing applications business, given the significant investments over the past five year.
She offered up four potential scenarios: Teradata spins off the marketing apps business as a wholly-owned business; the vendor sells it all to one software vendor looking to enter the marketing applications space or to extend its marketing capabilities; an investor buys the business; or Teradata sells specific capabilities under its marketing applications umbrella to multiple vendors looking to extend existing capabilities.
“This [latter option] makes the most sense, but is riskier for some areas, such as digital marketing,” Collins stated.
Collins also claimed Teradata’s marketing resource management offering was the “star” within the application portfolio. The platform is used locally by Telstra.
“It would be a great opportunity for a vendor to enter the MRM marketing in a significant manner,” she stated in her report. “Although continues to be a strong seller, traditional Aprimo customers have expressed post-acquisition dissatisfaction with Teradata’s customer service, account management and pricing, leading to client retention issues. A new vendor could bolster customer satisfaction and drive sales momentum.”
Several analysts told CMO the decision is indicative of the struggle Teradata faces competing with other marketing cloud behemoths, including Oracle, Adobe and IBM.
“These organisations can afford to make much larger investments in product development than Teradata,” principal analyst at Raab Associates, David M. Raab, said. “This is a highly competitive business, so that may have been a key consideration.”
Selling the business now makes more sense than underinvesting and letting its position deteriorate, Raab said. Despite the exit, he saw the products being sold as a good mix of offerings, competitive with other enterprise marketing stacks.
“However, it does mean abandoning a fast-growing segment where Teradata had a reasonably strong competitive position,” he commented. “This reduces Teradata’s long-term prospects.”
Raab also noted Teradata’s intention to hold onto the Customer Interaction Manager (CIM) component of the overall marketing applications business, citing several sources. While CIM was particularly strong at integrating predictive analytics and offer management, he disagreed with plans to retain it.
“Keeping Customer Interaction Manager will not prove effective, as Teradata has shown it is not committed to marketing applications in general,” he claimed. “Few new customers would choose to invest in the Teradata product under those circumstances and even existing customers must wonder whether they can rely on Teradata to support and update these products in the long run. This will open Teradata accounts to additional footholds by competitors including Oracle, IBM and SAS, all of which offer powerful on-premise alternatives to CIM.”
For his part, Raab believed the most likely buyers for Teradata’s marketing stack are private equity investors who run the systems as a standalone business - at least for a time.
“This could work nicely if Teradata sells at a relatively low price due to lack of interest among deep-pocketed buyers,” he said. “I assume Teradata considered and rejected trying to spin off the units as a separate business, which might have been possible given the high market interest in marketing automation right now.
“It’s also important to point out Teradata has a large number of very skilled people in its marketing applications business unit. Assuming most are not retained with CIM, they are also an important asset that could be attractive to a buyer, if there were some way to ensure they remain in place.”
Ovum analyst, Gerry Brown, told CMO he believed Teradata’s foray into digital marketing was opportunistic, rather than strategic. He pointed to the relatively small scale of the business within the Teradata portfolio, its small market share of about 5 per cent in a US$5bn market, and the potential $1bn investment required to obtain such a leadership position.
“The company had some legacy applications such as TRM [Teradata Relationship Manager], and there was a perception it could do some big things in the digital marketing arena, which has been in high growth, even though its strategic fit with Teradata’s core competencies in enterprise data management was somewhat tenuous,” he commented.
Brown picked Ebay, a long-time Teradata customer, as an interesting outside bet for its subsidiary, eBay Enterprise, along with Cisco, which has big digital ambitions, and enterprise software player, Infor.
“If money was no object, there would be good product synergies for Qubit, who lack the marketing automation and execution engine that Teradata possesses,” Brown added. “But Teradata’s marketing applications division would be a relatively big beast to assimilate, which will put off many buyers, as will the necessary de-coupling from Teradata data management platforms, which are the engine upon which most of the enterprise deployments sit.”
Principal analyst for Pund-IT, Charles King, imagined a couple of scenarios, the first of which would be a company that wants to enter the marketing applications space and is looking for an essentially complete solution set.
“Another would be a larger vendor that's delivering marketing applications and wants to add Teradata customers to its client list,” he said.
Sticking to data and analytics
While views of the sale differed, what many analysts did agree on was the reasons for why Teradata needs to place more emphasis on its data and analytics business.
In Forrester’s recent report ‘Quick Take: Teradata must lean hard into BT [business technology]’, which Hopkins co-penned, the research firm said Teradata had enjoyed dominance as the best-in-breed data warehousing solution, but faced “unprecedented disruption from open source solutions, simple cloud-based options and countless startups gunning for a piece of the action in the data frenzy”.
King said given the company's other problems, focusing on its core analytics business makes good practical sense.
“Plus, the sale suggests that Teradata believes that hard times in marketing applications will continue or that correcting course will require more investment or effort than the company is willing to spend,” he said.
During his Q3 presentation, Koehler admitted overall revenue was not what was expected, but highlighted positives within Teradata’s services and big data businesses.
“We have a tremendous opportunity with our core data and analytics business and we will now dedicate all of our energy, resources and investments to it,” he said. “Our overall goal with Teradata going forward is to transform the business to better align ourselves with the evolving marketplace and customer needs. Through this transformation, we plan to drive a meaningful revenue growth and improve profitability.”
Koehler outlined several key initiatives to help fuel the transformation. Among these are plans to expand Teradata’s core data warehouse market business through public and private cloud capabilities. The vendor is also looking to rationalise its big data portfolio, focusing investments on solutions such as big data analytics tool, Aster, and its unified data architecture.
Value-added services are also being enhanced and extended around big data consulting and advanced analytics, he said.