Martech’s 10+1 Foundations in the AI Age

Published June 28, 2024

1

Opportunities

AI is creating new opportunities for all companies. To capitalise on the future, companies will need to change and become AI-first. In my essay The 7½ Futures of Martech Companies, I had discussed the following themes (as summarised by ChatGPT):

1. Specialised Point Solutions: These are narrowly focused tools that address specific marketing challenges with high efficiency and effectiveness. They offer depth and customisation, allowing businesses to tailor functionalities to their unique needs, despite the industry’s shift towards integrated full-stack solutions.
2. Full Stack Solutions: Also known as Marketing Clouds, these platforms provide an integrated suite of technologies covering the entire marketing spectrum. They offer a seamless integration of diverse marketing functions, enhancing operational efficiency and customer engagement.
3. Progency: A transformative model blending martech products with agency services, focusing on maximising the lifetime value of existing customers. Progeny combines platform and personalised services, offering a one-stop solution for the entire marketing lifecycle with performance-linked pricing.
4. Email 2.0: An innovative channel leveraging Google’s AMP technology to create interactive and engaging emails. Email 2.0 transforms emails into dynamic platforms capable of in-channel engagement and conversion, reducing dependency on costly adtech platforms.
5. MarCo (Martech Consolidator): Inspired by Constellation Software, MarCo envisions acquiring and managing a portfolio of martech companies to drive innovation and scalability. It aims to consolidate the fragmented martech landscape and focus on reducing AdWaste.
6. Digital Twins: These are software models of real-world systems that simulate customer behaviors and predict future actions. By creating a foundational “Large Customer Model” (LCM), martech companies can enhance personalised marketing strategies and customer engagement.
7. Mirror Worlds: Building on digital twins, Mirror Worlds are virtual replicas of real-world marketplaces where marketers can simulate and refine campaigns and product launches. They offer dynamic, predictive, and personalised marketing strategies in a controlled digital environment.
8. B2C Attention Platforms (the ½ idea): Not strictly within martech’s domain, this idea involves creating engaging consumer-facing platforms to capture user attention. An example is an Email 2.0 newsletter that delivers valuable content and serves targeted ads, providing a strategic edge similar to Google and Meta’s platforms.

I had expanded on some of these ideas in other essays [New SaaS, Co-Marketer, Agentic AI, Synthetic Businesses and Mirror Worlds, Generative Journeys]. I had also discussed how martech companies can expand their profit pools by focusing on three axes:

• Unistack Consolidation: Offer a unified stack to reduce integration friction, enhance AI efficacy, and streamline workflows, resulting in higher MRR.
• AI-First Platform: Transform CDPs into Large Customer Models, creating digital twins and co-marketers to deliver hyper-personalised customer journeys and reduce AdWaste.
• 1S to 4S Business Model: Evolve from software-only offerings to include strategy, services, and revenue/profit sharing to become an indispensable partner.

In this essay, I will consolidate the various ideas and discuss how martech companies can reinvent themselves and remain relevant in the AI Age.

2

Pre-requisites

Unistack and Unichannel are the two pre-requisites for next-gen martech companies. As I wrote in Email, CPaaS, and Martech: New Profit Pools: “Martech solution providers can boost their revenues and profitability by offering a unified stack, just as CPaaS companies improve theirs by consolidating channels to promise “one customer, one message.” This “unistack” [and “unichannel”] approach can be pitched as “one company, one partner.” The advantages for buyers are numerous. Fewer point solutions reduce spending and integration friction, while ensuring data is not siloed, thereby enhancing the efficacy of AI. Additionally, a unified stack simplifies the marketer’s workflow by eliminating the need to interact with multiple interfaces and dashboards. This streamlined experience can lead to higher MRR for martech companies by making marketing teams more productive and end customers getting better experiences.”

The first-generation of martech companies focused on point solutions. Buyers too invested in solutions as they felt the need. From marketing automation on web to app, from CDP to analytics, from personalisation engines to product experience add-ons, the number of martech tools marketers needed to handle proliferated. All one has to do is to look at the Martech Technology Landscape put together by Scott Brinker and Frans Riemersma: there are more than 14,000 products listed. As they write: “The physics of software have certainly been upended. Anyone can create software in the cloud. Generative AI has only accelerated this. First by inspiring tens of thousands of developers to build new things on the back of powerful LLMs such as OpenAI, Gemini, Llama, Anthropic, etc. And second by facilitating development with AI-powered “co-pilots”.”

Here are a few interesting graphics from the report.

The future, especially for mid-market B2C eCommerce companies, lies in the consolidation of their martech ecosystems, reducing the complexity and number of vendors they must manage. A Unistack that integrates customer data and catalog data will become the standard, driving efficiency and effectiveness in marketing efforts.

Equally crucial is the unification of communication channels. With the myriad pathways to reach customers – SMS, email, RCS, WhatsApp, app notifications, browser notifications, and adtech for retargeting – marketers risk bombarding their audiences with repetitive messages, leading to poor customer experiences and increased costs. A streamlined Unichannel approach ensures a cohesive, singular message, enhancing engagement and reducing redundancy.

Martech companies can also benefit from the changing CPaaS channels which are powering in-channel conversion. As I wrote: “The evolution of SMS, WhatsApp, RCS [and Email] into interactive, two-way communication channels is transforming the CPaaS landscape. By enabling richer, more engaging experiences and facilitating seamless transactions, these channels are creating new profit pools for CPaaS companies. Brands can now leverage these advancements to build stronger customer relationships, drive higher engagement, and increase revenue. The integration of advanced chatbots across these channels further amplifies their impact, making interactions more dynamic and effective. As these technologies continue to develop, the potential for innovation and growth within the CPaaS ecosystem remains vast.”

The key prerequisite for next-generation martech companies is the provision of a robust unified tech stack combined with seamless, native support for all communication channels. This foundation allows AI to truly work its magic, driving smarter, data-driven decisions, and delivering personalised, impactful marketing at scale. By adopting this unified approach, martech companies can significantly boost productivity, enhance customer experiences, and ultimately, drive higher monthly recurring revenue (MRR).

Moreover, a unified approach positions martech companies as strategic partners rather than just solution providers. By simplifying the marketer’s workflow and ensuring a holistic view of customer interactions, companies can foster deeper relationships with their clients. This strategic partnership can lead to higher customer retention rates and create a competitive edge in a crowded marketplace.

3

New Core

With the Unistack and Unichannel foundation in place, martech companies will need to rebuild their stack for AI. This will mean moving from predictive and generative AI to “Agentic AI.” This new stack will comprise five layers:

Large Customer Models (LCMs): Think of an LCM as an “Active CDP.” Building on the foundation of Large Language Models (LLMs), LCMs are trained on extensive customer data to create dynamic, real-time evolving profiles and journeys for hyper-personalisation. Martech companies can develop their own vertical-specific LCMs using aggregated data and workflows, providing a robust base for businesses to create their unique LCMs. This triad enables the delivery of highly personalised N=1 experiences and next best actions that both marketers and customers desire.

Digital Twins: These AI-powered replicas of individual customers predicting needs and actions for 1:1 personalisation at scale. With Digital Twins, AI agents can simulate millions of individualised interactions, tailoring pitches and follow-ups to each customer’s preferences. This approach scales personalised engagement, creating virtual sales companions that provide bespoke experiences, effectively merging sales and marketing into a seamless, white-glove service. [See Andrew Chen on the future of marketing.]

Co-Marketer: This AI marketing assistant aids in segmentation, campaign planning, content creation, and journey optimisation, freeing human resources for strategic tasks. As an advanced multi-agent system, it is capable of reasoning and decision-making, collaborating with human marketers to optimise customer interactions. This enables the delivery of tailored, effective marketing strategies in real-time, enhancing overall efficiency and effectiveness. [More]

Mirror World: This is a virtual environment and a sandbox for simulating customer scenarios and strategies, enabling rapid and confident innovation. It is where the Co-Marketer can Digital Twins interact to identify the ideal customer journey for maximising lifetime value. [The Mirror World idea can also be used by martech companies to create “synthetic businesses” which can demonstrate the superiority of their offerings.]

Generative Journeys: These are dynamic, adaptive, and unique customer paths that leverage Large Customer Models (LCMs), Mirror World, Digital Twins, and the Co-Marketer to create real-time, value-maximising experiences. These journeys guide customers through various state transitions (e.g., visitor to first purchase, first purchase to repeat buyer), ensuring that every customer’s spending potential is reached and exceeded, thus enhancing engagement and driving continuous growth. [More]

This new AI-powered stack enables continuous learning and optimisation at an unprecedented scale. It enhances customer engagement and accelerates conversions, becoming a pivotal driver for the Profipoly Quest for B2C brands and, eventually, martech companies. By harnessing the power of Agentic AI, buyers and sellers can achieve superior results, ensuring sustained growth and competitive advantage in the evolving digital landscape.

4

Add-ons

Three innovative ideas can improve the competitiveness of AI-first martech companies: services, sharing, and ownership of a B2C business or platform.

Bundled Kaizen Services: Martech companies should integrate continuous improvement into their offerings, thinking of themselves as a Progency (product and agency). While automation and AI drive real-time enhancements, human expertise can elevate product efficacy through deliberate refinement. By embedding a Kaizen-inspired layer, products become dynamic solutions, adapting to evolving customer needs and creating a distinct competitive edge. [More]

Profishare: Martech companies should propose a partnership model where they share in their clients’ success. Instead of fixed fees (MRR), they earn revenue by taking a percentage of the incremental profits generated through their software (and services). This aligns interests, ensuring companies are invested in client success. [More]

As I wrote in my essay on new profit pools: “Traditionally, martech companies have focused solely on delivering software via the cloud, a “1S” business model. However, mid-market and enterprise buyers often find that maximising value from the software requires significantly more effort, leading to dissatisfaction and frequent platform shopping and switching. To address this, martech companies can evolve into a “4S” business model by adding strategy, services, and (revenue/profit) sharing. Offering strategic consulting helps clients develop and implement effective marketing plans that fully leverage the software’s capabilities. Providing managed services, including customisation, ongoing support, and optimisation (especially with AI models), alleviates the burden on clients and ensures maximum value. Implementing performance-based pricing, where martech companies have skin in the game, aligns interests and incentivizes optimal outcomes. By incorporating these elements, martech companies can become indispensable and invincible.”

B2C Business/Platform: This is the third add-on idea, It can help new-age martech companies to showcase their product’s power and efficacy. This is akin to “eating their own dog food.” There are three approaches to achieve this:

1. Create a Synthetic Business: Develop a simulated environment to demonstrate capabilities in a controlled setting. [More]
2. Own and Operate a B2C Business: Run an actual business to provide real-world evidence of effectiveness.
3. Control an Attention Platform: Manage a platform to engage directly with consumers and illustrate impact. Here is what I had written (Part 11): “For a martech company venturing into Email 2.0, launching a B2C newsletter as an Attention Platform could be a strategic move to demonstrate the capabilities of advanced email technologies. While not a conventional approach for a B2B entity…this initiative could significantly influence the industry, akin to the tail wagging the dog. It serves as a tangible showcase of the potential that next-generation email holds, setting a precedent for attention and monetisation in digital marketing.” In fact, Epps offer an excellent foundation to build such a platform.

5

Profits

The most important foundation that martech companies can build is that of profits. In fact, being a proficorn (bootstrapped, profitable, and scaled) like Netcore can provide a huge competitive advantage. To understand this better, we need to discuss the current state of martech companies.

A couple years ago, SaaS startups saw their valuations skyrocket. Funding was available at 25-30X revenue multiples. This meant that a company with an ARR of $35 million could get a valuation of close to a billion dollars and achieve “unicorn” status. Many martech companies chose to raise this easily available capital and chase growth-at-all-costs. Profitability wasn’t even an agenda item for discussion.

Things have changed. Valuation multiples have come down to 5-10X. Profitability has become the first ask from investors. Pivoting from high growth and cash burn to lower growth and profitability is not easy. The only route for martech companies has been to slow their own marketing expenses (many were simply buying growth) and layoff staff in a desperate attempt to meet investor expectations. The real problem: to reach the previous round valuation, martech companies need to treble or quadruple their ARR – and this is not going to happen in a hurry as B2C companies have also slowed their marketing spends in a market where risk appetite for anything other than Gen AI disappeared.

The outcome in that while many martech companies still have capital left, they are unable to invest it in new areas because of the demand for sustained profitable growth. Ratchet clauses protect investor equity, leaving founders with limited control and trapped in a difficult position. With their low equity and lack of control, founders are unable to invest in new technologies or raise capital at lower valuations. (This is like Ajit’s “liquid oxygen” dialog – ““Raabert, is haraami ko Liquid Oxygen mein daal do. Liquid ise jeene nahin dega; Oxygen ise marne nahin dega!” – as in “Put him in Liquid Oxygen. The Liquid won’t let him live; the Oxygen won’t let him die.”]

Profits are essential for business sustainability. Valuations fluctuate, but profits provide the stability and control needed for founders/CEOs to steer their companies. Profitable martech companies, though rare, are the ones B2C enterprises should partner with, as they have the resources to thrive and innovate in the AI era.

In the AI age, the ability to leverage profits for reinvestment in AI technologies will distinguish successful martech companies from the rest. Profitable companies can afford to experiment with and implement advanced Agentic AI solutions such as Large Customer Models, Digital Twins, and Co-Marketer. These innovations will drive hyper-personalisation and efficiency, setting the stage for next-gen martech companies to lead the market. Therefore, profitability not only ensures business stability but also fuels the innovation necessary to harness the full potential of AI in transforming customer engagement and business growth.

6

10+1

Here are the 10+1 foundations for martech companies in the Age of AI. For B2C buyers, these can also become a checklist to decide on their partner in their Profipoly Quest.

I asked ChatGPT to summarise the foundations.

1. Unistack: A unified technology stack that integrates various martech functionalities into a single platform. This reduces complexity, enhances data consistency, and improves the efficacy of AI-driven insights, making it easier for businesses to manage their marketing efforts.
2. Unichannel: Seamless integration of multiple communication channels such as email, SMS, WhatsApp, RCS, push notifications, and social media. Unichannel ensures that marketing messages are consistent and synchronized across all platforms, enhancing customer experience and engagement.
3. Large Customer Model: Advanced models built on extensive customer data to create dynamic, real-time evolving profiles. These models enable hyper-personalization, allowing businesses to tailor their marketing efforts to individual customer needs and preferences.
4. Digital Twins: AI-powered replicas of individual customers that predict needs and behaviors. Digital Twins facilitate 1:1 personalisation at scale by simulating customer interactions and providing insights into optimal engagement strategies.
5. Co-Marketer: An AI-powered marketing assistant that collaborates with human marketers to optimize segmentation, campaign planning, content creation, and customer journeys. The Co-Marketer enhances efficiency by automating routine tasks and providing strategic insights.
6. Mirror World: A virtual environment where AI agents can simulate and test various customer scenarios and strategies. Mirror World allows businesses to experiment and refine their approaches before deploying them in the real world, reducing risk and enhancing innovation.
7. Generative Journeys: Dynamic, adaptive customer journeys that leverage AI to create personalized, real-time engagement paths. These journeys ensure that customers move smoothly through stages such as initial contact to purchase and beyond, maximizing their lifetime value.
8. Bundled Kaizen Services: Continuous improvement services integrated into martech offerings. Inspired by Kaizen, these services involve human expertise to refine and enhance product performance, ensuring that the technology evolves to meet customer needs effectively.
9. Profishare: A profit-sharing model where martech companies earn revenue based on the incremental profits generated for their clients. This aligns the interests of the service provider and the client, ensuring mutual success and sustainable growth.
10. B2C Business/Platform: Owning and operating a B2C platform to demonstrate the efficacy of martech solutions. This hands-on approach provides real-world evidence of performance and builds trust with potential clients.
11. Profits: The foundation of business sustainability. Profitable martech companies have the resources to invest in innovation and withstand market fluctuations, making them reliable partners for B2C enterprises looking to build long-term relationships.

These foundations collectively enable martech companies to leverage AI effectively, drive continuous improvement, and maintain a competitive edge in the evolving digital landscape. Most importantly, they help their business customers multi-maximise every customer LTV (lifetime value). By focusing on these core elements, both martech companies and B2C businesses can ensure they are well-equipped to meet the demands of the AI era and deliver superior customer experiences.

**

The golden age of Martech is approaching. For the first time in two decades, the focus is shifting from uncontrolled spending on acquisition and reacquisition to retention and growth. To capitalise on this shift, martech companies must reinvent themselves as AI-first entities. The prize is substantial: $250 billion of annual AdWaste, far exceeding the current market size for martech. Although the transformation will be challenging, a glorious and winning future awaits those who can a(i)dapt.

7

Summary, Critique, Improvements

Claude

Summary

• AI is creating new opportunities for martech companies, but they need to change and become AI-first to capitalize
• Key prerequisites are providing a unistack (unified tech stack) and unichannel (seamless support for all communication channels)
• The new AI-powered core stack should include Large Customer Models, Digital Twins, Co-Marketers, Mirror Worlds, and Generative Journeys
• Add-on capabilities like bundled services, profit-sharing models, and owning B2C businesses/platforms can enhance competitiveness
• Sustained profitability is crucial for martech companies to have the resources to invest in AI innovation
• There are 10+1 key foundations proposed for martech companies to build to win in the AI age

Critique

• The vision laid out is ambitious and compelling, painting a picture of next-gen martech powered by agentic AI
• However, it may be challenging for many martech companies to develop advanced AI capabilities in-house like LCMs, digital twins etc. Partnering could be an alternative.
• Transitioning to radically new business models like profit-sharing requires major organizational change. This should not be underestimated.
• Owning B2C businesses seems like a significant strategic shift that could defocus martech companies. The synthetic business idea is interesting though.
• The importance of profits is spot-on. But martech companies face a catch-22 of needing to invest in AI innovation while also delivering profits. Threading this needle will be key.

Additional Elements

• AI Governance & Ethics: As AI becomes central to martech, companies will need robust frameworks for responsible AI development and deployment. This includes data privacy, algorithmic bias checks, transparency, and clear ethical guidelines. Building trust through responsible AI practices could be a key differentiator.
• Ecosystem Mindset: No martech company can do it all alone in the AI age. Cultivating a mindset of partnerships, open innovation, and co-creation with customers, startups, and even competitors could be crucial. Martech companies should see themselves as orchestrators of value in a broader ecosystem.
• Human-Centric Design: While AI can automate and optimize many marketing tasks, keeping the human experience at the center is critical. Martech companies need strong competencies in design thinking, UX design, and creating seamless human-AI interactions. The goal should be to augment and empower marketers, not replace them.
• Agile & Adaptive Operating Models: The pace of change in AI is rapid. Martech companies will need to be built for speed and adaptability. This means agile development, rapid experimentation, and continuous learning. Organizational structures, processes, and culture need to support this.
• Talent Transformation: Succeeding in an AI-first world requires different skills. Martech companies need to upskill their workforce in data science, AI engineering, and human-AI collaboration. At the same time, they need to double down on skills like creativity, empathy, and judgment that remain uniquely human.
• Measurable & Explainable AI: Marketers will want to understand how AI models work and see clear evidence of business impact. Martech companies should focus on making their AI explainable and tying it to measurable uplift on business metrics. Demonstrating clear ROI of AI will be key.
• Resilient & Responsible Architecture: With AI becoming critical infrastructure, martech platforms need resilient, secure, and performant architectures. They also need to be built with responsible data practices and the ability to adapt to evolving regulations around AI.

Gemini

Summary

This passage discusses the key elements martech companies need to consider for success in the age of AI, which can also serve as a checklist for B2C businesses to choose the right partner. Here’s a breakdown of the 10+1 foundations:

Tech Stack:

1. Unistack: A unified platform integrating various marketing functionalities to simplify management and enhance AI-driven insights.
2. Unichannel: Seamless integration of communication channels for consistent and synchronized messaging across platforms.

AI-powered Innovations:

1. Large Customer Model (LCM): Advanced models for dynamic customer profiles enabling hyper-personalization.
2. Digital Twins: AI replicas of individual customers predicting needs and behaviors for 1:1 personalization at scale.
3. Co-Marketer: An AI assistant collaborating with human marketers for optimized segmentation, campaigns, content, and journeys.
4. Mirror World: A virtual environment for simulating and testing customer scenarios and strategies before real-world deployment.
5. Generative Journeys: Dynamic customer journeys using AI to create personalized and real-time engagement paths.

Value-added Services:

1. Bundled Kaizen Services: Continuous improvement services integrated into martech offerings to refine product performance.
2. Profishare: A profit-sharing model where martech companies earn based on the incremental profits generated for clients.

Competitive Differentiation:

1. B2C Business/Platform: Owning and operating a B2C platform to demonstrate the effectiveness of martech solutions in real-world scenarios.

Financial Strength:

1. Profits: The foundation for business sustainability, allowing martech companies to invest in innovation and be reliable partners for B2C businesses.

Critique

The passage provides a comprehensive overview of the future of martech. Here are some additional points to consider:

• Security and Privacy: With increased customer data collection, it’s crucial to emphasize robust security practices and responsible data handling.
• Ethical Considerations: Potential biases in AI algorithms and the ethical implications of hyper-personalization should be addressed.
• Explainability of AI: Transparency in how AI arrives at decisions is important for building trust with customers.

Additional Elements

• Focus on ROI: Martech companies should showcase the measurable return on investment their solutions deliver.
• Integration with existing ecosystems: Easy integration with existing marketing and CRM systems would be beneficial for B2C businesses.
• Scalability: The ability to accommodate growth and adapt to changing customer needs is essential.

ChatGPT

Enhancements

1. Unistack: Incorporate AI-driven integration and automation tools to streamline data flow and improve interoperability between different martech components.
2. Unichannel: Implement real-time customer interaction management to ensure timely and relevant communication across all channels.
3. Large Customer Model: Use machine learning algorithms to continuously update and refine customer profiles, ensuring they adapt to changing behaviors and preferences.
4. Digital Twins: Develop more sophisticated behavioral prediction models that can simulate complex customer decision-making processes.
5. Co-Marketer: Integrate natural language processing (NLP) to enhance content creation and ensure more nuanced, human-like interactions.
6. Mirror World: Utilize virtual reality (VR) and augmented reality (AR) technologies to create more immersive and realistic simulation environments.
7. Generative Journeys: Employ reinforcement learning to continuously optimize customer journeys based on real-time feedback and outcomes.
8. Bundled Kaizen Services: Introduce a customer feedback loop that directly informs the continuous improvement process, ensuring that customer needs are always met.
9. Profishare: Develop transparent reporting tools that allow clients to easily see how their investments translate into incremental profits.
10. B2C Business/Platform: Create a dedicated team to manage and analyze data from the B2C platform, providing insights that can be fed back into the martech ecosystem.
11. Profits: Implement advanced financial modeling tools to better forecast profitability and identify areas for cost reduction and revenue enhancement.

Additional Elements

• Data Privacy and Security: Ensure all data handling processes comply with the latest regulations and best practices to protect customer information.
• Scalability: Design systems that can scale seamlessly as the business grows, ensuring that performance and user experience remain consistent.
• User Experience (UX): Focus on creating intuitive and user-friendly interfaces for both marketers and end customers.
• Innovation Culture: Foster a culture of continuous innovation within the company to stay ahead of market trends and technological advancements.
• Partnership Ecosystem: Build a robust ecosystem of partners to expand capabilities and integrate complementary technologies and services.