The US B2C Martech Opportunity

Published February 5-10, 2022

Overview

Braze recently became the first martech company to list in the US, followed by Amplitude. In addition, public companies like Twilio and Sinch which started in the CPaaS (communications platform as a service) have also forayed in the Martech space via acquisitions – Twilio bought Sendgrid and then Segment, while Sinch acquired Pathwire (formerly, Mailgun). My company, Netcore Cloud, operates in both CPaaS (only in India) and Martech.

Martech is about customer retention, growth and cross-sell. The key for brands lies in building deep relationships with their existing customers centred around the 3 Rs of retention, reactivation and referrals. Customer engagement is what brands need to maximise revenue, and as an antidote to continuous spending on new customer acquisition.

Brands use push messaging to attract customers to their properties (websites and apps). These messages need to be tailored to individual interests – right messages to the right person at the right time via the right channel. For this, brands collect a lot of customer data and then use that to segment the base and run targeted campaigns. B2C Martech companies enable these multi-channel marketing campaigns.

Netcore’s full stack and product portfolio looks like this:

In this series, we will explore the US market opportunity for B2C Martech companies.

Market Opportunity

The US market opportunity for B2C Martech solutions is huge. Here is how Braze does the assessment.

International Data Corporation, or IDC, estimates the market for marketing campaign management software to reach $15.0 billion in 2021 and $19.4 billion in 2024. We believe this understates our addressable market because in addition to marketing campaign management capabilities, we offer analytical tools that help companies better understand their consumers and improve the overall consumer experience.

We estimate that, based on our current average customer spending levels, the annual market opportunity for our solution is currently $16 billion in the United States alone. We calculate this estimate using the total number of U.S. companies with 50 or more employees per the U.S. Census Bureau. We segment these companies into five cohorts based on the number of employees: companies that have between 50 and 99 employees, companies that have between 100 and 1,499 employees, companies that have between 1,500 and 9,999 employees, companies that have between 10,000 and 19,999 employees, and companies that have 20,000 or more employees. We refine the number of companies in the United States within certain cohorts by estimating the percentage of companies in such cohorts that are likely to need a sophisticated customer engagement platform like ours. Next, we multiply the number of companies in each cohort by the average ARR for our customers in fiscal year 2021 with a corresponding number of employees. For cohorts with fewer than 20,000 employees, we use the average ARR for all customers within each cohort. For the 20,000 and greater employee cohort, we use the average ARR for the top 25% of our customers in that cohort measured by ARR.

While Braze does not give the details of its workings, I did some estimates using data from the US Census Bureau (as of 2018):

Employees	Total Companies	Average ARR ($)	Market Size ($M)
50-99	130,160	30,000	3,905
100-1,499	106,938	75,000	8,020
1,500-9,999	5,833	500,000	2,917
10,000-19,999	572	1,000,000	572
20,000+	537	1,500,000	806

The total market size comes to $16.2 billion – close enough to Braze’s $16B estimate for the US market.

The international market would probably be double that of the US market, with Europe accounting for about half, Asia-Pacific for a quarter, and Middle-East, Africa and Latin America making up the rest.

Thus, the global B2C Martech opportunity comes to about $30 billion.

There is another way to estimate this. The global adtech spend (on digital customer acquisition and branding) is about $350 billion in 2021, and I have estimated that the adtech:martech split is 90:10.

India accounts for about 1% of the global adtech spend, so we can expect martech spending to also be 1% of the global spend. I had estimated the India B2C spend in an earlier series (Part 13) at about Rs 2,500 crore which comes to just over $300 million, in sync with the 1% of the global $30 billion B2C Martech estimate.

To put this in perspective, the US market is about 50 times larger than India, not surprising given that the size of the US economy is 10 times that of India.

To summarise the key numbers about the B2C Martech:

Total Addressable Market (TAM) is $30 billion, of which the US accounts for half and Europe a quarter
India TAM is about 1% of the global market
The developed markets (US, Europe and some parts of Asia-Pacific) will account for about 85-90% of the B2C Martech spends
B2C Martech spending is about a tenth of the global Adtech spending

Even as the Indian market will grow in the coming years thanks to the inflow of capital and public listings of B2C companies, what is clear is that the Developed Markets opportunity is many times that of the Emerging Markets – probably 10-20 times larger.

US Mid-Market

If we dig deeper into the US B2C Martech opportunity, we can classify the companies into three categories: the small businesses (less than 500 employees), mid-market (500-1,499 employees), and enterprise (1,500 or more employees). By this estimate, the US mid-market is about 13,500 companies and the enterprise market is about 7,000 companies. Taken together, these 20,000 companies have the potential to spend about $25,000 per month each on martech creating a $6 billion addressable market. To put this in perspective, this is about 20 times the total Indian martech market.

The key question to therefore ask is: can an Indian company get a significant share of the US market? Given that this market is growing by 25-30% per annum, the size will grow to about $12-15 billion in the next 3 years. Even a 1% share of this market comes to $120-150 million in revenues, and probably $1.5 billion or more in valuation. (For comparison: Braze trades at over 20 times its ARR.)

Here then is the challenge for an Indian company seeking to tap into the US market:

Get 1,000 US mid-market and enterprise companies
Generate $10,000 MRR on average from each of these companies
This will create a $120 million ARR business

What are the products that can comprise this $10,000 MRR? Here is a short list:

Email and SMS Marketing (messaging)
Multi-channel Campaign Management
Automation and Engagement
Customer Data Platform
Analytics
Personalisation and Search
Product Experience to offer nudges and guide behaviour

Consider a B2C company with 100,000 customers. How much should they be spending on maintaining their customer relationships? A dollar a year would mean 10 cents a month – which would come to about $10,000 a month. These 10 cents could save the company tens of dollars in reacquisition costs should the customer churn. (In the Indian context, I recommend spending one rupee a month.)

Once businesses start seeing martech as a way to actually reduce acquisition costs, they will start shifting budgets from adtech to martech, and this will drive the flywheel of martech spending. I have discussed this in some of my previous writings:

The shift towards digital, the pandemic-led acceleration in digital transactions, the explosion in availability of customer data, and the increasing demand for differentiation based on the digital experience – all point to a martech future. This also creates a great opportunity for Indian SaaS companies to go beyond their home market and tap global B2C companies as customers. In the next 10 years, the Martech opportunity will grow from $30 billion to $100 billion in revenues, and a trillion dollars or more in value creation. Just as Adtech created many trillion dollars in value in the past decade, martech can do the same in the 2020s. The key to success at scale lies in cracking open the US mid-market.

Winning – 1

So, how can Indian martech companies crack open and win the US mid-market? There are 6 critical success factors to make this happen:

Full stack solution
Land and expand capability
Product innovations
Handholding of customers
20:80 staffing model pioneered by India’s IT services
String of acquisitions to gain customers rapidly

A few additional factors can be:

Pricing
Marketing to build brand and drive inbound interest
Targeting developers
Free tools and utilities
Cross-selling
Changing the narrative

I will discuss each of these factors.

Full stack solution: The first era of martech has been about point solutions; the next will be about a full stack offering. Mid-market customers do not have the resources to integrate various point solutions for the unified customer view. Point solutions also create data silos, which limit the efficacy of AI-ML’s analytics and predictions. The US market is both wide and deep with the result that martech companies can specialise. That is very good for the big brands. Companies from geos like India have little option but to do everything as part of their stack because the market is narrow and shallow. Netcore has thus managed to build a full stack, which is good enough for most brands, and especially those with fewer resources to integrate best-of-breed solutions.

Land and expand capability: Even as martech companies offer the full stack, what they need are landing products to make inroads into the brand. Every brand will be using a patchwork of solutions, so entering with a full stack story may not be possible. Instead, even as the full solution is positioned, there is a need to get into the door with one or more products which are easy to integrate. Once the brand relationship is created, then the presence can be expanded. This can also be thought of as “seed and grow.” As Mentomics puts it: “Land and Expand means starting small with your customers, gaining their trust then expanding into other areas of their business to become a trusted partner. The key to any successful land and expand strategy is to deliver exceptional (not good or great, but exceptional) customer experience and customer service. Your aim is to build customer retention and long term customer value.” Keeping this in mind, Netcore has created email, personalisation and product experience (PX) as multiple landing products for the US mid-market.

Product innovations: The US is a market which loves to try out new ideas. Even mid-market companies are always looking for an extra edge against competition. To win early adopters before crossing the chasm, having some unique features can be a big help to make inroads into brands. The one advantage Indian companies can leverage is the app-centricity of their customers. Even in mid-market US, it should thus be possible to find brands whose customers are app-first (rather than web-centric). This way, they can leverage their app capabilities over US martech companies to craft a winning entry story.

Winning – 2

Handholding of customers: US martech companies are focused more on delivering the product via the cloud, and then letting the brand use the solution with its internal team. This is what the large brands want. But for the mid-market brands, this may not work very well. Martech products tend to be complex and thus can do with some customer success team to handhold them, especially through the early months. Netcore has done this well in India and other emerging markets, and this experience can stand it in good stead in the US mid-market. In this context, another interesting idea can be the Progency, a product-led martech agency, which can take up specific KPIs (key performance indicators) and charge based on performance.

20:80 staffing model: Companies from India can use their cost advantage with human resources for the customer onboarding and success teams. A lean team in the US, backed up by a bigger team in India, can be a winning advantage. This is what the IT services companies pioneered in the past 25 years. Most functions can be driven from India. Only those functions which have a customer-facing element (sales, marketing, onboarding, support, customer success) require a small local team. This can create a competitive advantage in brands for whom pricing can be a key factor in decision making. Netcore has been doing this successfully for its email customers in the US.

String of acquisitions: One of the biggest challenges an Indian company has when entering the US market is to build its brand by getting the initial set of reference customers. This is a Catch-22 problem: customers do not like to be guinea pigs, so few are willing to say Yes and sign on the dotted line. And without a set of good brands, expansion becomes hard. One approach is to spend big on marketing and create a brand quickly. A second approach can be to consider acquiring US companies with an existing customer base with an adjacent product. This acquisitions strategy has three advantages: an immediate US footprint in the target accounts, the ability to then cross-sell products to these customers, and also to take the acquired company’s products and cross-sell to customers in India and other emerging markets. Over time, a set of targeted acquisitions can help create a “House of (Martech) Brands” approach, thus also strengthening the full stack story. Cross-border acquisitions are never easy to execute so this will need extreme care in execution. Done right, it can cut time for the go-to-market (GTM) by a few years.

Winning – 3

Here are some more factors for Indian companies to craft a winning strategy in the US mid-market:

Pricing: Competing on price is always a possibility, and can help get initial customers. They may be at the lower end of the mid-market, but they can help Indian customers work through the full model of successfully selling, servicing and retaining US customers. Price should be used selectively since it can also create the impression that the product is an inferior knock-off. Once the initial foothold is established and success stories with testimonials are available, the use of lower pricing as an entry strategy can be discontinued.

Marketing: For B2B SaaS companies, marketing plays a critical role in success, and it is also one of the hardest functions to get right. Companies tend to focus a lot on the product, and realise the importance of marketing only when it is too late. While spending money and being aggressive on marketing is always a possibility, the digital customer journey of prospective B2B buyers lends itself to smart marketing. Every B2B company must now think of itself as a media company and create a content factory. Good content is the foundation for SEO, SEM, SDR and ABM activities. The goal must be to general pull (inbound) as a much more cost-effective alternative to push (outbound).

Targeting developers: Companies like Twilio and Sendgrid have shown the way to winning developers and using that entry to drive growth. In a present where “software is eating the world”, developers can open the door into many brands. As Twilio CEO Jeff Lawson puts it, “In today’s digital economy, it’s the companies that figure out how to build great software that are able to win the hearts, minds, and wallets of customers. And so that means unleashing the talent who builds software.” Winning developers means creating products which can be integrated easily via APIs, the documentation is such that no human interaction is needed, and the entry pricing is small enough that a developer could just pay via a credit card.

Free tools and utilities: Offering free utilities is another interesting way to attract inbound interest. One of the best examples of this is Hubspot’s Website Grader. Netcore created Grade My Email in a similar vein. These utilities come with a “happy to help” approach and are excellent for lead generation.

Cross-selling: The cross-selling team is an important team in a company because this is the one which can drive the expansion after the landing. It is cross-selling which helps maximise the revenue from a brand. For this, the team will need to understand the brand’s business well, build deep relationships, and then offer solutions at the right time. A cross-selling index can measure the success of this team.

Changing the narrative: One of the hardest but most powerful ideas is to create a new narrative. This can create a lot of inbound interest and positions the company as a thought leader. A couple themes that I have been working on for the past few months are around the coming martech era and how email2 can energise engagement.

Taken together, these ideas executed well can help Indian companies open up the vast US mid-market for B2C Martech. This must be the next horizon after expansion into emerging markets. The developed markets of the US and Europe are the next frontier. Just as companies like TCS, Infosys and Wipro pioneered the offshoring model in IT services, Indian B2C Martech companies have a great opportunity to build the next-generation of hybrid SaaS companies: big in their home markets and also successful globally.

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