In the late 1990s, the arrival of the information-age was much heralded. It was, we oh so willingly believed, the dawning of a new technological era, in which the UK could cast-off the final vestiges of its industrial past and immerse itself in the white heat of cutting edge information technology.
But like every economic bubble, it burst, leaving a technology sector disaffected, downcast and in the doldrums. Much has changed since those heady days of the new millennium – including the emergence of a more rational approach to the web – and there are clear signs that confidence is returning to the technology sector, and the business software sector in particular.
“The software sector has turned a corner,” says Collette Wade, European marketing director for web analytics software provider WebTrends. “The crash lasted a number of years, and everyone was struggling. But since then the whole market has pulled up considerably.”
Dawn Baker, head of marketing for small businesses at accounting software specialist Sage, agrees. “The market is certainly buoyant for us. The number of startups is growing, and this creates good opportunities.” She adds that the auspices are good from all sizes of customers. “We have had a positive response from the market, both from first time users and those requiring upgrades.”
The end of adolescence for software
But why is this market so positive right now? Given the recent rumblings of discontent and general gloom over the status of the economy, logic might suggest that business software providers would be reining in their spend, rather than being ballsy.
There are a number of explanations for their renewed enthusiasm for marketing. Collette Wade of WebTrends says confidence in technology is a key factor. “Four years ago, technology was evolving so fast it was leapfrogging over itself and there were so many new startups offering new solutions. As a result, people lost confidence.” In other words, the accelerating emergence of new solutions made investing in software a tougher and tougher decision, with the knowledge that installations might be obsolete in a matter of months. “This created instability; the situation was unsustainable.
“The whole market has matured,” she says. “The software market is still a relatively new one; much younger than something like FMCG. You could look at what was happening four years ago as its teenage years. Activity was not properly thought through, and more longevity was needed.” The downturn has made the industry come of age, she suggests.
This view is reflected by Tony Donnellan, head of planning at Tidalwave, who points out that consolidation has been having an impact in the software sector, with the emergence of a “big three or four” companies. “There has been rationalisation as the bigger companies have swallowed up some of the minnows.” As a result, it is less fragmented and more stable; it has lost some of the Wild-West spirit that it had four or five years ago.
Greater understanding
Another factor in the renewed confidence of software marketers is the widening appreciation and understanding of their products with client companies. “Technology has spread from the backroom to the boardroom,” says Wade of WebTrends. She claims a process of convergence is taking place, with employees across all job functions becoming more technology-savvy, whilst developers are making their applications more user-friendly.
Meanwhile, Tony Donnellan of Tidalwave suggests the shelf life of previous implementations may be having an influence on buying patterns. “Implementations which began three or four years ago in some companies may still be working through.” He states that release and implementation of new operating systems such as Microsoft XP requires the update or replacement of other forms of software with compliant versions. Therefore the mass migration of companies to new operating systems could prove a major catalyst for spend. If proof were needed of Microsoft’s dominance of the IT sector, this is it.
Individualised marketing?
Whilst structural changes within the industry and new products have bearing on the buoyancy of the software sector, developments in marketing are also playing a significant role. Richard Perry, general manager at Gyro International, says the increased adoption of so-called ‘1-2-1 techniques’ are the most important of these, and have been facilitated by increases in the sophistication of digital variable print. “The technology has arrived over the last two or three years to enable this. Variable fields in direct marketing material allow us to hone the message, and to customise communications to different industry sectors, job functions or locations, etc.” He says these are best used in conjunction with dedicated ‘landing sites’ on the web, providing information tailored to the individual recipient or group of recipients. As he says: “Integration is key.
“We are seeing an upswing in results from this kind of activity,” continues Perry. “One of our recent campaigns has had a response level of 15 per cent – this compares with three or four per cent which would be expected for a traditional [ie. non-variable] campaign.”
Dawn Baker of Sage is also enthusiastic about better targeting. “There will be more vertical messaging in future, although I doubt we will ever get to true 1-2-1. But increasingly the market is looking at grouping around different types of behaviour or stages in the buying lifecycle.” She says tailoring marketing messages is particularly important when focusing on smaller companies. “No two SMEs are the same, and we work hard to segment our database.”
Beyond the IT director
The broader understanding of technology across many organisations – outlined above – has created opportunities for marketing innovation, this time in terms of decision making, and consequently targeting. Neil Francis, managing director of CompanyNet, comments, “historically our marketing would target the IT director, but now the marketing director understands the importance of the technology.” The system’s primary users would be in the marketing department.
This point is echoed by Donnellan of Tidalwave. “The first person we contact is the business manager who will benefit from the application – for example, the marketing director, the sales director or the finance director. The IT director is not interested in customer retention, so there is no point marketing CRM to him.”
A further development of this trend can be seen in the recent ‘New Era’ campaign from Microsoft for its Office operating system, which was targeted not at the IT decision maker, but at ‘expert information workers’ who are key influencers. “This is an emerging trend,” says Donnellan. “People used to be dictated to by the IT department. Now there is more user-power – it is a reflection of the number of information workers that there are now.” He says in this way, business software marketing is almost passing into the consumer realm.
Creating communities
Of the untraditional ways in which marketing is making new headway in the software sector, the most interesting involves the Internet. “Companies are trying to be more sophisticated in the way they use the web,” says Tony Donnellan of Tidalwave. For example, he says directors of software companies are increasingly using web-logs (blogs) to speak directly to users. “This is a great way for the company to break down barriers to speak to the outside world and customers. It gets around ‘censoring’ through marketing and PR, and allows their passion to show through.” In short, says Donnellan, “it allows the company to take its corporate hat off.” Such blogs facilitate discussion amongst users and decision-makers, and engender loyalty. They are closely allied to feedback, comment and help services, and encourage a sense of community. “The web is not just for banner ads,” says Donnellan, “it’s increasingly a good way to connect with customers and prospects.”
Meanwhile, Dawn Baker at Sage says search marketing is growing exponentially as a software marketing medium. “We are seeing a phenomenal increase in response to key words. Search marketing is coming into its own.”
The end of packaged software?
But not all developments are necessarily positive for suppliers, or for marketing. One of the biggest changes currently taking place is the migration to web-based applications, rather than traditional disk-based or packaged software.
Richard Perry of Gyro says this is following the success of Salesforce.com, which is entirely web-hosted, with payment operating on a per-user basis. The advantages it offers to buyers and users is less upfront investment, whilst it enables vendors to get quicker exposure and to offer trials. “Everyone is doing it,” he says.
However, the lack of an upfront payment for purchase, and lower overall cost, has repercussions for the vendor and its marketing as margins are squeezed. “There is simply less investment in marketing,” says Perry.
“Revenues for boxed software are being eroded,” agrees Donnellan of Tidalwave, though he suggests this shift is entirely logical. “People don’t want to buy software: they want a service. It makes the application much easier to consume. The industry is moving in this direction, but there is resistance.”
This change is potentially highly significant for the software market, although it is too early to predict its extent or final repercussions. But these are likely to include a greater emphasis on relationship building and at least a partial move away from traditional marketing techniques.
For the moment though, software vendors continue to be all too willing to spend money on big-budget advertising campaigns. “Above-the-line is still seen as a necessary evil,” comments Richard Perry of Gyro, “there are still lots of big media companies promoting it. But is it necessarily the best way of building a brand?” He clearly thinks not, and suggests that much of this money is spent to massage the corporate ego, rather than actually generate a result. “The old adage that half of the advertising budget is wasted is still true, only these days they can tell which half.” Some habits, it seems, are hard to break.
In sickness and in health: partnership marketing
The evolution of partnership marketing is proving critical to the success of some business software companies, one of which is CompanyNet. “This is a major strategy for us,” explains MD Neil Francis. “We are a Microsoft Gold Partner, and we work with a number of the big infrastructure companies, such as SCC. The majority of our leads come from here.” Partnership status is a form of accreditation for a niche supplier, and affords it access to the global brand’s customer network. “They [Microsoft] act as a middleman,” says Francis. “They have created a network of companies with different specialisms. We are piggybacking their brand.” Partnership has been the lynchpin of CompanyNet’s growth, says Francis, and far more important than traditional marketing communications, which he says is less effective because, “we are not a commodity sale”. The applicability of this kind of marketing is extremely broad, he concludes. “Partnership marketing is definitely applicable outside the technology sector. The creative sector is a good example of an industry where it is already important.”
