Death of the Salesman? Marketo Is Automating Sales Relationships-And Growing Like Crazy

11/8/11Follow @wroush

From Phil Fernandez’s point of view, there’s a precise moment in the sales process when a potential buyer is ready to be contacted by a seller. Reach out too soon, and they’ll be annoyed or spooked. Contact them too late, and they may have moved on to another vendor.

In the old days, human salespeople chose that magic moment—picture the car salesman standing in his office at the dealership, watching out the window as consumers wander the lot and calculating which ones are ready to buy and which ones are just tire kickers. Today, though, companies should “let the buyer control the dialog,” Fernandez argues. What’s more, he says they should let software pick the moment of outreach.

That’s basically what technology from Marketo, the San Mateo, CA, startup where Fernandez is co-founder and CEO, is designed to do. The cloud-based system monitors and scores a prospective customer’s every interaction with a company, down to the Web pages they visit and the e-mails they open. When its mathematical models say the prospect is ripest, the system prompts human salespeople to follow up with a phone call or meeting.

There’s no more role today for the hard-driving, Glengarry Glen Ross-style salesperson who goes on instinct alone, Fernandez says. In fact, he says, that kind of hucksterism could only persist as long as there was no data to show how dysfunctional it was. “The notion of a salesperson as a lone wolf is totally dead and obsolete,” he says. If companies retired their old-school salesmen and broadly adopted technologies like Marketo’s, he argues, it could add $2.5 trillion to the world economy every year.

Marketo CEO Phil Fernandez

That’s an extreme claim—but then again, companies convinced by Fernandez’s message are adopting Marketo’s technology at an extreme rate. The startup’s revenues grew by 1,486 percent between 2007 and 2010, making it the fastest-growing private company in Silicon Valley, according to a list published last month by the Silicon Valley Business Journal. More than half of the 220-employee startup’s $57 million in venture funding is still sitting in the bank, Fernandez says. The company has been able to fund most of its growth from its revenue, which will be between $30 million and $40 million this year.

Marketo’s technology is totally separate from salesforce automation or customer relationship management software like Salesforce.com or SugarCRM, although it communicates with those systems. This is about marketing automation: tracking every interaction between a company and a potential customer, and figuring out how to increase the chances that a prospect who enters one end of the marketing funnel comes out the other end as a buyer.

Marketing technology may not be as sexy as mobile app development or as socially enlightened as e-waste recycling or crowdfunding—but it’s an area that has attracted some serious investment over the last few years. Google Ventures and Sequioa Capital, for example, recently put $32 million into Hubspot, which Fernandez calls Marketo’s “East Coast doppelganger” (though it mostly serves smaller companies). And there are some serious brainiacs involved too—Marketo’s chief scientist Yan Zou is a Stanford statistics and machine-learning PhD who used to build financial models for the hedge fund industry.

Marketing automation has been both enabled by and necessitated by the rise of the Web and social media, in Fernandez’s view. “Prior to the mid-2000s, the seller had some degree of power, which was that they controlled information,” he says. “As a result the ability of the seller to control the dialog was very strong. The explosive shift to the Web and now social media has completely changed the power relationship. The buyer today is not going to talk to the salesperson until they’re ready.”

That doesn’t mean that selling is dead, but it does mean that sellers have to figure out their new roles. “It’s how do we listen and respond,” says Fernandez. “How do we become transparent and authentic…and make ourselves findable.”

Fernandez’s own career has roughly tracked the rise of marketing technology. A history major at Stanford, he cut his entrepreneurial teeth at Masstor Systems, an early large-scale data storage company, and then Metaphor Computer Systems, a Xerox PARC spinoff that made workstations that connected to the first SQL-based relational databases. Given that Metaphor’s single largest customer, Procter & Gamble, used the system to study brand dynamics, it was essentially one of the world’s first marketing tech companies, Fernandez says.

His next two gigs were also marketing-related: he was chief operating officer at Red Brick Systems, which made databases for the data warehousing systems used by big companies to store customer records, and then president and chief operating officer at Epiphany, which sold customer-targeting tools to big telecom and financial services companies. Epiphany, which was founded by Steve Blank in 1997 and went public in 1999, at one time enjoyed a $9 billion market capitalization on $5 million in revenue. (“This ain’t no bubble compared to that bubble,” Fernandez says now.)

Marketo's Salesforce.com plugin shows salespeople which leads are most valuable using stars, and which are 'hottest' using flames.

Fernandez left Epiphany after SSA Global bought it in 2005. The founding principle at Marketo in 2006, Fernandez says, was that the kinds of statistical modeling that Epiphany had deployed to help big credit-card companies and wireless carriers know whom to target, and when, should be available to all companies. “There is incredible value to be had with these systems, but they were way too complex and big and heavy,” he says.

Fernandez and his co-founders Jon Miller and David Morandi found support for their idea at InterWest Partners, a Menlo Park, CA-based venture firm that had recently hired a general partner named Bruce Cleveland. For some time, Cleveland had been nursing an investing thesis about the role of data in the softer sides of business, such as sales, service, marketing, and support. “What marketing campaign should I run? Should I serve this customer or that one? All of these things are left up to the discretion of employees, and even if they are really good at their job, it’s based on pattern matching; they are not really using current data to make these decisions,” Cleveland says. “The notion was that there was an opportunity to build a new class of applications that would be targeted at the front office and delivered as Web services; that would take subjective impressions and convert it into objective data and enable these groups to make much better business decisions.” Ideally, such tools would even help companies predict how much revenue would flow from each marketing initiative. Hence the term that Cleveland coined for the new application class: revenue performance management.

It turned out that the ideas Cleveland was sketching on his whiteboard were roughly the same ones floating in Fernandez’s head—and InterWest wound up participating in all four of Marketo’s funding rounds. But Marketo’s beachhead product was pretty modest compared to Cleveland’s vision: it was just a landing page generator, to help companies make sure that they’d have some customized Web marketing materials to offer no matter what Google keyword people had used to find them. (Marketo’s software still helps with that, but it’s only about “5 percent of the current product offering,” Fernandez says.)

The next iteration of the system helped companies to be more systematic about how they turn marketing content into sales leads. “If somebody clicks on your Google ad and goes to your landing page and sees an appealing piece of content, they may be willing to give you an e-mail address in exchange,” Fernandez explains. “It turns out that if that content is high-quality, and you come back a week later and say ‘I hope you enjoyed that piece of content, here’s another one,’ you can get 4x higher conversion rates. It’s brand reinforcement—the start of a long-term relationship with that buyer.”

Over time, Marketo has added the ability to track more and more kinds of interactions. Today, the system features a sales process modeler that lets companies specify exactly how their sales efforts work, what types of data the software should listen for, and what rules should govern automatic marketing actions. A Marketo client might decide, for example, that once a potential customer has clicked on a link in a marketing e-mail, visited two landing pages, and viewed a webinar, it’s time to give their information to a salesperson for a personalized followup.

At that point, the task might show up within Salesforce.com as a task assigned to a specific salesperson. The Marketo plugin within Salesforce.com uses simple metaphors to focus salespeople on the most important leads: 0, 1, 2, or 3 stars to represent the most valuable potential buyers, and 0, 1, 2, or 3 “flames” to represent the hottest or freshest prospects. “If you are really going to figure out how to maximize revenue, you need your salespeople to talk to the right people at the right time,” explains Fernandez. “What our system does, ultimately, is filter and understand who those people are.”

The last big part of Marketo’s platform is an analytics system, which chief marketing officers or chief financial officers can use to see which marketing tactics have proved most effective in the past and predict which ad campaigns, webinars, white papers, e-mails, or trade shows will generate the most bang for the buck in the future. “It’s fundamentally a numbers game,” says Fernandez. “The head of marketing can look at the early stage buyers who, say, interacted with our webinar in June, and see how that is going to flow into revenue in December with spectacular accuracy. He can’t tell me who the buyers are going to be, but he can tell me that 412 of them are going to buy something.”

Of course, there’s still some guesswork involved when it comes to setting marketing budgets. “The Holy Grail—and it’s not a problem we or anybody else has solved—is that you have different [marketing] content of different quality, you have all these different channels, you have the factor of time, and who is assigned to the sales team,” Fernandez says. “That degree of combinatorics is massive. Ultimately, if we can start to use some of our learning algorithms to make sense of how all those factors interact, I think that is where you have an immensely valuable company, a breakthrough company. I couldn’t claim to be there yet, but that is what we are working toward.”

Even without a breakthrough, though, Marketo and its biggest direct competitor, Virginia-based Eloqua, are looking at a pretty large opportunity: they’ve got fewer than 3,000 paying customers between them, compared to Salesforce.com’s 90,000 (which, in turn, is estimated to represent only about 15 percent of all the companies that could be using marketing and salesforce automation software).

But as the numbers and algorithms take over, will Marketo’s whole algorithm-driven approach drain all the creativity out of marketing and sales?

Just the opposite, Fernandez argues. “In marketing, content is more king than ever before—our technology puts a premium on the creation of great content and great branding, and how you open yourself up to the buyer rather than attacking the buyer,” he says. “Then on the sales side, it’s a myth that a salesperson has some kind of intuition about when to pick up the phone and call people. They just don’t. But the art of sales is very much alive. Are you good at listening and aligning with the customer and helping them reach a good decision? It’s all about emotional intelligence and drive. None of this mechanizes great salespeople out of being great salespeople.”

Here’s a Marketo marketing video giving an overview of the system’s features.

.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

By posting a comment, you agree to our terms and conditions.