No other department has changed as dramatically over the years as marketing. The shift from offline to online and the ability to track, analyze, and optimize marketing spend has given way to a new era of marketers.

ScaleVP has invested in this evolution of digital marketing since the beginning.  In 2005, we spotted a movement toward cloud-based, web analytics, leading to our investment in Omniture.  In 2009, we saw that marketer reliance on direct mail was rapidly declining in favor of email marketing. This trend informed our subsequent investment in ExactTarget (NYSE: ET).  In that same year, we noticed the growing prominence of inbound marketing and invested in Hubspot. And finally, in 2011, there was no denying the impact of social on marketers, leading to our investment in Vitrue and DataSift.

Today, we are thrilled today to announce our investment in Demandbase – a real-time targeting and personalization platform for B2B companies.

Through its unique targeting capabilities, Demandbase enables clients to understand who the web site visitors are and serves up personalized landing pages, content, and forms that match their interest. In an environment in which buyers are constantly bombarded by marketing messages, Demandbase empowers clients to break through the noise and deliver higher conversion rates through relevant content.

Most importantly, Demandbase’s technology works and marketers love it.  In a recent CEO and CMO summit that ScaleVP hosted to discuss the “Reconciliation of Freemium and Sales”, Demandbase was touted as a must-have solution for B2B marketers looking to drive web leads.  Furthermore, we learned that a majority of our existing tech portfolio uses them.

Demandbase continues to innovate, expanding its product portfolio to include targeted marketing solutions that focus ad spend on companies ready to buy.

This is the next wave in B2B digital marketing. ScaleVP is excited to work with Chris and the team to further scale the organization and lead the charge for personalized marketing in the B2B space.

Recently, we hosted our quarterly Scaling Dinner Series in San Francisco.  The topic? Reconciling Freemium and Sales.

Given the overwhelming response to the dinner event, freemium is clearly a hot topic. However, many companies are still struggling with how to effectively capitalize on the model.  The idea that having vast numbers of free users will magically result in an enterprise software business emerging whole, like Venus from the sea, has pretty much faded.  But, what is also clear is that the right freemium offering can pave the way for enterprise adoption.

Two of our portfolio companies, Box and DocuSign, kicked off the dinner with their own perspectives on driving success with freemium.  Executives from 25 companies engaged in a lively discussion on the trade-offs to make the model work, the topic of free trial vs. truly freemium, and, of course, how much do you give for free? Too much for free and the company becomes non-viable. Too little for free and the adoption just doesn’t happen.

We gleaned the following 8 tips on how to make freemium work.

1. Choose your path: Decide if you are freemium or free trial. Don’t be afraid to experiment and try new things.  One company determined that freemium worked best for mobile, but free trial for the web.  You need to constantly tweak to find the best returns.
2. Find your advocate: If you focus on freemium, make sure you identify the advocate within your target customer.  The key is to find someone within the organization who is obsessed with your product and, in turn, will promote your business.
3. Don’t ignore the user experience: New user experience is vital to a freemium business model, but is often overlooked.

1. Streamline your product development:  One company found that keeping the features the same for both the freemium and the paid product allowed them to reduce their development costs significantly.
2. Don’t waste sales: Lead nurturing services such as Marketo, Eloqua or Pardot are absolutely critical to score the freemium leads and figure out which ones are the highest priority for a salesperson to call.
3. Conduct A/B testing to determine the lead capture process:  One company said they changed the lead form to collect only email addresses and they saw an increase in lead flow of 45%. However, capturing only an email address may not work for your salespeople.  Striking a balance between information required and the number of high quality leads is important.   In addition, consider utilizing services such as Demandbase to gather more data about the freemium leads.
4. Manage your churn: Collect the credit card up front.   The general consensus was that this created a more committed user.  But if they don’t use the product during the trial period, don’t charge the credit card!  The customers are likely to churn quickly anyway and this will affect overall churn metrics.  Also, the customer support costs can easily swamp the money made on the first month sale.
5. Consider the Cause:  A new wave in freemium is causium marketing. Rather than freemium, consider asking users to give $10 and then donate the money to a charity.

Thanks to those who participated in the event and stay tuned for the next one!

Several months ago, we embarked on a project to find the most compelling investment opportunities in mobile business productivity apps.  We wanted to know which type of apps were most popular and why? How was the iPad influencing app adoption? What was the average price for an app and who was creating them?

With over 12,800 business and productivity apps on iOS alone, there was a lot of data to mine.  We worked with University Venture Fund to analyze 12 million data points over a 6-month period from January to June 2012.  We gauged an app’s persistence by the percentage of time spent on the top 400 list during the period analyzed.

While the utility tools category encompassed a vast majority of business and productivity apps out there, remote access tools had the greatest staying power – despite being one of the most expensive.  What’s more surprising is that only 34% of business and productivity apps cost money. This led us to the conclusion that the focus of business and productivity apps is to bring a user back to a web-based product.

*Special thanks to Peter Harris and the students at the University Fund for all of their hard work and great insights.

Today, Oracle announced a definitive agreement to acquire ScaleVP portfolio company, Vitrue, a social media marketing company.  We’re thrilled for Vitrue and the team.

Vitrue helps some of the world’s largest brands, such as AT&T, McDonalds, Proctor & Gamble and American Express engage with their social communities (including Facebook, Twitter and Google+) by delivering unique content and promoting a two-way conversation with fans and followers.  There is no denying that social media has become a critical piece in an effective marketing ecosystem.

As we noted in this blog post last summer, the market continues to grow at a rapid pace, spurring subsequent consolidation as larger tech giants claim their space in social media.. Efficient Frontier scooped up Context Optional, which is now in the hands of Adobe.  salesforce.com acquired social analytics company, Radian6.  Now Oracle has Vitrue.

ScaleVP has been bullish about investing in SaaS marketing throughout its evolution.  We’ve built a method that works to identify companies who we can help to effectively scale and to reach their true potential to disrupt their markets.

Vitrue will mark Scale’s latest exit since the March 2012 IPO of email marketing company, ExactTarget, and Adobe’s 2009 acquisition of web analytics leader, Omniture.

Experimental Period

Just a few years ago, major brands treated social media marketing as an experiment. Budgets for social media marketing were minimal, and social media “campaigns” were often handed off to the PR team, which would complete the requisite checklist: put up a Facebook page, post to the wall, and then send out a few tweets. Goals for social media campaigns were very static, and their main purpose was often to demonstrate to the C-Suite that “something” had been launched on Facebook and Twitter. Hard metrics were almost non-existent, and social media campaigns were not integrated with other traditional marketing initiatives. This was Social Media Marketing’s experimental period.
 

Adolescence and Rapid Growth

Fast forward to the summer of 2011. Social Media Marketing is demonstrating tremendous growth on many levels. Facebook and Twitter have achieved critical mass, and before long, Google+ and Foursquare could join the standard shortlist of social media marketing platforms.

eMarketer estimates that 80% of companies will participate in social media marketing this year, which is nearly double what it was just a few years ago. Brands are investing heavily in social media marketing, and their social media budgets are burgeoning. This year, companies spent over $2 billion on social media advertising, and analysts from BIA/Kelsey expect that number to quadruple to $8 billion in the next few years. This growth rate will far outpace the rate of growth for SEM, email marketing, mobile marketing, and affiliate marketing.

Brands are racing to reach and connect with consumers on Facebook. In December 2010, Facebook reported over 2 billion “like” button clicks on 2 million websites. The Facebook page has become an essential marketing tool but it is critical for companies to get it right. Unlike other forms of online marketing, social media marketing is especially effective in convincing consumers to give up personal demographic data that includes their interests and social connections. In return, social media has provided consumers with additional social connections, engagement, unique content, and social status.

To obtain this data and build brand relationships, companies like Vitrue, which is a ScaleVP portfolio company, were started to help companies and brands create Facebook pages, drive users to their pages and engage users after they have liked their pages. Social media marketing companies also help companies report on key metrics such as the number of Facebook fans, Twitter followers, impressions generated and content shared.

It is also worth noting that “hard” or at least, “nearly-hard” metrics are starting to emerge in the social media marketing space. Various studies have started to pinpoint the value of a Facebook Fan in either customer lifetime value (CLV) or earned media equivalents. For example, a 2010 Syncapse study of larger brands showed that the average CLV in one year of a Facebook Fan is $72. For larger brands (such as Coke and McDonald’s), the figure was closer to $140 per fan.

In addition to CLV, Facebook Fans can also be evaluated in terms of an earned media equivalent.   Vitrue offers a tool on their site that helps companies place a value on the engagement through an earned media calculation.

Based on a few assumptions, here’s what the annual earned media could be for a brand’s Facebook page.

We estimate that some of these larger sites like YouTube could generate over $45M in earned media value, which translates to $1 per fan.

As the different CLV and Earned Media Equivalent values demonstrate above, metrics for Facebook fans are still evolving. But with that said, it is clear that Facebook Fans have tremendous value at some level for each brand, especially since the acquisition of Facebook fans can be leveraged as a powerful “top of the funnel” marketing tool. Savvy brand marketers understand this, and hence, there’s been a social media arms race in the past year or so to acquire Facebook fans, which is an easy metric to focus upon.

The growth of the Facebook Fan pages for brands has been tremendous. Currently, the top 1000 Facebook fan pages are growing on average at about 1.6% per week, and this growth rate can be increased significantly through ongoing social media promotions. Brand managers know this, and when they launch a social media marketing campaign, they follow the burst of fan acquisitions in the same way a Hollywood studio executive obsesses over the weekend box office.

So what does the Social Media “box office” look like? We took a look at the Facebook top 50 page list (from AllFacebook). The list is dominated by pop culture pages such as Texas Hold’em Poker (#2) and Lady Gaga (#6), but numerous prominent brands such as Coca-Cola (#14), Disney (#22) and Starbucks (#31) make the top 50. In fact, a single product like Oreo Cookies (#40) has acquired over 22M fans on Facebook.

As of August 2011, here’s the top 15 “most-liked” brand pages on Facebook.

But despite the near-term emphasis on Facebook Fan counts, brands are already in the process of evolving their social media strategy into something more sophisticated since their fans also want to have a conversation and more deeply engage. In other words, convincing fans to “like” a page is no longer enough, especially in the ever-more-crowded Facebook brand space.
 

Heading Towards Maturity

So where is social media marketing heading, and what will it look like when the space matures? We believe social media marketing is poised for 5 or more additional years of explosive growth. Over this time period, social media budgets will begin to rival traditional advertising outlays, and social media campaigns will be consistently integrated with traditional campaigns. In turn, brands will demand more comprehensive and integrated tool sets from social marketing platforms; these tools will allow brands to track campaigns and performance metrics across four or more platforms in real-time. Additionally, metrics will be much more sophisticated, integrated, and precise. The ROI of social media marketing will be easily comparable to the ROI of traditional advertising and other online marketing campaigns.

The challenge for brands will shift from acquiring fans to maintaining engagement, and then finally, monetizing fans at a greater rate. To accomplish these goals, and to maintain high rates of fan acquisition, brands will have to work harder, and they will have to more frequently offer exclusive high-quality content, chances to win aspirational prizes, and loyalty rewards.

Finally, in the coming years the rapid proliferation of social media marketing companies will taper off; consolidation in the space will become the norm. In recent months, we can see the beginning of this consolidation trend as Buddy Media recently acquired Spinback, Vocus acquired North Social, and Efficient Frontier acquired Context Optional. Almost all of these acquisitions occurred so that these social media marketers could offer a more comprehensive “one-stop” set of social media marketing tools.