The HubSpot Case

Have the “rules of marketing” changed?

New technologies empower consumers and change their behavior.

Thanks to the internet much more information is available to almost anyone at any given point, and anyone can share his knowledge with thousands and millions easily.

We rely heavily on search engines and social media to learn about new things and make seemingly independent decisions. Peers become much more influential on our decision- making process than companies or organizations. We are moving from “push” to “pull” interactions between consumers and products/companies.

On the other hand technologies also allow to collect much more detailed and insightful information about consumers, adding multiple layers to what can be understood about a consumer. This allows companies to create detailed audience profiles and fine-tune segments and targeting. On the top of it, marketing message and it’s delivery can be adapted in real-time.

Marketing should accept these trends and re-think it’s rules.

This is not to say, however, that “none of [the old rules of marketing] are true anymore”. We people are still biased and use heuristics to make decisions, even more so with an information overload. Which ensures branding to be a valid concept still.

Is inbound marketing the answer?

Inbound marketing captures one of the biggest shifts in consumer behavior: we believe that thanks to enormous online knowledge and power of social media sharing we can make better decision on our own. With more information and diverse opinions available to us consumers, traditional outbound marketing techniques become less influential and powerful. With proliferation of search engines came context advertising with complex re-targeting techniques build on the top of it later on. We do respond to advertising as before — we want information which is relevant to us, even more so, relevant here and now. We want “advertising” where we search for it — this is why inbound marketing is the answer. It does not distracts, “interrupts out lives”.

As case puts it, “direct mail, trade shows, and telemarketing were yielding less new business. In contrast, companies were finding that search engines, blogs, and social media were generating new business at higher rates.”

However, inbound marketing approach is only a part of the story.

As noted earlier, brand still plays a crucial role in connecting you with your customer. Like many companies before them HubSpot don’t want to be a a commodity — they want to build a certain brand around their products. Being committed to inbound marketing for their own company is part of a brand strategy for HubSpot, for instance.

Numbers also do not speak for inbound marketing.

HubSpot attracts a lot of professionals looking for specific information, but conversion rate we observe is very low: customers might be looking for information, but not necessary for the product HubSpot has to offer; they do not want to pay for information and they do not understand how they can benefit from the product (if benefit at all).

Is HubSpot finding and serving the right set of customers?

It seems like HubSpot started with no particular customer segment in mind. As case suggests, “inbound marketers fished for customers, took what they caught, and then figured out who their actual market was”. Then came segmentation, conversion rate analysis and targeting. Their sweet spot “target” customer as of 2009 was as an owner of a small B2B company with no dedicated marketing person in a team who has little to no experience with Web 2.0 (more than 78% of HubSpot customers as of Dec 2008).

What HubSpot has to offer? It’s a SaaS-platform comprised of 3 major parts — Content management system (CMS), marketing analytics and sales tool (CRM). CMS is supposed to help clients create and optimize online content, which would attract prospective customers. Analytics part is designed to help construct the “prospect”-”leads”-”opportunities” customer funnel based on how customer interacted with a content and what information he provided about himself. And CRM is all about closing the sales.

The collective “small B2B” segment can indeed benefit a lot from HubSpot platform as a whole: HubSpot helps them manage the whole process of getting information online, measuring the effect and bringing in sales. In most cases these companies want to go from almost zero customers to some meaningful but relatively small number. For a price of $2500 per year HubSpot can surely move a needle for them.

Other segments might be expecting a more complicated product. As noted, HubSpot did post-segmentation and offered products catered to expectations of two segments (“Owner Ollie” and “Marketer Mary”). There’s a possibility that “Owner Ollie” is not a very big segment: small B2B would settle with key customers or grow and hire a marketing person, churning from HubSpot in either case. As of 2015 average customer subscription revenue reported by the HubSpot is $10607 per year; “professional marketers” pricing option of $9600/year suggests that company became successful by focusing on a “Marketer Mary” segment since.

In recent years HubSpot added “Enterprise” pricing option with additional platform features thrown in, which suggests that finding and serving different customer segments is possible and crucial to HubSpot’s growth.

Given its position as a start-up company, should HubSpot widen its focus to serve any customer that comes its way?

As described above, HubSpot should continue to diversify its portfolio and serve different customers. However, costs of creating different products — different platform versions with different design and set of tools — for different segments should be taken in consideration.

Inbound marketing which remains at the core of HubSpot marketing strategy implies that different funnels — i.e. different marketing channels, approaches and content — should be utilized for different segments. That allows for separate sales to different segments, but calls for additional content curation efforts.

Providing distinct solutions (products) for different segment can be a concern for HubSpot brand as a whole.

Is HubSpot being too stubborn by not doing any outbound marketing?

As some publications suggest, HubSpot is in fact doing a great deal of outbound marketing, namely display and video advertising. Latest HubSpot 8-K reports shows Sales and Marketing expenses at $24.1M and $31.5M with gross profits of $24.2M and 39.4M for years 2014 and 2015 respectively. “Inbound marketing is supposed to drive acquisition costs down. Yet, even with (or perhaps because of) the addition of outbound marketing, HubSpot’s own sales and marketing costs continue to outstrip their gross profits.” This could mean that you need to use the whole marketing toolkit available to you if you want your company to grow.

HubSpot’s conversion rates are pretty low: they landed only 0.03% (!) as paying customers out all the visitors they had in December 2008 (Exhibit 1). Low conversion rates can be attributed to the fact that HubSpot serves business customers, where online conversion is expected to be lower than on a B2C site. But could also mean that inbound marketing however efficient is not very effective.

Based on the data HubSport reports the company grew from 1000 to ~3000 active paying customers during the last 6 years. As case shows, inbound marketing is effective in bringing in leads, but it is not very effective in generating paying customers.

HubSpot to marketing what salesforce.com is to sales—plan of action

This would definitely call for some serious branding efforts which go beyond internet. That means segmentation and targeting, brand promise and brand personality, and, finally, a brand strategy. Inbound marketing being a part of it.

It seems that company’s in fact moving in this direction: they issue new tools under different names and they are active off-line (INBOUND conference). However they do need to learn a lesson or two from SalesForce: inbound marketing alone is not the answer if you want to grow really big.

HubSpot’s clientele was and still is a B2B company representative. Can I segment them further? What set of tools each segment needs? Why would they choose my tools? In inbound marketing enough to drive their decision? How do I reach all the segments?