Despite a lot of chatter around how brands need to boost up the martech stack to be able to create marketing strategies around first-party data, it seems only a handful of ad-tech and martech start-ups have managed to get funds Investment in martech and adtech start-ups slumped by 94.2% to $45.2 million between January till December 20, 2023 from $769.5 million in CY2022, reveals data from Tracxn, a start-up data platform “In 2023, overall economic uncertainty led to a downturn in investments across sectors. Martech, encompassing 19 categories, experienced a substantial decline from $13.2 billion in Q1 to $3.1 billion in Q2 FY2023, respectively. This decline was influenced by a $10 billion investment in ChatGPT in Q1 and a $1.3 billion investment in Inflection AI in Q2,” Mitesh Shah, co-founder, Inflection Point Ventures, said.
According to CabinetM’s Q3, CY 2023 MarTech Innovation Report, new product announcements saw a 49% decline compared to the previous quarter, while feature announcements decreased by 22%. Acquisitions increased by 19%, totaling 31 across 22 categories in the same period.
AI plays catch-up
Experts believe that one of the key reasons behind the decline in investment is the rise of generative AI products, particularly ChatGPT and chatbots, which played a significant role. In Q2, FY 23, 128 new AI-related products were announced with AI companies securing most of the investment at $2.3 billion (75% of total funding), reveals data from Cabinet M. According to Shah, the emergence of generative AI tools has revolutionised marketing practices, offering the potential to streamline tasks and enhance creativity.
Rapid technological challenges have remained true for this industry. Besides the demise of SMS as a way of communication, with now being replaced by WhatsApp, and the phase-out of third-party cookies by Google, add to that the incorporating changes as per the new Digital Personal Data Protection Act 2023, the industry has in the next two to three years has to go through a galore of changes. , “Companies face challenges due to market saturation, rapid technological evolution, and the complexity of the technology. These factors make it difficult for companies to distinguish themselves and for investors to fully comprehend the offered solutions,” Kalpit Jain, Group CEO, Netcore Cloud, said.
From boom to bust?
Furthermore, data from Traxn highlighted that for the period January to December 20, 2023, the majority of martech companies secured Seed funding mainly from institutional investors. The total number of funding rounds was just 23, a significant decrease compared to the 76 rounds recorded in 2022. “Funding reductions in martech stem from various factors. Successful companies securing substantial capital in 2021 and early 2022 may not require additional funds in 2023. The overall shift in the venture ecosystem and declining valuations also contributed to decreased funding needs. Despite market fluctuations, martech remains an attractive category for investors, given its essential role in enhancing marketing efficiency and profitability across enterprises, making it a resilient investment choice,” Raviteja Dodda, CEO and co-founder, MoEngage, said.
Focus on driving profitability as opposed to creating a topline lead business is yet another reason behind only a handful of start-ups being able to raise funds.
Bang for the buck?
One of the biggest questions that looms over the marketing industry is how well is it prepared to drive its strategy in the first-party data world. This would mean companies would have to invest in building capabilities or opting for martech firms which come with the capability to understand key data points such as purchase history, customers’ purchase patterns, browsing history, link clicks, and demography, among others “In today’s martech landscape, marketers need to have the right tools to engage customers and keep up with the latest digital trends. By retargeting and remarketing, we reach out to people who have been in contact with your ads but have not converted into customers. Building first-party data drives that conversion to the bottom of the funnel. As they are already familiar with you, you have more chances to get customers that are already hot and potentially a push away,” Raj Swaminathan, senior director- revenues and new initiatives, Globale Media, an ad tech firm focussed on re-engagement, said.
Not to mention a marketer’s ability to maximise her existing marTech stacks depends on several critical factors including harnessing data for insights and data-driven decisions. For instance, as consumers increasingly desire a ‘my personal store’ experience, the transition to crafting hyper-personalised interactions using Gen-AI tools should evolve seamlessly and organically to meet these expectations. “Additionally, allocating the appropriate budget and resources is crucial to support and enhance these continual efforts of marketers,” Jain expressed.