Is social media monitoring ‘growing up’? M&A says yes

Social media monitoring

 

This is part of the conclusions drawn from looking at M&A in the space. Any and every M&A strategy seems to be in play, as the market for SMMs is undergoing rapid expansion. 451 Research projects the market for SMMs to more than double and reach $2.5 billion by 2019.

I think that figure could well be below what we will actually see.

One reason is how new technologies are further increasing SMM’s capabilities and market offerings.

“A defining characteristic of the social media monitoring industry is the short path from research labs to commercial products. When innovations in the labs add value, there is a quick uptake of what could be called immature technology,” Nathan Gilliatt, Principal of Social Target, a social media intelligence company, says.

Artificial intelligence, conversation bots and deep machine learning are areas where this is currently happening, and the technologies’ potential impact is huge.

That includes in relation to market growth.

Wild West of M&A strategies

Social media monitoring as an industry is about 10 years old. The exact borders of what constitutes an SMM are blurry, but there can be little doubt that it is a well-served area.

Social Target affiliate Social Media Analysis maintains a company directory for the industry, which counts 600 companies. Business consultancy Ideaya lists almost 250 companies in its 2015 Social Media Monitoring Tools and Services report.   

The main selling points include the ability to monitor social media activity connected to yourself as a person, company or organisation and working as a platform for interacting with users / customers on those platforms.

When looking at M&A within SMM, it is initially hard to identify specific, dominating trends.

Acquisitions are used as a tool for expanding SMM’s service portfolios, for acqui-hiring, consolidating national and regional markets and gaining new technological capabilities, just to mention a few strategies.

Social Media Analysis track M&A in the space. There were 32 deals in 2015, down slightly compared to the 39 in 2014. However, the two last years have seen more deal activity than any previous year before.

The acquisitions sometimes happen in a slightly gung-ho fashion.

“Currently the only general trend I see is that big eats small. Often the big companies lack a proper strategy for exactly what value is supposed to be created apart from industrialization of internal processes. This is not going to be a competitive strategy in the long run, since the real need is often for innovation in market proposition,” Mattias Östmar, Computational Media and Communications Analyst, says.

Consolidation beneath the surface

The wide variety of M&A strategies in play is similar to scenarios that have previously played out in other, related industries.

I think it slightly obscures a wider M&A trend.

As an industry, and its central technologies and solutions, mature and the market size grows, the industry changes and becomes more competitive.

Companies that were comfortably ensconced in a specific geographic area or offering a unique technology suddenly finds itself under siege from newcomers. Newcomers that often use M&A to match – or surpass - the incumbent’s portfolio of services.

I think that this is part of what we are seeing in relation to SMMs, which – if there are 600 companies in a billion dollar market - could also be said to be a bit overpopulated.

There is, in other words, a general trend of consolidation in the SMM space.

As the market continues to expand, and the industry continues to mature, this consolidation will likely slow. Large players will establish themselves – especially in the lucrative large-scale enterprise segment.

Looking at many SMMs today, their portfolios of services generally look very similar.

Increased competition is also a reason why SMM companies are hunting for technology that sets them apart from the competition and are therefore willing to rapidly turn new technology into new services.

Specific consolidation emerging

At BDO, we continuously follow and analyse the market for SMM’s. We also track M&A in the space.

We are seeing a couple of specific kinds of consolidation that I would like to highlight.

One is M&A driven by the unique regional and national features that SMM’s need to be aware of. These include things like language, slang, consumer culture, general culture of communication as well as specific social media use and preferences.

Companies in the space are very aware of this, and one strategy for expansion / consolidation of markets has been to acquire companies in specific countries or regions, which have the needed expertise.

Another driver is new technologies that power the new offerings mentioned by Mattias Östmar. The strategy behind it is often linked to trying to differentiate product portfolios, compared to competitors.

One such area is image recognition.

Image recognition software lets a company gather important data from pictures. For example, analysing what brands people wear in pictures on social media lets a company target relevant customers with campaigns and commercials. Another use has been on measuring the exposure and social media activity generated by companies through sponsoring big events.

In both cases, emerging technologies, like artificial intelligence, are helping to expand both service portfolios and market opportunities. This is something that I will look closer at in a separate article.