There is a crunch in capital funding on the horizon. The fact that many technology companies are waiting years between fundraising rounds is already indicative of this investment slowdown. CEOs I speak with are either feeling the pain themselves as they try to raise capital, or, if they raised money in the last 18 months, are thankful that they raised a round before banks and VCs started tightening their belts.

One reason for this crunch is that the forecast for economic growth in the U.S. isn’t rosy — we’re looking at minimal growth between now and 2018, only about a 2.2 percent annual increase in GDP. This will have a significant impact on corporate profits in the U.S. for the next few years, as public companies face stronger barriers to growth, including rising labor costs and a stronger dollar.

On top of the crunch of available capital, there’s been a dearth of IPOs. This year has seen the fewest companies go public since the last recession. This trend is likely connected to the weak economic forecast, but it also threatens the flow of capital into startups, as investors realize that the cycles for seeing a return on investment are expanding.

Personally, I’m interested to see what this means for the marketing technology industry. There have already been some financial shake-ups in the space this year, the biggest of which was Marketo going private. The company was acquired by Vista for $1.8 billion after weeks of speculation that they were being shopped to SAP and Microsoft. Considering that their market cap was $600 million only a couple of months before, this was a good outcome for them. I’m interested to see how this will change their go-to-market plans, and whether the decision was prompted by a desire to have more financial flexibility than the public markets were affording them. At any rate, being private will allow them to experiment more with their product lines and let them expand into new areas, like the ABM solution they just launched.

This brings me to the real issue at hand: the nearly 4,000 marketing technology vendors that exist today. With the financial parameters I’ve mentioned above, it’s unlikely that all of these companies will continue as individual entities in the next 24 months. What’s more likely is that there will be consolidations in a few areas:

  • Competitive buy-outs: Some of the industries that Scott Brinker outlines in the link above have numerous direct competitors. It’s likely that there will be consolidation, as larger companies buy out their smaller competitors to acquire smart employees and customer logos. However, this may not be the worst thing for some companies. Larger competitors that purchase the smaller players will then have the expanded manpower and capital to be able to create something even better than they had before.
  • Complementary M&A: Many marketing teams have deployed a certain set of solutions that work together in their tech stack. In order to survive, it’s likely that companies with complementary technologies will merge, or smaller companies will be acquired by larger counterparts in order to bolster their financial outcomes and provide customers with a more complete solution. I think this is the primary kind of consolidation that we’ll see over the next 12 months – it’s already begun happening in the sales technology industry, where InsideSales bought C9 to enhance its analytics capabilities.
  • Marketing clouds: Oracle, Adobe, and Salesforce all have strong marketing cloud platforms that provide their customers with an out-of-the-box solution that handles many of the technological requirements a marketing team needs. It’s likely that during this financially turbulent time, they will purchase vendors that will add complementary solutions or capabilities to the platforms they’ve already built. These cloud vendors have already been opening up their APIs and partnering with a number of smaller vendors. It will be an easy step for them to acquire some of the smaller vendors they’re already working with.

The marketing technology space has been hot for a number of years, and we will continue to see incredible new offerings and growth coming out of this space as technology advances the way we’re able to manage, track, and address marketing pain points. However, I don’t think the current state of the industry is sustainable, as there are too many niche vendors, and the coming M&A activity is unavoidable.

However, this can be a good thing for the industry. There are many companies with overlapping functionalities that should be teaming up to build something even bigger and better than what they currently offer marketing professionals. The coming financial challenges will sift out the companies that cannot maintain their position in the martech space. This will be a good thing for marketers in the long-term, as they will have a narrower, but stronger, set of vendor choices when they go shopping for new tools to add to their martech stack.

Shashi Upadhyay is CEO at Lattice Engines. Shashi guides Lattice in delivering the power of prediction to sales and marketing organizations. His unique background as a Cornell data scientist turned McKinsey partner drove the founding of Lattice. Shashi holds an undergraduate degree from the Indian Institute of Technology at Kanpur and a Ph.D. in Physics from Cornell University.

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