14 Aug 9-509-049THOMAS STEENBURGHJILL AVERYNASEEM DAHODHubSpot: Inbound Marketing and W

9-509-049THOMAS STEENBURGHJILL AVERYNASEEM DAHODHubSpot: Inbound Marketing and Web 2.0None of [the old rules of marketing] are true anymore. The Web has transformed the rules, and you musttransform your marketing to make the most of the Web-enabled marketplace of ideas.— David Meerman Scott, author of The New Rules of Marketing and PRBusiness was good at HubSpot. Founders Brian Halligan and Dharmesh Shah were thrilled withthe progress their young company had made in the two years since they began their journey toconvince corporate America that the rules of marketing had changed. To be successful in themarketplace, HubSpot needed to be much more than just a software company. Its founders had tobecome evangelists, preaching a new way of doing business that would fundamentally change howmarketers reached their customers. To their great pleasure, Halligan and Shah were finding a willingaudience for their ideas. HubSpot was now considered a thought leader in the Web 2.0 space, coiningthe term “inbound marketing” to describe marketing strategies and practices that pulled prospectivecustomers toward a business and its products, through the use of Web 2.0 tools and applications likeblogging, search engine optimization, and social media.Halligan and Shah realized that their business was at a crucial juncture. They had just reached thenoteworthy milestone of 1,000 customers, attaining this level of critical mass by practicing what theypreached. HubSpot had built its business by turning its back on traditional marketing methods andwas solely using innovative inbound techniques to acquire customers. Looking ahead, the founderswanted to accelerate their growth rate and increase profitability. Ironically, they were grappling withmany of the same issues that their customers faced when implementing inbound marketing practices.Halligan and Shah realized that they would need to work through these issues in order to achievetheir goals for the company. First, they would need to decide which customers to serve, pulling thebest opportunities from the diverse pool of customers who were contacting them. Second, they wouldneed to make some decisions about their current pricing model to entice new customers to thecompany and to maximize the profitability of existing customers. Third, they would need to assesswhether they could achieve enough scale through inbound marketing efforts, or whether theyneeded to supplement their inbound programs with traditional, interruptive outbound programs.This was more than a test of HubSpot as a company; it was a test of the inbound marketing businessphilosophy. If HubSpot couldn’t scale its own business using inbound marketing, then how could itconvince its customers that inbound marketing would work for them?________________________________________________________________________________________________________________Professor Thomas Steenburgh and Professor Jill Avery (Simmons School of Management) and Naseem Dahod (MBA 2009) prepared this case.HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, orillustrations of effective or ineffective management.Copyright © 2009, 2010, 2011 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not bedigitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.Authorized for use only by Leane Culver in Marketing decisions for managers at Nova Southeastern University from Jan 05, 2016 to Feb 29, 2016.Use outside these parameters is a copyright violation.REV: JANUARY 24, 2011509-049HubSpot: Inbound Marketing and Web 2.0The two HubSpot founders met at the Massachusetts Institute of Technology (MIT). As early andeager students of Web 2.0, Halligan and Shah recognized the transformative power the Internetpossessed for changing the way small businesses operated. After graduation, Halligan joinedLongworth Venture Partners, a venture capital firm with an expertise in technology. As he workedwith start-up companies, he recognized an issue with which they all struggled—how to harness theInternet to build a business. Halligan, like many of his clients, came from a traditional sales andmarketing background, working for the high-tech companies Groove Networks and ParametricTechnology Corporation. However, at Longworth, he began to realize that the traditional marketingand sales methods he had previously employed were losing their effectiveness in the new Web 2.0world. Shah also grew up in the technology sector, holding a number of management anddevelopment positions in technology companies. Prior to forming HubSpot, Shah was founder andchief executive officer (CEO) of Pyramid Digital Solutions, an enterprise software company and thewinner of three Inc. 500 awards, which was acquired by SunGard Data Systems. Shah also authoredOnStartups.com, a top-ranking blog and online community for entrepreneurs.Halligan and Shah founded HubSpot in 2006. With Halligan’s marketing, sales, and venturecapital expertise and Shah’s technological knowledge and experience as a successful entrepreneur,the two were a winning combination. Halligan became the CEO and served as HubSpot’sevangelizing front man. Shah became the chief software architect and focused on productdevelopment. On the strength of their business plan, Halligan and Shah attracted premier financialpartners. After initially self-funding the business, Halligan and Shah raised $5 million from GeneralCatalyst, a Cambridge-based venture capital firm, in 2007. Less than a year later, the team raised anadditional $12 million from Matrix Partners, a venture capital firm with offices in Boston and SiliconValley. For a young start-up, HubSpot had a solid financial foundation.Halligan and Shah strove to create a distinct culture at HubSpot. They headquartered thecompany near MIT in Cambridge, Massachusetts, a hotbed of activity for high-tech start-ups, andthey staffed up with young, eager MIT graduates who were immersed in Web 2.0 culture. TheHubSpot office buzzed with energy. The sleek, minimalist architecture contrasted with the animatedand passionate young team, who craved a fast pace. The team battled over business with the samegusto that they battled over the last slice of pizza.Inbound MarketingHubSpot built software products that helped companies execute inbound marketing programs tosupplement or replace their traditional outbound programs. In the current environment, outboundmarketing’s effectiveness was diminishing as consumers, feeling bombarded by the daily deluge ofcommercial messages, began tuning out. Increasingly, direct mail, trade shows, and telemarketingwere yielding less new business. In contrast, companies were finding that search engines, blogs, andsocial media were generating new business at higher rates. These communication programs weremore consistent with the inbound marketing approach. As HubSpot explained on its corporate blog:Outbound marketing is about pulling people away from their dinner, or family, or TV andinterrupting their lives. Do you really think you are important or interesting enough for themto want to talk to you instead of doing whatever they were doing when you interrupted them?They have not invited you into their home, and they certainly do not happen to enjoy beinginterrupted. Instead of spending your whole day interrupting people and hoping they payattention, try setting up a blog and writing interesting content, so that people want to hearwhat you have to say and come find you when they’re interested in your products.2Authorized for use only by Leane Culver in Marketing decisions for managers at Nova Southeastern University from Jan 05, 2016 to Feb 29, 2016.Use outside these parameters is a copyright violation.Founding HubSpot509-049Inbound marketing is a collection of marketing strategies and techniques focused on pullingrelevant prospects and customers toward a business and its products. Inbound marketers offereduseful information, tools, and resources designed to attract prospective customers to the companyduring the time when prospects were actively engaged in a search for a particular product or service.The informative content that the inbound marketer produced was used to entice prospects to interactwith the company and begin a relationship with it. As HubSpot’s vice president of marketing MikeVolpe explained, “Instead of interrupting people that don’t care, why not help those who want whatyou’re offering to find you? We have found that building interesting tools is a more effectivemarketing tool than doing advertising. Things like this get people curious and draw them in.” Thisnew approach to marketing complemented the way consumers were actually making purchasingdecisions: by using Internet search, online blogs, and social networking sites like Facebook andTwitter to learn about products and services before they bought them. HubSpot preached this newway of marketing:Instead of interrupting people with television ads, inbound marketers create videos thatpotential customers want to see. Instead of buying display ads in print publications, theycreate their own blog that people subscribe to and look forward to reading. Instead of coldcalling, they create useful content and tools so that people call them looking for moreinformation. Instead of driving their message into a crowd over and over again like asledgehammer, they attract highly qualified customers to their business like a magnet.To be maximized, inbound marketing required three distinct skills. The first was the ability towrite compelling content that would attract customers to the business. According to HubSpot, thiscontent had to be useful to customers and not just a promotional message:Whole Foods publishes recipes, profiles of their vendors, forums and a lot more. Across allof these mediums they use the right tone. Their content is useful first, and promotional second,not the other way around. This means that their customers find them when they want to knowhow to make oatmeal cookies, when they want to learn more about where their apples comefrom or when they want to watch a cooking show.The second skill was the ability to distribute that content so that it was easily found by prospectivecustomers using search engines, which required a sophisticated understanding of search engineoptimization. The third was the ability to attract and engage a community of followers whointeracted with the content, added their thoughts to it in an ongoing dialogue, and disseminated it toothers. Firms that nurtured an active audience gained credibility in the marketplace, because it wasthe support of an audience that conferred expertise in a particular area.In contrast to traditional outbound marketing, in which a business’s message was pushed to amass audience that contained many who were not in the market for the product, inbound marketingwas designed to create content that pulled in only those customers who were interested in theproduct. This created marketing efficiencies. According to Mark Roberge, vice president of sales forHubSpot, inbound marketing blended marketing and sales: “One of our salespeople calls it‘smarketing’—we really blend it together so much more.” Volpe explained this concept further in aninterview with RainToday.com: “Our salespeople hear things like ‘Oh, HubSpot. I’ve been meaningto talk to you guys,’ or ‘Oh, I just watched your webinar yesterday. I had a couple of questions.’ Soit’s the opposite of a cold call. It’s like getting a call from one of your friends because we’ve alreadybuilt a relationship. We really don’t do any cold calling.”Volpe estimated that a lead generated using inbound marketing cost five to seven times less thana lead generated by outbound marketing. Businesses had increased the portion of their marketingbudgets dedicated to inbound marketing, particularly in business-to-business (B2B) industries, where3Authorized for use only by Leane Culver in Marketing decisions for managers at Nova Southeastern University from Jan 05, 2016 to Feb 29, 2016.Use outside these parameters is a copyright violation.HubSpot: Inbound Marketing and Web 2.0HubSpot: Inbound Marketing and Web 2.037% of the marketing budget was spent on inbound marketing and 30% was spent on outboundmarketing. Given its lower costs and increased efficiencies, inbound marketing allowed smallbusinesses to compete with larger firms in a way that had never been possible in the pre-Internetworld dominated by mass media. Small businesses had realized that inbound marketing helped levelthe playing field and were more aggressively allocating their budgets to inbound marketingtechniques.The HubSpot ProductEmbodying the philosophy of Web 2.0, the HubSpot Web-based software product was a completeinbound marketing system, designed to help businesses attract prospects, qualify their potential, andconvert them into paying customers. The goal was to enable a firm to generate more qualified leads,to generate those leads more efficiently, and to convert them into sales. HubSpot’s user-friendlyproduct allowed even those who were not familiar with Web 2.0 to build and manage a thrivinginbound marketing program. The software included templates to design content for websites, blogs,and social networking sites; tools to help customers optimize their exposure on the Internet; tools tohelp customers solicit and engage the right customers; and tools to analyze their results.Content DesignHubSpot offered its customers a content management system (CMS), software that made creatingand editing online content easy. Further, HubSpot’s CMS allowed small businesses to addinteractivity, the hallmark of Web 2.0, to their old “brochureware” websites. Predesigned templateshelped customers create their corporate websites, providing guidelines for creating Web pages, blogs,online forms, and landing pages. The templates were designed to be turnkey so that customerswithout HTML programming knowledge could easily publish content online and have that contentbe search-engine-friendly. HubSpot’s Keyword Grader scanned the Internet and returned an analysisof the keywords relevant to the company’s business that were driving online search results. Includingthese keywords in their content, companies could improve their organic search results, making itmore likely that potential customers would find their content. Steve Douglas, president and creativedirector for The Logo Factory, explained how search engine optimization (SEO) worked forcustomers:I had been doing SEO all wrong when I came to HubSpot, trying to optimize my site for thewrong keywords. With HubSpot, I’m now able to see the words people are actually using tofind my products and services. I’m able to see which words have the greatest search volume insearch engines, helping me choose the right words to optimize my site. HubSpot has helpedme be a lot smarter about how I optimize my site and track my progress. (HubSpot, CustomerQuotes, 2009)Exposure OptimizationThe HubSpot product contained a series of tools designed to help customers make their publishedcontent more visible on the Internet. These included SEO tools that graded the firm’s content basedon its likelihood to be included early in the search results that were returned when a potentialcustomer searched through Google, Yahoo, or other search engines. The SEO tools graded thecompany’s website, its key landing pages, and its blogs, and made suggestions for improving them toincrease exposure. HubSpot’s Link Grader analyzed the links a firm had on its website to see whichones were generating the most inbound traffic. The Link Grader also analyzed links to competitors’websites to see which ones were driving customers to them instead of to the firm. HubSpot customerNoel Huelsenbeck, president of the telecom expense management software firm Vocio, gushed:4Authorized for use only by Leane Culver in Marketing decisions for managers at Nova Southeastern University from Jan 05, 2016 to Feb 29, 2016.Use outside these parameters is a copyright violation.509-049509-049I love the HubSpot software. With just a little page optimization I’ve already gotten greatresults and my traffic and keyword rankings continue to improve steadily. I’m about to sign adeal from a company that typed in one of our top keywords for which we are now the #1organic result, thanks to HubSpot! That one deal will pay for all the money spent withHubSpot three times over. On top of that, the support is incredible. The HubSpot team haddedicated their time, even at off hours, to get my site up and optimized. The application isgreat, but it’s the people that make this company stellar. (HubSpot, Customer Quotes, 2009)Lead Tracking and IntelligenceThe HubSpot software had marketing intelligence analytics for tracking the interactions customershad with the firm’s content. This enabled firms to analyze which of their inbound marketingprograms were working to generate qualified leads, by telling them where potential customers werecoming from and how they were engaging with the company. Firms could generate an interactionprofile for each customer by tracking the pages they viewed and the types of forms they completed.Firms could use this information to qualify prospective customers according to their potential. Forexample, HubSpot itself used the lead tracking software to construct its sales funnel (see Exhibit 1).Information about each customer allowed HubSpot to qualify some of its visitors as “prospects,” then“leads,” and then “opportunities” based on the behaviors they exhibited while on the site.Team Jodi, a real estate firm, had seen a significant increase in business, claimed owner Jodi Bakst:The traffic to my site increased by 97% in November, by an additional 62% in December, byan additional 31% in January and we’re on track for another big increase in February. In realestate, the absolute number of leads is way down. But what I’m looking at is the percentage ofgood leads. The percentage of good leads is actually going up right now and I attribute it to allof the hard work I am doing, 90% of which I learned from HubSpot. (HubSpot, CustomerQuotes, 2009)HubSpot used a software-as-a-service (SaaS) pricing strategy for its product. Rather than paying alarge up-front fee, customers paid a smaller monthly fee (between $250 and $500), much like a gymmembership. HubSpot’s low cost and ease of use for Web 2.0 novices were its competitiveadvantages. Volpe explained the difference between HubSpot and one of its competitors, Eloqua:Eloqua is really expensive and complicated. It is awesome for larger enterprises. Everyonewe talk to that uses Eloqua says, “If you can get it to work, it’s super powerful, but you have togive up your firstborn child to pay for it and you need to hire a full-time employee to run itbecause they have all these scripting languages and all this really, really difficult stuff.”HubSpot’s customers were required to purchase a $500 onboarding package, which bought themfour hours of HubSpot consulting. During this time, consultants helped customers through a processdesigned to kickstart their inbound marketing program: (1) setting up the software, (2) using the SEOfeatures to get found, (3) converting prospects to leads to customers, (4) analyzing their results, and(5) institutionalizing the process so that it could be repeated. Once the original consulting hours weredepleted, customers were on their own, unless they purchased additional consulting time at a cost of$500 for four hours. Customers were also given access to Success.HubSpot, which provided Internetmarketing training and resources. Halligan described the HubSpot product as much more than apiece of software; it was a system of tools and training (see Exhibit 2):HubSpot is a complete inbound marketing system that will help you get found by moreprospects and convert more of them into paying customers. We use the word “system”intentionally. HubSpot is more than software. We have a complete inbound marketing5Authorized for use only by Leane Culver in Marketing decisions for managers at Nova Southeastern University from Jan 05, 2016 to Feb 29, 2016.Use outside these parameters is a copyright violation.HubSpot: Inbound Marketing and Web 2.0HubSpot: Inbound Marketing and Web 2.0methodology comprised of best practice guides, training materials, software tools, acommunity and support. Plus, HubSpot is hosted on demand software, meaning that youdon’t need any IT staff to get started. We don’t just give you a new marketing tool. We teachyou to be an expert in how to use it.HubSpot’s products had garnered acclaim that drove buzz for the company. In 2008, HubSpotreceived the W3 Silver Winner Award in branding and marketing and the MITX Impact Award forinnovative business strategy. HubSpot’s Website Grader was an official honoree for the “BestWebsites in IT Hardware/Software” category in the 12th Annual Webby Awards. In February 2009,HubSpot was named in the top 10 of PromotionWorld’s “Best SEO Companies” ranking.HubSpot’s MarketplaceHalligan and Shah envisioned that HubSpot would become the market leader of the industryspace carved out by software companies and consulting firms focused on helping businesses fill andmanage their customer funnel. The term “customer funnel” metaphorically described the criticalprocesses firms undertook to attract prospective customers to their business; qualify those prospectsto determine which ones had the highest probability of converting to paying customers; and, finally,close the sale. The customer funnel was divided into three main activity areas. Most of HubSpot’scompetitors chose to play in only one of those areas, although some offered integrated services thatspanned all three (see Exhibits 3 and 4).Creating TrafficThe goal in the top part of the customer funnel was to attract large numbers of prospectivecustomers. Firms used marketing programs to capture attention and interest to feed prospects intothe funnel. Firms offered information, contests/sweepstakes, or free consulting on their websites toentice prospective customers. To receive the information or to participate in a contest, prospects filledout an online form that asked them for their contact information and other valuable information, suchas budget available for the purchase and estimated purchase timing. HubSpot’s competitors in thisarea included consultants who built online advertising, websites, blogs, and a social media presencefor companies, as well as software companies with SEO products that helped companies maximizetheir likelihood of getting found by consumers using search engines.Analyzing and Qualifying LeadsThe goal in the middle of the customer funnel was to assess the potential of different prospectivecustomers brought in by the lead-generation programs. Selling a customer required an investment ofhuman and financial resources, and firms wanted to ensure that they were targeting these resourcesto prospects who were most likely to convert to customers. Many prospects brought in through leadgeneration had a low probability of becoming customers, and firms could save substantial money ifthey could identify those customers early and weed them out. The lead-qualification process focusedon finding customers with potential to pass along to the sales force. HubSpot’s competitors in thisarea included consultants and software companies with proprietary methods for rating and rankingprospects based on historical analysis of the company’s current customers and conversion rates.Closing the SaleThe goal in the bottom of the customer funnel was to convert prospects into customers. Oneplayer, Salesforce.com, dominated this segment, providing easy-to-use customizable software that6Authorized for use only by Leane Culver in Marketing decisions for managers at Nova Southeastern University from Jan 05, 2016 to Feb 29, 2016.Use outside these parameters is a copyright violation.509-049HubSpot: Inbound Marketing and Web 2.0509-049Halligan and Shah hoped that HubSpot could dominate the lead-generation and analysis/qualification stages of the customer funnel, just as Salesforce.com dominated the stage devoted toclosing the sale. They claimed, “HubSpot could be to marketing what Salesforce.com is to sales.”Filling HubSpot’s Customer FunnelBy 2009, HubSpot had 1,000 very diverse customers. Practicing what it preach…

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