The rise of social media has radically altered the state of customer communications. Organizations now have unparalleled insight into customer wants, needs  and -- more importantly -- into their perspectives. But consumers have gained a tremendous amount of influence, with social networks literally giving a global voice to every customer. This means that delivering a positive customer experience -- tailored to individual expectations -- is now a critical part of marketing and customer service.

Thus, the market for customer experience management (CXM) technology has grown significantly in importance in the past few years. CMSWire recently had the chance to discuss CXM technology and market trends with Michael Orbach, Managing Director of Cascadia Capital, a boutique investment bank specializing in private and public growth companies in the social and digital media sectors, among other markets. 

CXM -- What Is It?

Orbach began his commentary by briefly providing a firm definition of CXM, which can be a somewhat nebulous term.

“CXM fits into the marketing automation sector,” he said. “In this broader sector, you have solutions that perform functions like marketing surveys, customer polling and web content management. But CXM focuses on how businesses interact with consumers at the point of product.”

Although CXM solutions can be used in virtually any industry, Orbach used the successful coffee retail chain Starbucks as an example to illustrate how CXM actually works.

“Starbucks interacts directly with consumers at the store level and uses feedback to improve corporate performance," he said. "The segment is extremely dynamic, and it all starts with customer interaction.”

However, Orbach cautioned that customer feedback must be meaningful. “You need something more than, ‘The girl behind the counter is pretty’ or ‘This place is dirty,’” he stated. “That doesn’t really tell you much.”

How Does CXM Work?

CXM technology helps companies ensure they collect meaningful customer feedback in a timely manner. “Surveys often have a gamification aspect to create an initiative to participate,” said Orbach. In the case of a retailer like Starbucks, gamification might extend to the back end so local store personnel are also incentivized to encourage customer participation. Technologies such as mobile devices -- along with social networks such as Facebook and Twitter -- can also help organizations obtain instant feedback, which allows for faster response to any customer issues or concerns.

In addition to providing an adequate and timely customer feedback mechanism, CXM solutions also must provide a means of interpreting feedback once it is collected. “There is a complex analytics problem,” said Orbach. “You get a lot of data in a short time. In the case of Starbucks, they need to analyze feedback and then deliver results to the store manager and regional manager, as well as to the corporate entity.”

Orbach said the potential for high volumes of immediate data created by the ubiquity of mobile devices and social media also necessitates a strong analytics component to any CXM solution.

What Is the Market Like?

Considering how important CXM has become in an era of consumer empowerment and instant global communication, it’s not surprising that Orbach sees a very healthy market for CXM

“There is a lot of CXM activity in terms of mergers and acquisitions and financing,” said Orbach. “Oracle acquired RightNow, TPG invested $1 billion in SurveyMonkey, Fizzback was bought by Nice.”

In many cases, Orbach said specialty CXM providers have been purchased at a value seven times or more than their trading revenues at the time of purchase. Other high-profile activity in the space includes Microsoft’s purchase of Yammer and Jive launching an IPO. For large companies that are typically “not innovators,” purchasing a small CXM vendor gives them instant entry into the space.

As a result of all this consolidation activity, Orbach estimates the global CXM technology market has grown from US$ 1 billion four short years ago to US$ 16 billion today. And consolidation should keep occurring for at least a few more years.

“The growth in CXM-related financial activity will continue for a while,” Orbach concluded. “It’s not a trend -- it’s reality.”