Sprout Social: A Premium Product in a Highly Competitive, Commoditized Market

We expect Sprout Social’s business to continue growing due to its leadership position in this expanding market. However, we believe the company’s long-term upside is limited for the reasons above.

Sprout Social Overview

Table of Contents

• Sprout Social Company Highlights
• Sprout Social Product Overview
• Sprout Social Customer Segments & User Overview
• Sprout Social Go-to-Market Overview
• Sprout Social Competitive Overview
• Conclusion

Sprout Social Company Highlights

Sprout Social Product Overview

Sprout Social is an all-in-one social media management platform used by over 23,000 organizations to manage Facebook, Instagram, Pinterest, Twitter and other social media channels. The platform comes with numerous features for customers to publish social media content, engage their audiences, track social performance, and streamline internal workflows.

Why the Product Is Needed

Today, most companies have a presence on several social media channels. Managing these channels individually is time-consuming and ineffective. In addition, the social media platforms only provide basic feature sets. For example, the analytics dashboards inside of Facebook, Instagram and Twitter are extremely limited and difficult to navigate. Sprout Social allows companies to manage all social media channels from a single platform, which includes performance-enhancing and time-saving features.

Sprout Social Benefits

Sprout Social has the following benefits:

Primary Sprout Social Use Cases

Sprout Social's primary use cases are social media scheduling, audience engagement, analytics & social listening.

Social Media Scheduling

Today, most companies have multiple social media profiles. For each, the company is expected to regularly share relevant, on-brand content. Logging into each platform separately to post content in real time does not scale. Instead, social media managers can use Sprout Social to schedule several posts in advance across all social media platforms. A tool like Sprout Social can save a social media manager 5-10 hours per week in scheduling.

Audience Engagement

A lot of conversations happen on social media. Customers expect companies to respond quickly to direct messages and brand mentions. Without Sprout Social, managing these conversations is unwieldy. Sprout Social provides a single inbox for all inbound messages, which makes it easy for marketing or customer support teams to respond to all customers.

Analytics

Each social media platform has its own metrics and analytics dashboard. Because these analytics dashboards are not the core focus for companies like Facebook and Pinterest, they lack critical data and features. Tools like Sprout Social pull customer data using social media platforms' APIs and organize it in an easy-to-use dashboard with much more functionality than is found in the platforms. This saves significant time for marketing teams that monitor KPIs and produce executive reports.

Social Listening

Social Listening allows Sprout Social customers to see in what people are saying about their brands and related keywords in real time. It lets customers monitor social media mentions and find posts containing specified keywords. As a result, its possible to monitor overall customer sentiment, identify brand crises before they get out of hand, and find trending conversations to participate in.

Common Pain Points

Sprout Social is a comprehensive, intuitively designed tool. With that said, customers experience a few common pain points:

Key Product Features

Sprout Social is an all-in-one platform with a rich set of features. Here's a table of the major Sprout Social features:

Product Integrations

Sprout Social has integrations with all the major social media platforms:

Sprout Social Customer Segments & User Overview

Sprout Social markets and sells to customers of all sizes. The day-to-day users of the tool varies quite a bit across customer segments.

Sprout Social Customer Segments

In it's S-1, Sprout Social identifies three customer segments. For this analysis, we add micro-businesses. The four Sprout Social customer segments are:

While Sprout Social has customers in all segments, we believe that the majority of Sprout Social customers are SMBs and smaller Mid-Market businesses. This assumption is based upon market research, our view of the product's competitive positioning, and the low percentage of Sprout customers (6-7%) that spend more than $10,000 per year according to the company's S-1 filing.

Sprout Social Power Users

Companies within each customer segment typically have different power users.

Sprout Social Go-to-Market Overview

Sprout Social positions its product as a market leader with a complete set of features for companies of all sizes to manage their social media channels.

Plans & Pricing

Sprout Social offers three plans priced from $99-$250 per user per month, as well as an enterprise plan:

Buying Center

Sprout Social requires little-to-no engineering resources to implement. As a result, the buying center is not as engineering-heavy as other software products. Below is an illustrative buying center for each customer segment. In many companies, it is likely that the customer support team is significantly involved.

Building a Business Case for Purchasing Sprout Social

The decision maker in buying centers must create a compelling business case for the purchase of a new tool. This typically involves a combination of cost-savings, increased sales, and mitigated risk. The typical business case for Sprout Social is based mostly on cost-savings. Here's why:

Fortunately, it is not difficult to build a business case for Sprout Social based on cost alone. If the all-in cost of a social media manager is $60,000 per year and the person works a 40-hour week, this is $31.25 per hour. Sprout Social (or an alternative tool) only needs to save the person four hours per week to justify the expense.

Sales Strategy

Sprout Social shared in its S-1 that it executes against "self-serve, inside and field sales strategies." We believe that most Sprout customers register through the self-serve channel.

The company has nearly 300 sales and marketing employees. Sprout will have to continue investing in its sales team to compete in the enterprise market.

Sprout Social Competitive Overview

Social media management is a very competitive market.

As a result, we expect that most social media management software customers will migrate to the cheapest product with sufficient features.

Sprout Social Top Competitors by Customer Segment

Sprout Social has the highest volume of customers in the SMB and mid-market segments. However, it also has customers in the micro-business and enterprise segments. Here are its top competitors by segment.

Competitive Landscape by Pricing & Solution Level

Like most software, basic social media management solutions are cheaper than enterprise solutions. The market is highly competitive – several less popular entry level tools are not included in the graph below.

Social Media Management Software by Price and Solution Level

Illustrative Annual Cost: Entry Level, Mid-Market, & Medium Agency Customers

By comparing the annual cost of different social media management solutions, it's clear that Sprout Social is positioned as a premium product. All prices below are annualized with a month-to-month contract.

Annual Cost of Social Media Management Software by Customer Segment

Best Social Media Management Solution by Customer Segment

We expect that most social media management software customers will migrate to the cheapest product with sufficient features.

Conclusion

As product experts, we're huge fans of Sprout Social. The Sprout Social team has succeeded in packing numerous, high-value features into an easy-to-navigate software tool.

At the same time, the social media software market is highly competitive with low switching costs. As a result, we are not optimistic that Sprout Social can command a 3-4x price premium from a high percentage of the market over the long-term.

Additionally, the company will have to take action to stay competitive in the low-end and enterprise markets. Maintaining a leadership position in the low-end of the market will require a new low-cost plan. Expansion into the enterprise segment will require Sprout Social to invest heavily in R&D and enterprise sales.

Overall, we expect Sprout Social’s business to continue growing due to its leadership position in this expanding market. However, we believe the company’s long-term upside is limited for the reasons above.