Sprout Social: A Premium Product in a Highly Competitive, Commoditized Market
- Sprout Social is a premium product in a highly competitive, commoditized market.
- For most customers, it's priced at 2-4x the cost of Hootsuite, its closest competitor.
- While social media management software creates real value for customers, the only measurable value creation is cost savings, which limits the amount most companies will invest.
- Combined with minimal switching costs, this means customers will migrate to the cheapest product with sufficient features.
- Sprout Social faces strong down-market competition from newcomers like Agorapulse, and up-market competition from established enterprise solutions such as Sprinklr & Khoros.
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
|Customer Segments & Users|
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
Sprout Social Company Highlights
- Founded: 2010
- Employees: 610
- Customer count: 23,000
- Customer segments: SMB, Mid-Market, Enterprise; B2C/B2B companies & Marketing Agencies
- Primary competitors: Hootsuite, Buffer, Sprinklr
- Investors: Lightbank, New Enterprise Associates, Goldman Sachs & Future Fund
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:
- Saves significant time for social media managers responsible for scheduling posts & reporting on analytics
- Saves time for customer support teams responding to customer tickets received through social media
- Improves performance of social media channels through increased post volume and more consistent engagement
- Adds data-driven rigor to social media channel management
- Easier for brand to build relationships with customers through social media
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.
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.
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 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:
- Per user & per profile pricing is exorbitant, which leads to companies under-utilizing the tool or sharing log-ins.
- Agencies report having to disconnect & connect profiles to manage pages & run reports.
- Collaboration with larger teams is difficult due to lack of project management & internal communication features.
- Scheduling tool cannot handle rich user-generated content.
- Some users prefer Hootsuite's multiple feed design.
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:
Sprout Social has integrations with all the major social media platforms:
- Google (Google My Business)
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:
- Micro-businesses (less than 10 FTEs)
- SMBs (10-49 FTEs)
- Mid-Market (50-999 FTEs)
- Enterprise (1000+ FTEs)
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.
|Customer Segment||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:
- Standard: $99 per user per month for up to 5 social profiles.
- Professional: $149 per user per month for up to 10 social profiles. Includes features like scheduling, paid social reports, and a helpdesk integration.
- Advanced: $249 per user per month for up to 10 social profiles. Includes features like message spike alerts and a content library.
- Enterprise: Custom priced plans come with advanced social listening, as well as implementation and consulting services.
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.
|Customer Segment||Decision Maker||Power User||Budget Owner||Approver||Gatekeeper|
|SMBs||Social Media Manager||Social Media Manager||VP Marketing||VP Marketing||CFO, CTO|
|Mid-Market||Marketing Director||Social Media Manager||VP Marketing||CMO||CFO, CTO|
|Enterprise||Marketing Director||Social Media Specialist||Marketing Director||VP Marketing||CMO, CFO, CTO|
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:
- Compared to not having a tool, Sprout Social saves a considerable amount of time for marketing teams. Between streamlined scheduling and reporting, time saved can be as high as 20 hours per week.
- Sprout Social also saves time for customer support teams by streamlining social media engagement.
- Sprout Social definitely leads to improved brand reputation, engagement, leads, & sales through social media channels. However, social media channels are harder to AB test and typically do not drive as much direct sales as other marketing channels. As a result, the value of improved performance on social media channels is hard to quantify.
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.
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.
- There are numerous software vendors at different stages of maturity.
- There are low switching costs for this category of software due to the ease of implementation.
- Most customers measure the ROI of Sprout Social in terms of cost savings, not sales growth.
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.
|Customer Segment||Top Competitors|
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
|Company||SMB||Mid-Market Business||Medium Agency|
|User & Profile Need||1 user, 1 profile||5 users, 5 profiles||5 users, 20 profiles|
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.
|Customer Segment||Best Solution for Segment|
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.