Tuesday, June 04, 2013

My Take: Salesforce Acquires ExactTarget, Continues Marketing Automation Industry Consolidation

I've been in meetings all day and just emerged to hear that Salesforce.com purchased ExactTarget.  Having a had a few moments to digest the news (and some lunch), here are some thoughts:

- Good move for Salesforce.  They have been lacking large-scale email capability, which all types of sales and marketing departments require.  So this fills a gap in their core product offerings.  They also get a toe-hold in B2C marketing and in marketing automation (via ExactTarget's Pardot technology).  I'd guess those were bonuses rather than primary drivers of the deal.  Frankly, of the two, entry into B2C marketing seems more important because it's such a large business and Salesforce.com needs to know where it will get its next several billion dollars in revenue.

- Price is reasonable by today's standards.  ExactTarget had $300 million revenue in 2012, so the $2.5 billion price is 8.3x trailing revenue.  Marketo's market cap is $800 million on $58 million 2012 revenue, or nearly 14x trailing revenue.  Oracle paid $800 million for Eloqua, which had around $100 million trailing revenue, another 8x ratio.  (Salesforce's press release projects a net revenue impact of $120-$125 million for 2014.  That includes just six months of revenue, but it's still a much lower annualized rate than the ExactTarget figures.  It seems the difference is largely due to adjustments in deferred and unbilled revenue.)

- Not so terrible for marketing automation in the short term.  Sure, Marketo's stock dropped 8% vs. yesterday's close, on a pretty quiet day in the market (S&P down 0.55%, Oracle down 0.67%).  And, yes, more companies will buy Pardot now that it's part of Salesforce than they would have otherwise.  But I doubt Salesforce will suddenly stop integrating with other marketing automation vendors.  Small, independent marketing automation firms already had a tough time selling against big competitors, so this only makes their lives marginally harder.  The smart ones (and that's most of them) already have a strategy in place to differentiate themselves from the big industry leaders.

- Tougher for marketing automation in the long term.  I've long argued that CRM and marketing automation should be part of the same system.  Like a broken clock, the time has come when I'm right.  Marketing automation sits between email and CRM, in the sense that it uses both heavily.  So Salesforce has effectively surrounded the marketing automation vendors with its purchase, even ignoring Pardot.  This means that Salesforce will be in the room with a solution when email and CRM users discuss expanding into marketing automation.  In many cases, clients will extend their Salesforce deployment without considering anyone else..

- Salesforce isn't done, or at least shouldn't be.  Email and CRM are two big customer-facing systems: you get absolutely no prize for knowing that your Web site is the third.  (Ok, social is in there someplace too, but it's still more smoke than fire.)  A truly complete customer-facing solution would encompass Web content management as well.  This is another idea I've long pushed, and its time will come too.  Indeed, I see many Web content management vendors already adding marketing automation-type features.  Salesforce itself might not move into this space quite yet, but it seems inevitable that they'll do it eventually.

- Adobe, where art thou?  Since I'm exercising all my favorite hobby horses, we might as well let this one out of the stable.  (Actually, someone else mentioned it to me earlier today, so at least I'm not alone in my obsessions.)  Of course, Adobe already has a strong presence in Web site management and it keeps making noises about having a "marketing cloud".  Um, excuse me guys, but you really need email and marketing automation for that.  Silverpop -- already a large Adobe partner -- is the obvious acquisition candidate to fill that gap.  Sadly, Adobe has shown no signs of moving in this direction -- but time moves on, whether or not my broken clock is ticking.  (I don't know what that last phrase means, either, but sooner or later Adobe will buy something.)

Addendum: I've now had time to listen to the analyst conference call from this morning (available at 800-585-8367 passcode 89103168).  It doesn't change my analysis above, but clarifies that Salesforce's main goal was finding a single system that would support sophisticated cross channel marketing campaigns, with particular stress on heavy automation and new devices such as mobile.  They do seem more interested in B2C than I would have thought.  

Another comment made twice was that it was a competitive acquisition.  As others have pointed out, this means there's at least one other big company looking to buy a similar integrated marketing system.  There aren't many of those available -- traditional B2B marketing automation vendors are too narrow to fit the bill.  I'll mention Silverpop again as an option, and maybe Responsys and other high-end email products.  B2C marketing automation vendors including Neolane, ClickSquared, and perhaps RedPoint could be candidates but may be too small to be of interest.

4 comments:

G Udani said...

David,

Interesting! Couldn't help draw some parallel between the Hubspot-Pardot situation and Oracle-Salesforce. Ellison did invest in Salesforce early on and ultimately Oracle-Salesforce ended up competing with each other. Pardot (under the Salesforce umbrella) will be competing with their investment (Hubspot). How do these companies reconcile their contradictory moves in the market?

Marko Muellner said...

David! 

Thanks for this thoughtful and insightful analysis. I was in search of this exact conversation and couldn't find it among the shallow tech punditry. : )

Thanks again!

A few quick thoughts and questions...

1.
I've been lucky in my career to have worked on many sides of the digital marketing opportunity. From start-ups to adidas to Razorfish and Webtrends, to name a few. While I too am passionate about the big tech vendors and the next Forrester framework for understanding the transition from WCM (web content management) to CXM (customer experience management)... ha! I can't help but remember that "on the inside" buying software, even in the cloud, is a total nightmare. This is only exacerbated by this kind of acquisition. As a life-long marketer and now a VP of Marketing, the thought that I will be spending MORE time buying, implementing and optimizing software is devastating. I want LESS tools. I want my team to be more creative, spending more time creating content and value and engaging directly with customers and prospects. Testing and learning quickly.  In other words, spending less time IN software. 

The question -- do you think CMOs will buy software like CIOs did/does? It seems Benioff and others think so.

2. 
BtoB and BtoC marketing are VERY different. One of the biggest differences is that on the BtoC side, so much of the production and execution of marketing programs are managed by agencies. Creative agencies, digital agencies, media agencies, retail, PR, etc. "Selling to the CMO" is fine but I have yet to meet a CMO at a major consumer brand who has a vision for CRM across her organization and agencies, for example. They are simply focused on a completely different set of challenges and structures. 

The question: is it possible for BtoB companies to build BtoC marketing clouds or is Adobe the only vendor with even a remote shot?

3.
You raise a good point about how Salesforce won't cease being platform, even for marketing automation vendors. But we have to assume Eloqua's SF integration is not long for this world. Benioff created Salesforce as the anti-Oracle, I can't imagine he'd maintain that connection for much longer. 

The question: Is there a marketing automation market without Salesforce? I don't think so.

FUN stuff. Really looking forward to your thoughts. 

Thanks again. 

Marko Z Muellner
VP of Marketing  |  ShopIgniter
@markoz
@shopigniter

David Raab said...

Marko, thanks for your insightful comments. It's helpful to hear from an actual working marketer...sometimes we pundits talk too much among ourselves.

Your points 1 and 2 about CMOs' attitudes towards software are dead-on. Compared with CIOs, they are less interested in technology per se, and more in the business results made possible by system capabilities. Sadly, they also have less skill at relating business goals to system features, and less patience for the whole buying process. This means they often buy for the wrong reasons -- such as good salesmanship, industry herd mentality, and flashy demonstrations.

To your second point, B2C marketers are surely more brand focused than B2B, but I think both tend to rely heavily on agencies once you get to a certain size organization. (It may seem otherwise because there are so many more small B2B marketing departments, and small departments in general use agencies less.) There are big differences in B2C vs. B2B marketing software, but I don't see any fundamental reason one system couldn't support both. The trick would be to hide the unused features in each situation, and to keep down the cost and complexity of building a system that includes both types of capabilities. It's certainly cheaper to build a system that does only one or the other, and, again, the small budget of many B2B marketing departments has led to specialized B2B marketing automation systems that can be sold for much less than general-purpose marketing automation tools.

I think your deeper question is whether B2C marketers have fundamentally different needs -- such as tighter Web integration and more detailed customer profiling and offer management. Probably the answer is yes. But, even so, there's no technical reason a system with those features couldn't also support B2B.

Regarding marketing automation with Salesforce: I just don't see Salesforce getting away with blocking access by other marketing automation products. But if that did happen, it would certainly end much of B2B marketing automation as we know it.

Marko Muellner said...

David,

Thanks for your quick and interesting reply. On the BtoB and BtoC marketing tools in one suite -- to your point, I guess email, analytics, content management etc. all tend to provide value for both types or marketing teams. It's when we get closer to campaign management or deeper into customer profile (CRM) solutions that needs and offerings differ more widely.

Thanks again!

Marko Z Muellner
VP of Marketing | ShopIgniter
@markoz
@shopigniter