Thursday, November 05, 2015

Teradata Plans to Sell Its $200 Million Marketing Application Business. Any Takers?

Teradata today announced it plans to sell its Marketing Applications business.  I’ll drop the usual analyst pose of omniscience to admit I didn’t see this coming. It’s only three weeks since Teradata expanded its marketing suite by buying a new Data Management Platform – a move I felt made great sense. They also briefed me at that time on a slew of updates to their other marketing products, demonstrating continued forward movement. There was no clue of a pending sale, although I strongly suspect the people briefing me had no idea it was coming.

According to financial statements within the Teradata announcement, Marketing Applications revenue was down about 9% this year, which is surprising in a generally strong martech market but in line with the rest of Teradata’s business. Teradata told me separately that their marketing cloud business grew 22% year-on-year this quarter, suggesting that the decline came in the older, on-premise products and/or related services. As you may know, Teradata’s marketing applications business was a mashup of Teradata's original, on-premise marketing product, based on the Ceres purchase made 15 years ago and now called Customer Interaction Manger (CIM); the Aprimo cloud-based systems acquired for $525 million in 2010; and several more recent cloud-based acquisitions, notably eCircle email. The Aprimo group was dominant in the years immediately following the acquisition but control shifted back to the older Teradata team more recently. One bit of evidence: the Aprimo brand was dropped in 2013. 

Since the original version of this post was written, I've been told by unofficial but reliable sources that Teradata management has said it intends to keep the on-premise CIM business and sell everything else.  This makes sense to some degree, since CIM is one of very few enterprise-scale on-premise marketing automation systems.  IBM and SAS are really the only other major competitors here, although Oracle and SAP are also contenders. I don’t know how much of Teradata’s revenue comes from CIM or how many new licenses it has sold recently.  Based on the information presented above, the business may be shrinking.  But there’s definitely strong preference for on-premise marketing automation at many of the large enterprises who are Teradata's primary customers for its database and analytics products (which account for more than 90% of its revenue).  So keeping CIM may make sense just as a way to block competitors like IBM and SAS from using their own on-premise marketing automation systems to gain a foothold at Teradata accounts.  But it's really hard to imagine any new customers choosing CIM when Teradata has made clear it wants out of the marketing applications business.  Even current customers will have to wonder whether Teradata can be relied upon to keep CIM up to date.

So what happens now? Well, Marketing Applications is a $200 million business.  Even if CIM generates $50 million of that, which I doubt,  the remaining pieces make Teradata a major player in B2C marketing automation. (Point of reference: reported $505 million revenue for its B2C marketing cloud in 2015.)   This suggests that someone will purchase the Teradata systems and continue to sell them. 

The question is who that buyer might be.  The big enterprise software companies already have their own systems, and CIM would probably the only piece any of them might want (if they wanted to add a stronger on-premise product).  It’s conceivable that a private equity firm will purchase the systems and run them more or less independently or combine them with other products – look at HGGC’s recent combination of StrongView and Selligent (in the mid-market) or Zeta Interactive’s purchase of eBay’s CRM systems. If CIM were part of the package, I'd argue that Marketo should buy it and gain true enterprise scale B2C technology while nearly doubling its revenue.  But without CIM, that doesn't make much sense.

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