So...our friends at Marketo announced today that they've received another $25 million in venture funding. As one of their competitors snippily commented on Twitter, "Does that make the total $50M or $60M? I lost track."
I've lost track too, but it doesn't really matter. Marketo's strategy has been clear from the start: spend heavily to establish a strong position despite a relatively late start in the market. Of course, it wasn't just a matter of spending (Microsoft Zune, anyone?); they needed a solid product and good marketing as well. On all fronts, Mission Accomplished.
But the question is, what happens now? Obviously Marketo has a plan in mind and has convinced some pretty savvy investors that it makes sense. Presumably they've demonstrated a highly scalable business model that will allow them to take the latest funding and reliably transform it into growth and, eventually, into profits.
I find it a bit surprising that anyone can be $25-million-worth-of-certain about anything in such a young and volatile market, particularly because I still think B2B marketing automation will eventually be absorbed by larger CRM and/or Web content management suites. Certainly Marketo could be acquired by one of those companies but I don't think the price would be high enough to make the VCs happy. And surely they're still some time away from an IPO given what must be seriously money-losing financials to date.
I'm mostly writing this post in the hopes of seeing some helpful comments from others in the industry. Where does this all lead, both for Marketo and its competitors?
Wednesday, November 17, 2010
Subscribe to:
Post Comments (Atom)
9 comments:
First off, I'd like to congratulate Marketo on receiving additional funding of $25M (above their previous funding of rounds totaling approx $30M).
Manticore Technology, the company I'm with, competes with Marketo on a daily basis. From our perspective investments like this are a positive thing for Manticore and the marketing automation space as a whole. I imagine a significant portion of the investment will be spent on marketing activities. With this marketing spend more and more companies become aware of the value of marketing automation. When this happens, buyers look at multiple alternatives. A rising tide raises all ships.
Having worked in the marketing automation space for the past seven years, I've learned that there is there is no one size fits all platform. There are things Manticore Technology does extremely well - and there are other areas where our competitors like Marketo excel. Some buyers want or need what Manticore has to offer - others may want or need Marketo's offering. If you look beyond the marketing hype, there is no one size fits all marketing automation solution.
Where does that leave the marketing automation space? With this kind of money I imagine that Marketo's investors believe that the company can be "the" solution. The one-size fits all marketing automation solution. Since the marketing automation space began to gain traction back in 2003, this has yet to happen. I doubt it will happen any time soon. IMHO the marketing automation space will remain fragmented with some sort of consolidation/roll-up in the years to come as investors cash-out. With cash-outs I would expect 3x-4x multiples (which are common for SaaS companies today) - nowhere near that 10x multiple that many investors expect on a early stage investment.
Time will tell...
Hi David,
This is great news for competitors, LoopFuse included! Marketo's addiction to VC money forces it to concentrate in the enterprise segment along with Eloqua, Aprimo, and Unica.
Enterprise competitors will have to contend with a war of attrition, as Marketo sales reps drop their shorts on deals to show increasing customer acquisition numbers, and marketo customers will have to pray and hope the VCs don't lay the hammer down in the board room forcing marketo to raise prices and grow profitably. LoopFuse is here to help, when the time comes. ;-)
For those of us in the SMB segment, the possibility of a tech-based acquisition becomes even more probable, and frankly allowing Marketo to use their war-chest to educate *all* marketers about marketing automation, is good for us all (including you).
I can't see Marketo competing successfully against Unica, Aprimo, etc. at big enterprises. Those other systems have much richer, more complete capabilities including vastly more flexible data models. I think big enterprise marketers want that sort of power, and big enterprise IT groups will control the purchase process.
But I do think there's a tier below the enterprise but bigger than small businesses. Those buyers aren't quite so demanding but will want more than the clients that Pardot and LoopFuse are targeting. What we don't know is whether that is a distinctive enough segment that competitors from above and below will be unable to enter it. I guess Marketo's investors think so.
Marketo's CEO Phil Fernandez just wrote a post on this topic:
Growing a Great SaaS Business
In it, he points out that to date we have used only $20 million of the total capital raised building our business, and thus more than 60% of the total cash is liquid and in the bank to fuel future growth.
Furthermore, he points out that we're on a mission to build a great company, and that growing a world-class SaaS company requires significant capital. Salesforce.com, Success Factors, Netsuite, and Omniture all used more than $100 million of capital before they got profitable.
That fact that Marketo is growing as fast as we are with so little capital used is a great proof-point that revenue performance management strategies powered by our solutions really work.
I agree with David. Up against Aprimo and Unica, it really isn't just a matter of "dropping shorts" to win deals. If that is where Marketo is heading, they are in for some really stiff competition from some entrenched players with much more to offer than their current solution.
That said, I think that the Demand Generation space hasn't topped out and there is a ton of new business to be won. Enough to warrant an additional $25MM investment remains to be seen, but I have to admire their ability to convince investors to pump in that kind of money.
One big note to mention here is the size of this space. As David pointed out on Focus.com, the market leader was only a $100MM company when it was purchased by IBM. That was after enjoying at least 5 years with the crown. It will be interesting to see how quickly Marketo can grow in what I believe is an even more crowded space than where Unica had played.
Interesting comments from 2 of the other competitors. I see things a little differently. As a long time B2B software junkie and marketing consultant for past 9 years, I think this sort of investment is great for Marketo and not so great for the 2nd and 3rd tier MA players. I see this investment as a solid endorsement that Marketo belongs in the top tier of SaaS MA players - Eloqua, Silverpop and now Marketo.
With that type of money, Marketo can make some serious investments in product, sales & marketing, channel, international, etc. Vtrenz go that when they were acquired by Silverpop in 2007 and Eloqua got the same amount of investment $25mm at that time. Add in Marketo's sales performance the past 2 years has been at the expense of the other major players. They have significant momentum on multiple fronts and now with this sort of investment they will be top of mind with even greater audience of buyers, influencers, etc.
Sirius Decisions put market adoption rates at around 10% earlier this year. That means there is substantial upside in growth over the next 3-4 years, especially in the market aizing of $100 to $1b companies that David has highighted as being the prime target for Marketo. I agree and I would take the sizing down to $25MM, because of the ease of use of Marketo's system, and price point.
For the other smaller, less funded players, I would be worried.
Another thought -- will Marketo use some of this money for acquisitions? Seems a pretty likely way for them to expand footprint quickly. Could be geographic or functionality or services. Or does that not work in the SaaS world?
Look, Marketo's ability to raise money today (esp. when they clearly don't need it) speaks volumes. Having cash on the sidelines allows them to do things competitor's won't or can't do.
As Henry (@Rockannand) said, "I'd be worried.
What do you think about a company like Marketo trying to get into the website CMS business? Merging with a CMS like Wordpress so that WP has automated analytics pre-integrated, instead of having to go through a third party integration. I am sure there would be plenty of data benefits to built-in integration, and if they are raising that much money they should have some financial might behind them. Thoughts?
Post a Comment