Wednesday, March 09, 2011

The Pond Just Got More Crowded: Google, and Sequoia Invest in HubSpot

Summary: HubSpot announced a $32 million investment yesterday by Sequoia Partners, Google and This could be a real game-changer in the small business marketing automation landscape.

If you heard a loud thud late Tuesday afternoon, it was the sound of two shoes dropping. and Google announced their long-anticipated entry into the marketing automation industry, in the baby-step form of investments in HubSpot. The $32 million fourth round of funding was led by Sequoia Capital, which apparently provided most of the money (numbers were not announced). It followed $33 million in earlier funding since the company was founded in 2006.

In many ways, this investment strikes me as more significant than last year’s acquisitions of Unica by IBM and of Aprimo by Teradata, which were widely touted as “validating” the concept marketing automation and involved vastly more money ($1 billion combined). Both Unica and Aprimo were long-established vendors with fundamentally stable products sold primarily to large enterprises: although their new owners may market them more broadly, they’ll be selling pretty much what IBM and Teradata always sold (big systems) to pretty much the same customers (big companies). Even the most ambitious vision articulated by the vendors – radically more integrated, analytically-driven marketing management – won’t really change their sector of the marketing automation industry.

But HubSpot plays in a different pond, where the frogs are more numerous and much livelier. It’s selling to small and mid-size companies and business-to-business marketers, who are just dipping their toes into marketing automation. It’s not yet clear which vendors will dominate the industry or what form the successful systems will take. And the current frogs are all small enough that a powerful newcomer could displace them, especially if it had a natural entry point such as, oh, Google AdWords or’s CRM system.

During the analyst call that followed the announcement, HubSpot co-founders Brian Halligan and Dharmesh Shah made quite clear that they hoped to leverage the Google and relationships in just this way. This will involve tighter technical integration with both Google and, and apparently some marketing to the customer base.

Of course, the entry of as a direct competitor has long been the worst nightmare of B2B marketing automation vendors, who exist largely because doesn’t give marketers what they need. A viable marketing solution within would preempt many purchases of a separate marketing automation system in companies where is already in place.

Yesterday’s announcement doesn’t mean the nightmare has come true – this is a small investment by, not an acquisition, and it’s quite clear that HubSpot intends to go public on its own. But if likes what it sees, who knows where that will lead? The same goes for Google, although Google Venture Partner Rich Miner went out of his way during the analyst call to say that the Google investment was financial (i.e., intended to make money on its own) rather than strategic (i.e., intended to extend Google’s own business).

All this is good and kudos to HubSpot for getting this far and landing such powerful partners. The company also deserves praise for articulating a sound vision of future growth through expanded product features. This is as close as you can reasonably expect them to come to acknowledging that the existing HubSpot is far from a complete marketing automation solution. (See my December 2009 post for a more detailed discussion of HubSpot's capabilities; basically, they are still pretty weak in outbound email, lead scoring, and nurturing, which are all core components of standard B2B marketing automation. They also lack integrated CRM features – a hallmark of small business marketing automation – although the connection probably makes that moot.)

Yet something really bothered me about yesterday’s announcement. HubSpot has always been quite clear that it is focused on small-to-mid-size businesses and that it offers “inbound marketing” rather than traditional marketing automation. In fact, it has always been highly dismissive of traditional outbound marketing as essentially obsolete – a claim it repeated again yesterday.

Despite this background, yesterday’s announcement positioned the firm’s competitors as the mid-to-large company B2B marketing automation vendors, listing Eloqua, Marketo, Genius, Manticore Technology, and Neolane by name. This wasn’t a casual comment – the press release twice called the HubSpot a marketing industry “leader” and included a pie chart showing “over 50% Market Share”, a claim that is only true if you (a) count clients, not revenue (an absurd mixing of apples and oranges in this case) and (b) ignore HubSpot’s most direct competitors, the other small business marketing automation vendors including Infusionsoft (6,000+ customers vs. HubSpot’s 4,000+) and OfficeAutoPilot (2,000+ customers). [Note: comments from Infusionsoft and HubSpot, posted below, suggest those vendors may compete less than I thought when I wrote this. But I still think excluding them from the analysis is wrong.]

Here’s what I consider a more realistic view of the market:

- Based on revenue, HubSpot had less than 7% of the B2B marketing automation market in 2010 ($15 million HubSpot revenue vs. $225 million total) (see my post of January 11, 2011) and an even smaller fraction if you include B2C marketing automation.

- Based on client counts, adding Infusionsoft and OfficeAutoPilot reduces HubSpot’s share to about 25% (data from our B2B Marketing Automation Vendor Selection Tool).

- The small business vendors, including Infusionsoft, OfficeAutoPilot,It's those firms, and other small-business-focused competitors including Act-On Software, Net-Results, and Marketbright, who have the most to fear from HubSpot.

Now, I wasn’t born yesterday and am rarely upset to see a company spin the facts in its favor. In fact, as a marketer myself, I have a grudging admiration for people who do it deftly. But a distortion this large really bothers me. I could say that’s because it harms the market by confusing people, but I think the real reason is more visceral: it insults my own intelligence and that of everyone else who is apparently expected to believe it. What’s even sadder is these particular claims are totally unnecessary: HubSpot is a strong company with a solid product and excellent story. It doesn't need exaggeration.

I’ve also found HubSpot to be quite open and honest in the past, which makes this all the more puzzling. I hope it’s just an aberration.

One other point from today: in a related blog post, Brian Halligan gives some insight into HubSpot’s business strategy and the reasons for this round of funding. I’ve no complaints about any of it. But there’s an intriguing graphic that shows HubSpot’s lead sources – intended to illustrate how HubSpot “eats our own dog-food” through inbound marketing. Am I reading this wrong, or does it show that (bad, obsolete, interruptive) email is their largest source of business, while organic search and social media barely register? Now THAT's what I call openness.


Dharmesh said...


Thanks for the thoughtful analysis, as always.

A few thoughts:

1. We are still focused on the SMB industry as our target customer.

2. The reason we categorized ourselves with folks like Marketo (vs. someone like OfficeAutoPilot) is simple. That's who we are encountering in the marketplace. If we lose a sale to another company, it's more like someone like a Marketo.

3. In terms of using customer count vs. revenue -- that's a tricky one. Honestly, we don't think about marketshare in terms of revenue -- we think about it in terms of customers. This is not unlike when the were at our stage.

4. In terms of our use of inbound vs. outbound, a reasonably large percentage of our leads are generated through inbound sources (like our free tools). In the chart shown here, those tools are not included (I think it's just the traffic from our company website or blog). Having said that, email marketing is an effective lead-gen channel for us. But, recognize that we acquired these email subscribers through inbound means (often through the free tools or subscribers to our blog). On the whole, I'd guess HubSpot has more inbound marketing in it's mix than any other marketing software provider.

Apologies if any of the statements we've made have been confusing or misleading. Certainly not our intent. But, one thing we are occasionally guilty of is having our passion sometimes manifest as overly aggressive positioning.

Once this news "settles in" and we get back to work, you'll find us our usual, easy-going folks that are quietly (and sometimes not so quietly) trying to transform the marketing industry.


David Raab said...

Thanks for the clarification Dharmesh. As I wrote as recently as last week, I greatly admire HubSpot, in particular because it works so hard to ensure its clients' success. I'm sure your own success will follow and everyone -- customers and competitors alike -- will benefit.

Unknown said...

David—as I’ve said before, thank you for your continued, insightful analysis of the Marketing Automation Category. You raise some good points here.

I agree it seems odd Infusionsoft wouldn’t be included in a Marketing Automation category pie chart. Our customer numbers (6,000+ customers and 20,000+ subscribers) and revenue run rate ($23M) – in addition to our feature set and product positioning – makes us one of the leaders in the category and the undisputed leader in MA for Small Businesses. I like the HubSpot guys a lot and their omission of Infusionsoft on the pie chart might be due to the fact their eyes are more on the medium-sized businesses (the “M” in the Small and Mid-sized Business [SMBs]) than on the “S” that we proudly serve at Infusionsoft.

Here’s how I see this whole announcement…

- Validation from Sequoia, Google and SF is good for the Marketing Automation space
- Eloqua and Marketo will want to re-position HubSpot down market
- Hubspot says they are for “SMBs” but their offering/pricing is for larger businesses than we serve
- Our solutions are very different, though we both call ourselves “Marketing Automation”
- We rarely bump into HubSpot in the sales cycle. When we do, the customer often buys both of us
- There’s a big difference between “Small Business” and “SMB” (at Infusionsoft we often laugh at the software industry’s bantering of the term SMB because we’ve found that what they mean is “Smaller Medium-sized Businesses” instead of “Small and Mid-sized Businesses”).

I am thrilled with the progress we’ve made over the years and the leadership position we’ve established in Marketing Automation for Small Businesses. As I’ve noted, our customer numbers and revenue run rate make us the clear leader for small businesses. Unlike most Marketing Automation vendors , we are cash-flow positive. We have a complete sales and marketing suite that includes CRM, Email Marketing, Lead Nurture and eCommerce, with a smart automation engine at the core of it all.

It’s this complete solution that our customers love because it helps them convert more leads, get repeat business and automate repetitive tasks so they can save time and make more money. That’s what small businesses want. That’s what we give them. It’s our passion. We love doing and we’ll keep on doing it for years to come.

-Clate Mask
Co-founder & CEO, Infusionsoft

David Raab said...

Thanks Clate. It's interesting that you and HubSpot agree that you rarely see each other. I'd say it's in part because HubSpot is targeting slightly larger clients. But it's also probably because you both have many non-competitive deals.

Some empirical evidence: part of the data we gathered for our Vendor Selection Tool (VEST) was the distribution of clients by revenue group: small (under $20 million revenue -- probably close to Infusionsoft's definition), mid-size ($20 million to $500 million), and large (over $500 million). Infusionsoft estimated that 98% of its clients were in the "small" category, while HubSpot estimated 65%. For further comparison, Pardot, Marketo, and Eloqua all reported 47% to 53% "small" clients.

These figures confirm that HubSpot’s profile is a bit different from Infusionsoft’s. But they also show that you and the other vendors are all selling to a lot of small businesses. My interpretation is that those buyers often look at one vendor, based on casual research or someone’s recommendation. If they decide that vendor meets their needs, they buy without seeking alternatives.

That approach may sound crazy, but remember that many small businesses won't really understand their needs to begin with, or will have only basic needs that any marketing automation system can fill. That another system might fill them better, they'll never find out.

This is exactly why HubSpot’s new funding and potential access to new clients via and/or Google is so important: it will let them initiate and win a great many of those non-competitive deals.

At this stage in the market development, having a great product and great support isn’t enough. Vendors also need broad market awareness (or some other access mechanism, like an existing customer base -- e.g. Constant Contact) to ensure they’re considered by potential buyers. It takes a lot of money to build awareness quickly – and the window of opportunity is starting to close.

Unknown said...

LOL, I nearly raised that email issue in my own article (, but I was sure Dharmesh would pop up with a story about why it is.

It still speaks strongly for email, although I agree with Dharmesh about it being more effective for nurturing while inbound works better for acquiring new leads.

You can tell from the title of my post that I think the war is a long ways from over, won, or even showing who the frontrunner is (it's not one company).

Nevertheless, the space is heating up and the game is afoot!


Bob Warfield
Smoothspan Blog

Unknown said...

That makes sense David. Our definition of "small business" is much lower than $20 million in revenue. We target businesses under 25 employees and $5 million in revenue. About 80% of our customers have under $2 million in annual revenue. I think your hypothesis is right about non-competitive deals, but I also think it's about the size of small business we serve.

This is a good definition of the category of customers. Thanks for advancing the discussion.

-Clate Mask, Infusionsoft

sj mart said...

I wonder why they left out of the discussion Genoo, a company that provides equal services at 1/3rd (or less) the price. In my companies review as we selected a vendor, I found HubSpot to be much more scattered in their own marketing to me, hard closers (if you buy today we will cut your price by 15%!!!), and when I called in, it was much like talking to a boiler room. By contrast Genoo's President spent 1/2 hour answering questions specific to my industry. With the integration of WordPress for blogging I will have a superior platform with Genoo for $199 a month.

I am also beginning to discount HubSpot's whole discussion dissing "OutBound Marketing" since that was exactly what HubSpot immediately engaged in immediately after I first visited their site...So if that is how they grow their own business, why talk it down?

Tom McLellan said...

David, Clate, and Dharmesh,

It's a privilege to be a fly on the wall to this discussion - I've been evaluating both Hubspot and Infusionsoft as possible solutions for a key client that is launching a new line of business that requires CRM, e-commerce, email marketing, and lead nurturing.

Marketing automation as a category seems like the obvious evolution, but I see Infusionsoft making it viable and affordable. In the past we've had to combine email marketing (Mailchimp or Aweber) with CRM (Salesforce/SugarCRM/Zoho) and e-commerce ( / BigCommerce / etc). The integration hassle and the ongoing cost of maintaining 3 customer records for every customer is difficult to justify despite the upside of using 'best in class' software for all 3 components. And what's more, the additional revenue of promoting relevant offers by email to leads (CRM) and customers (e-commerce) is 1 to 1 marketing made real.

My first clue was that the sharpest information marketers I know - Perry Marshall and Rich Schefren for example - have stepped up to Infusionsoft as an alternative to running 3 separate systems in ecommerce, email marketing, and crm.

Thanks for taking a leadership role in this emerging industry and giving small business marketers such effective tools on an affordable business model.

- Tom McLellan, Principal, GrowthClick