Marketing Automation News from Dreamforce: B2B More Integrated, B2C Stays Separate

I spent the early part of this week at Salesforce.com’s annual Dreamforce conference. Here are my observations.

The big news was for geeks. The main theme of the conference was Salesforce1, a new set of technologies that make it vastly easier to deliver and integrate mobile versions of Salesforce-based applications. It is apparently a major technical accomplishment and at least one of my technical friends was hugely impressed. But I can’t say I personally found it all that exciting. Perhaps we’ve reached the point where we expect technology to do pretty much everything, so the line between what's already available and what's new is only visible to experts.  Any way you slice it, focusing on platform technology is much less exciting than last year's vision of "social enterprise".

The bad news was for B2B marketing automation. Conference presentations confirmed that Pardot, the B2B marketing automation system that Salesforce acquired as part of its ExactTarget acquisition, has been separated from the rest of ExactTarget and made part of the Sales cloud. There, Pardot is described only as providing lead scoring and nurture programs, which ignores landing pages, behavior tracking, and other features that B2B marketing automation usually provides (and Pardot includes). In terms of infrastructure, Pardot will eventually work directly from the CRM data objects, rather than maintaining its own synchronized database. (Data outside the CRM structure, such as detailed Web behaviors, will remain separate.)

What this means is that Salesforce sees B2B marketing automation as just an appendage of sales automation.  This is pretty much the same constricted view of marketing automation that Salesforce management has held all along.  The logical consequence is to make lead scoring and nurture campaigns standard features within the Sales offering and discard Pardot as a separate product.  I should stress that no one at Salesforce said this was their plan, but it seems inevitable. If and when that does happen, only the most demanding companies will purchase a separate B2B marketing automation product.

To put a more optimistic spin on the same news: Salesforce will continue to let independent B2B marketing automation apps synch with Sales.  If Salesforce does merge Pardot features into its core Sales product, then marketers who have a more expansive view of B2B marketing automation functions (or who simply want a system of their own) will be forced to buy from someone else.

The interesting news was that B2C marketing automation remains separate. Salesforce’s list of business groups includes the Sales Cloud, Service Cloud, and ExactTarget Marketing Cloud. Did you notice that just one of these has its own brand? As this suggests, and conference presentations confirm, Salesforce has kept B2C marketing distinct from its Sales and Service businesses, most importantly at the data and platform levels. The ExactTarget Marketing Cloud does now include Salesforce’s previously-purchased social marketing components, Radian6 social monitoring and Social.com social advertising. It also includes the iGoDigital predictive personalization technology that came along with the ExactTarget acquisition.

Salesforce did announce some plans to integrate the Marketing cloud with Sales and Service, but they are pretty much arm’s length: Marketing can receive alerts about changes in Sales (and I assume Service) data, even though that data remains separate; Sales and Service can send emails through the ExactTarget engine; Sales and Service can receive content recommendations from the Marketing predictive modeling tool. As near as I can tell, this is the same type of API-level integration available with any third-party system. For what it’s worth, the ExactTarget Marketing Cloud APIs are also part of Salesforce1, but don’t confuse that with sharing the same underlying platform.They don't.

The good news is the B2C marketing vision. It’s not really surprising that Salesforce kept its B2C platform separate, since Salesforce's core technology isn’t engineered for the massive data volumes and analytical processing needed for B2C in general and consumer Web marketing in particular. Happily, this technical necessity is accompanied by what strikes me as a sound vision for customer management.  ExactTarget framed this around three goals: single view of the customer; managing the customer journey; and personalized content across all channels and devices. It described major features for each of these: a unified metadata layer to access (and optionally import) data from all sources; a “customer journey” engine to manage multi-step, branching flows; and predictive modeling to select the best offers and contents across email and Web messages.

This felt like a more coherent approach than Salesforce described for the Sales cloud, where external data and predictive modeling in particular were barely mentioned (or, more precisely, are still being left to App Exchange partners). The ExactTarget cloud still lacks tools to associate customer identities across email, phone, postal, social, and other systems, although there are plenty of partners to provide them. I didn’t get a close look at the details of the ExactTarget functions, which will really determine how well it competes with other customer management platforms. But the general approach makes sense.

News of the revolution may be exaggerated. Salesforce argued during the AppExchange Partner keynote that the AppExchange and Salesforce platform have created a “golden age of enterprise apps” by enabling small software developers to sell to big enterprises. One part of the argument is that the platform itself lets small vendors break through the credibility and scalability barriers that have historically protected large enterprise software vendors. The other is that end-users can purchase and deploy apps without involving the traditional gatekeepers in enterprise IT departments. A corollary to this is that end-users have different priorities than IT buyers – in particular, end users care more about ease of use – so successful software will be different.

Of course, this is exactly what the AppExchange partners wanted to hear and exactly the strategy behind Salesforce’s platform approach in the first place. But that doesn’t necessarily make it untrue: and, if correct, it would indeed be a revolution in the enterprise software industry.

But some revolutions are bigger than others.  Even in an app-based world, individual users won't be making personal decisions about how to run core business processes.  Rather, systems will be chosen at the department level because companies can more or less safely assume that whatever the department chooses will integrate smoothly with the corporate backbone. That's certainly a change but bear in mind that departmental buyers will have the same preference as corporate IT groups for working with the smallest possible number of vendors. This means there will still be the familiar tendency for individual vendors to add more functions over time. So industry dynamics may change less than you’d expect.

ExactTarget Acquires Pardot: Great Exit for Pardot, Questionable Future for ExactTarget

ExactTarget announced its acquisition today of mid-tier marketing automation vendor Pardot, for just under $100 million ($95.5 million, to be exact). In one way, this was surprising: Pardot had seemed less interested in being purchased than others in the industry. But Pardot was also the only major marketing automation competitor without serious outside funding.  From that perspective it seems predictable that they would need access to more resources.

Looking over the published materials and listening to the investor relations conference call, it seems that ExactTarget’s motive was gaining access to Pardot’s lead nurturing and scoring capabilities. During the call, company management reported little overlap in clients: ExactTarget sells mostly to B2C enterprise marketers, while Pardot sells to small and mid-size B2B.

ExactTarget also said their relationship with Marketo, announced June 2011 and now ended, had produced little business.  No surprise there: it’s unlikely the ExactTarget sales team understood Marketo or was effectively incented to sell it.  More interesting, they said that trying to sell Marketo had shown that clients really wanted a single, integrated system for B2B and B2C. I wonder about that one: while some companies do need both, they are usually run by separate organizations with little need for tight coordination.

Once the products are integrated, ExactTarget expects their enterprise sales force to sell Pardot to large companies.  But they acknowledged that Pardot needs enterprise-class user rights and security management before that can happen. One advantage of the deal is Pardot will be able to do this with ExactTarget’s existing user rights infrastructure, saving development cost and speeding deployment. Even so, it will probably be some time before an enterprise-ready version of Pardot is available. That’s probably a good thing, since it will take time to train the ExactTarget people on the product and to find an effective price structure.

All told, I see this as a great deal for Pardot’s founders and employees, who get a very nice exit at about 9x 2012 revenue (although COO Adam Blitzer will stay on for now). Pardot clients might benefit from the company gaining additional development resources, but could also suffer as developers adjust the product to serve enterprise clients.  Service might also deteriorate if ExactTarget accelerates sales as much as they seem to expect. Pardot’s pricing (more on that in a minute) probably won’t change much: while ExactTarget could afford to fund competitive price cutting, it’s a public company and wouldn’t want to increase losses still further.

The acquisition's value to ExactTarget is less clear. They do get a strong foothold in fast-growing market and they’re probably correct that additional investment can help Pardot grow even faster. But Pardot’s revenue is just a tiny fraction of ExactTarget’s business: Pardot will take in around $11 million in 2012, vs. $280 million for ExactTarget. Even in 2013, when ExactTarget expects Pardot to yield $15-$20 million, that won’t be much more than 5% of the company total. Pardot's technology is solid but not spectacular, and equivalent products could be purchased for much less. The client base in small to mid-size businesses just doesn’t seem relevant to ExactTarget, and isn’t an obvious direction for it to move.

Back to pricing. The announcement provided a bit of new information about Pardot’s financials: specifically, $7.6 million revenue in 2011, and estimated $3 million revenue in the fourth quarter of 2012.*  Given Pardot’s growth, a $3 million fourth quarter implies $10 to $11 million for the year. This would be just under 50% growth vs. the $7.6 million 2011 figure. That’s actually a bit less than I had expected but seems plausible. It’s also in line with the announced employee count of 115, which is also lower than I had expected. 

As to pricing: figures in our VEST report showed Pardot had perhaps 600 clients in mid-2011 and a bit more than 1,000 in mid-2012.**  That comes to just over $1,000 per month in 2011 and just under $900 per month in 2012. Not a good trend. Revenue per employee is also moving in the wrong direction: the company reported 58 employees in mid-2011 and 95 in mid-2012, yielding a per employee drop from $130,000 to $115,000.  (Alternative explanation: ExactTarget is purposely being conservative in its Q4 estimate, in which case Pardot might be on track for $12 million or more in 2012.  That wouldn't change the thrust of my analysis, although it would erase the apparent decline in revenue per client and revenue per employee.)

Both figures probably reflect accelerated business growth accompanied by aggressive competitive pricing.  In itself, that's not so terrible. But both are also quite low compared with industry peers: Marketo will average about $3,000 per month per client in 2012 and even down-market HubSpot should get $600. Per employee figures are $225,000 for Marketo and $151,000 for HubSpot, which were growing at least as fast as Pardot. We know that Pardot ran a tight ship, so these figures probably don’t reflect high losses. But nor do they suggest much opportunity for profit growth, short of a radical – and highly unlikely – price increase.

This prospect doesn’t necessarily bother ExactTarget, which projected another $10-12 million loss from Pardot and iGoDigital in 2013, reaching break-even in mid-2014. The losses I can certainly see; the profits look less likely. Maybe the difference will come from enterprise sales – but even though margins are surely higher in that space today, competition is heating up and is coming from the same players – Eloqua and Marketo – who battered down mid-market prices in the past three years. If history repeats, ExactTarget may not get the lift it expects.



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* What ExactTarget actually said was they expected $3-$4 million combined incremental revenue for the fourth quarter from Pardot and iGoDigital, an online targeting and personalization company whose acquisition they also announced today.  I don’t have revenue figures for iGoDigital but they had about 35% as many employees (40 vs. 115) and cost 20% as much ($21 million vs. $95 million), so I’d guess they account for at least one-quarter of the revenue total. Incidentally, iGoDigital sounds like a very interesting acquisition in its own right: it may be today’s more important story.


** See my August 12 blog post for these figures and the ones that follow. That post shows Pardot with 400 clients in mid-2011 but a closer look at my files suggests the real figure was probably around 600.

ExactTarget and Eloqua Stake Their Claim To Centralized Customer Management

You probably saw ExactTarget’s June 13 announcement of its strategic partnership with Marketo and Eloqua’s June 21 announcement of its new AppCloud marketplace for connectors with other systems. So did I. But it took a little while to connect with the vendors to get the details, so I’m only now ready to write about them.

Both announcements shared a theme of integration between core marketing platforms and other marketing systems. That Eloqua sees itself as the center of a marketing infrastructure isn’t surprising, although it does show how far we've traveled from the once-common view of marketing automation as an auxiliary to the sales automation “system of record”. ExactTarget’s aspiration to a central role was less expected, since its original and still primary business is email delivery. But ExactTarget has added mobile, Web pages, and social in recent years. They've been pulling these together with an “Interactive Marketing Hub” in beta since last September, which is now used by 500 of their 4,000 clients. The IMH, as we cognoscenti call it, combines ExactTarget's email, mobile, Web pages, Web visitor tracking, and social media with external touchpoints as well as Salesforce.com and Microsoft CRM.

The IMH sports a slick user interface with a very nice dashboard showing real-time updates of summary statistics for each channel. It also provides a central marketing calendar of campaigns across the channels. The underlying database can be simple lists, as in traditional email system, or a proper multi-table structure acting as the primary marketing database. As Captain Planet used to say, The Power Is Yours.

It’s perfectly sensible for ExactTarget to move in this direction, since it otherwise risks being pushed to the unprofitable edges of the marketing world as a commodity email engine. In fact, the real head-scratcher was why ExactTarget would deal with Marketo if it had ambitions to occupy the same central turf. (Marketo’s motivation is obvious: to gain broader distribution.)

ExactTarget’s answer was refreshingly honest: IMH lacks key B2B marketing automation features including lead scoring, advanced segmentation, and multi-step campaigns. The campaign engine will be improved before IMH's official launch this September, but other specialized B2B features probably won’t be added. ExactTarget also sees Marketo as the first of many partner applications for IMH, further clarifying that they see it in the central position.

Eloqua’s AppCloud is obviously modeled on Salesforce.com’s AppExchange and other application stores. The goal is for third parties to extend the value of a core platform by building tools that enhance it. In Eloqua’s case, most of the initial applications are connectors with other systems for Webinars, social communities, messaging and data acquisition. These will be joined over time by apps that add functionality within Eloqua itself. The AppCloud is an extension of Eloqua’s earlier Cloud Connector initiative, which provides APIs for external systems to access Eloqua data and functions. Basically, AppCloud makes it easier to find and deploy those connectors.

I did ask Eloqua how AppCloud relates to its Revenue Performance Management positioning. This felt like a pretty clever question until I later saw it was addressed in the AppCloud press release. Oh well. The answer came smoothly enough: AppCloud makes it easier to gather the activity data needed for Revenue Performance Management analysis. That makes sense, although AppCloud implies a more active integration with external systems than simply reporting against them.

Both the ExactTarget and Eloqua announcements reflect a strategy of positioning their products as a company’s primary customer management system. If you recall my post last week on Adobe and Oracle announcements, those firms also wanted to place themselves at the center of the customer management universe. So does pretty much everyone else.

Obviously they all can’t win this game. At the end of the day, I’d still put my money on the big CRM systems as the logical central repository for customer data. But I do believe that many auxiliary systems will continue to feed data to the central system and somehow coordinate treatment decisions with it. Connectors created to service ExactTarget, Eloqua, and others will make it easier to integrate the peripheral systems with whichever product ends up in the middle. So it’s all good.