Salesforce Buys ExactTarget for $2.5 Billion
allthingsd.com
allthingsd.com
As is generally the case in the enterprise space, this means providing more features than the competitors. There is also a network effect in that the more features and integration points a particular platform has, the more valuable it is.
Salesforce has done this extremely effectively, from salesforce automation, to customer relations management, to customer service, etc. In many cases now it is virtually unimaginable not to use Salesforce, since the feature set is so extensive. One note here is that although the UI has had its warts, Salesforce is actually has a much better UI experience compared to most other enterprise apps (lightweight competitors tend to be better, but not deliver the feature set).
In any case, marketing is a natural extension for Salesforce at this point and I have ever reason to expect they will be successful at dominating this market segment just as they have in other sectors and points on the value chain. If they have to pay a bit of a stock price premium in order to do so that's not a lot of sweat off Benioff's brow.
This is the same strategy that Microsoft has pursued for years - and it sometimes works and sometimes doesn't - MSFT going after Intuit comes to mind, as does their own Salesforce.com competitor.
ExactTarget is a good large-scale email tool, but it is a very below average marketing automation tool. Now, they purchased Pardot, which is a decent, if basic marketing automation tool - good for small business but nowhere near an Eloqua or a Marketo - more comparable to Hubspot. So the question is how integrated they can make all these various tools. To date the Pardot/ExactTarget integration was rather weak - probably more to come on that front. I could see a world where they use Pardot's front end and ExactTarget just for scale email sending but the existing user base won't appreciate that move.
Now, I look at the integration (or lack thereof) with existing Salesforce acquisitions, and I have little confidence that Salesforce will be able to build a world-class, fully integrated product. For reference, look at the integration of Buddy Media or Radian6. So Salesforce may have all the tools, but true integration between the tools has been historically lacking. Now they're adding a company that is strong in B2C email and has a small B2B marketing automation tool that they themselves are trying to integrate. Sounds very complex and difficult - and sounds like something that would take a number of years to get right.
The real question for me is what now happens to Marketo and Hubspot - Hubspot, for example, has an investment from Salesforce, but was probably unavailable for acquisition as they want to spin public. Now that Marketo is public, and it looks like their business is not very sustainable (based on my read of the S-1), they'll likely see their stock price dip to the point where they look more interesting as an acquisition to someone. They're valued at around $800m right now - so if they show poor financial metrics, I'd expect that to dip. If they get cut in half, then a pick-up in the $600-800m range becomes viable - about the same price as Eloqua - but I'm not sure who would be the buyer at this point.
I think Salesforce did the right thing in terms of topline revenue (ExactTarget does around $300m vs. $65m for Marketo) and customers (ExactTarget has large B2C brands, Marketo mainly B2B), but they bought a far inferior product. Maybe they pickup another company in the space for the product?
As far as I can tell, ExactTarget's marketing automation capabilities vastly pale in comparison to Marketo or Eloqua, I could be wrong though.
Larger scale B2C marketing automation is generally much more complex than b2b. Ecommerce databases are generally less normalized across businesses, aren't hosted by an intermediary like salesforce and contain more data. Cross-channel retailers with physical stores track a ton of transactions and customers. I really don't think that any b2b marketing automation platform will make much headway trying to go b2c. Hubspot has some success only because they focus on local and small businesses.
So I'm doubting their ability to cross-sell. And then the integration is absolutely important - if you looked at the integration between Salesforce and ExactTarget, you'd be shocked by how primitive it is. Now, they might try and then sell them Pardot.
Sales teams can function this way - but usually the way I've seen it setup is that you have a group that is focused on cross-sell/up-sell after the close of some additional business (farmers) vs. a hunter organization.
Oracle is perhaps a better example of how well it can work than Microsoft. Ellison has openly admitted his strategy was acquired from the Office approach that Microsoft leveraged. Oracle has spent a huge pile of money, far more than Microsoft, in consolidating their space, and all without having a monopoly to lean on.
This is insane. $2.5b for a company that has lost money through its existence, has a very small set of (likely not-so-diverse) clients (6,000ish), and makes 10% of what they paid for them in revenue? Strikes me as a crazy purchase, but perhaps there's something else afoot that I don't see. I've been proven wrong about this stuff before.
Reminds me a lot of Palantir.
It ran a $21 million loss on $292 million in revenue last year.
Before making the judgement that "psh, they're not profitable", be sure the vectors look right. For example, have they been making that margin smaller and smaller, and is the revenue getting larger and larger? If so, then they're fine in the long term, and it's a sound investment.
I don't get the fascination with subsidized revenue growth - almost anyone can do that with massive infusions of cash.
The larger issue is that short term profitability is not the only thing to look at. It should certainly be one thing to consider, but there are lots of examples of companies that became enormous after a long period of unprofitability. And since ET has so much revenue and only 7% loss compared to that revenue, I can totally see how this would be a good investment for Salesforce.
Oracle has been doing this for years (and probably where Benioff got his playbook) They buy up a company, fold in their customers and cross-sell their other products to them.
As a company "born Cloud", Salesforce have had to make sure their integration capabilities have been up to snuff, and other vendors have been able to leverage those integrations to reach Salesforce customers via the AppExchange (similar to the App Store).
So the capability of using Salesforce whilst using other apps with integration has been a capability for a while, and so customers could tailor their own solutions to their needs, budgets etc. Except that more and more, customers want the one-back-to-pat/one-neck-to-strangle, and the associated 'one-solution, no integration' benefits. Hence Salesforce have been parking their tanks on the lawns of service providers. When asked for features, Salesforce response is sometimes "There's an app for that", however sometimes the demand for them to provide certain functionality is so great, or the opportunity large enough, that they'll enter a market in this fashion. They're currently doing something similar with identity management. Ping Identity had a solution they could sell you, but soon they'll have to compete with Salesforce Identity.
Competing with someone who hosts the platform you're working on is possible, but it's definitely a disadvantage.
The other factor here is what the other players are up to - Oracle recently purchased Eloqua, and for those of us in the Salesforce line of work, an acquisition like this has been expected for the last few months. Email marketing is an area in which Salesforce has been weak for some time, they didn't want to do it because it's not their core focus, and hey, "there are apps for that". But once Oracle moved, Salesforce were going to follow suit to block that advantage.
That said, moving email providers is likely a huge pain in the ass for those 6000 customers. They are basically locked in for years and years. There may be potential to raise prices and gain profit from those customers. Internal investment to move vendors is likely in the hundreds of thousands.
Salesforce already has a few of these same clients through BuddyMedia and other B2C offerings, but the cross sell of a marketing suite is what they are envisioning. I expect that outside of a potential Marketo purchase, they will purchase companies with more b2c or general marketing offerings, potentially search, display or other ad related products to compliment Social.com.
This has allowed ExactTarget to spend more money on developers (like me), products, and to acquire other businesses.
Even with all this they've clearly been successful on the revenue front. With an acquisition like this (company losing money), it'll be interesting to see what SalesForce does to make them turn a profit.
However, from what I have seen of Salesforce, which is not direct experience but in watching demos over people's shoulders, their test environment setup is very smooth. I think you have to pay more for it, but you can get a copy of your environment, if you are writing custom plugins it checks that you wrote tests, that those tests pass, and that those tests aren't stubs, before it lets you put anything live. It seemed a legit best practices operation.
Maybe Salesforce can implement that setup for the ET service and APIs. In the meantime I will checkout customer.io for the next project that needs email campaigns.
We do not focus on profit, but instead focus on revenue. This is the same model as SalesForce and Amazon.
Startups use Mailchimp & Sendgrid, etc. for email marketing, but then as they mature & grow, they see the need for more mature (although, yes, more expensive, complex, & slower) tools like ExactTarget.
Very similarly, how do startups track their customers & leads? Often, with no CRM other than spreadsheets or in-house tools. When they scale & have >10 sales staff, they realize they need a more mature, slower, more expensive CRM, & SalesForce is there.
So, yes, the acquisition price seems high, but the complementary fit is solid.
If I make $1 a year that means I earned $21 million and one dollars more than this company did last year.
How does any of that math make sense? Since when does 2% of $22.10 amount to $40.16, or is my brain just not working so early in the morning?
http://www.exacttarget.com/products
(My company recently switched from Blue Hornet and ExactTarget gives us much more control)
Our social products let companies respond when you complain on social networks like Twitter.