Intuit last week announced an agreement to acquire local business marketing vendor Demandforce for $423.5 million. That’s a hefty sum for a company with a reported revenue of $37.5 million, although it has been growing at a blistering pace – more than doubling last year – and now has over 35,000 customers. Still, the move makes perfect strategic sense, giving Intuit a stronger foothold in the marketing side of its small business customer base. (Intuit dominates the market for small business accounting with five million Quickbooks users.)
Demandforce focuses on local service businesses like dentists and auto body shops. It’s not a typical marketing automation vendor, since it provides appointment management, referrals, reviews, social campaigns, local advertising, post cards, and search marketing in addition to email. Its most direct competitors in the marketing automation world would be Infusionsoft and HubSpot, although neither has the same depth of appointment-related features. The price point of $200 to $300 per month is also similar to those systems.
Because the micro-business segment is pretty distinct from the rest of marketing automation, the impact of the Demandforce acquisition will initially be limited to its direct competitors. Within that group, Intuit’s penetration and clout should make it an immediate superpower – with the caveat that the accountants who are Intuit’s primary connection with its customers are not likely to sell them marketing services. Still, Intuit should be able to expand its network of channel partners fairly quickly. The local marketing business is a huge opportunity that hasn’t had a dominant player. I can claim some bragging rights for having suggested nearly two years ago that Intuit might take this role.
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The more interesting question for the rest of the marketing automation industry is whether Intuit will move beyond Demandforce’s current target customers. In the short term, probably not: the opportunity is large enough to keep them busy for quite some time. But local marketing involves more than small businesses, so Demandforce has a natural growth path in that direction. A modest functional expansion could also make Demandforce competitive at the lower end of the standard B2B marketing automation world, where products like Act-On, Marketo Spark, and Genius contend. From there, it could creep upwards. Again, that’s down the road but it does put a ceiling on the pricing and growth prospects of companies currently serving those segments.
It’s also worth considering the financial aspects of the deal. On the one hand, the $400+ million price – more than 10x revenue – has to be heartening for other marketing automation vendors contemplating an exit. But Demandforce is far from typical. It is already larger than all but a handful of marketing automation companies, is growing faster than anyone of similar size, and has made all this progress on a mere $11.8 million of investment. It also offers benefits that are more clearly defined and easier to deliver than marketing automation provides to larger companies. And the very fact that Intuit is now playing in the industry will make it harder for others to grow – especially if Demandforce moves quickly. Given all these advantages, it’s not clear other vendors will come close to duplicating the terms that Demandforce received.