Salesforce.com Acquires ExactTarget
Salesforce.com shook up both the CRM industry and the closely affiliated marketing automation industry today. While many including myself have been predicting for some time that Salesforce would acquire a marketing automation software vendor, I’m not aware of anybody that predicted it would be ExactTarget. Instead, most pundits and even the marketing software vendors themselves expected it would be Marketo.
Salesforce was under increasing competitive pressure to make this acquisition, and it clearly affected their judgment (more on this later). The cloud CRM leader’s foray into the marketing space with its prior acquisitions of Radian6 and Buddy Media were interesting, and gave CEO Marc Benioff the type of messaging he likes to broadcast at events leading up to Dreamforce, but have thus far failed to deliver a reasonable financial performance. More often than not, customers find the Salesforce Marketing Cloud interesting, but not interesting enough to incur the significant investment.
In prior posts, I’ve opined that the Salesforce Marketing Cloud is really a social marketing play, and does little to satisfy the top requested marketing tasks of digital lead acquisition, lead scoring, nurturing and lead transfer to sales. With today’s acquisition, all that changes, as these key marketing processes are now satisfied.
This acquisition now puts increasing pressure on both CRM software publishers that don’t offer similar marketing capabilities (SAP, Microsoft, Sage, SugarCRM and to a lesser extent NetSuite) and marketing automation software vendors that are now at increasing risk of fewer CRM publishers to partner with. For example, Marketo is flying high from their IPO of about a week ago, but around 90% of their customers are Salesforce.com customers, their application is built on the Force.com platform and their partnership with other CRM vendors is limited to say the least. Similarly, marketing software vendors such as Act-On Software and HubSpot (which received venture funding in part from Salesforce.com) have made a business of partnering with Salesforce to penetrate their impressive customer base. Those partnerships are more than at risk, they are certain to erode as there is no question that Salesforce will aggressively promote their own marketing application (ahead of partner apps) and that customers will in large part go with the single-vendor, bundled solution over a best of breed strategy. As Ray Wang advises, “It means Salesforce.com is in competition with Marketo and all other marketing automation products.” Expect these small but successful vendors such as Marketo and Act-On to accelerate their desire to be acquired. I suspect Marketo will go first, hopefully to Microsoft, but probably to SAP.
So was the Salesforce.com acquisition of ExactTarget a smart move? IMHO, yes, but in typical Salesforce.com fashion the company significantly overpaid. For the 12 months ending 2012, ExactTarget achieved revenues of $292M. At at $2.5B purchase, Salesforce paid around 8.5 times revenues, and since ExactTarget was not profitable, an EBITDA factor is not determinable. I don’t know any financial analysts that would suggest this deal was a good buy based on the finances. The companies have suggested that Salesforce also gets access to ExactTarget’s 6000 customers, but in reality, many or most of those customers are already joint customers.
However, from a product strategy perspective, the underlying pearl that Salesforce got with ExactTarget was Pardot, which itself was acquired for about $95M by ExactTarget last October. While ExactTarget and Pardot are both strong companies, the integration of a B2C email provider that sells to enterprise companies (ExactTarget) and a B2B marketing automation vendor that sells to small businesses (Pardot) presents some obvious integration and go-to-market challenges that remain fuzzy at best. Salesforce’s history of successfully integrating acquired products is less than impressive, so if it expects to achieve a reasonable financial return on the ExactTarget acquisition, it will need to quickly rationalize how the combined Salesforce, ExactTarget and Pardot capabilities will best satisfy the broadest market.
