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

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Summary: HubSpot announced a $32 million investment yesterday by Sequoia Partners, Google and Salesforce.com. 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. Salesforce.com 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 Salesforce.com’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 Salesforece.com relationships in just this way. This will involve tighter technical integration with both Google and Saleforce.com, and apparently some marketing to the Salesforce.com customer base.

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

Yesterday’s announcement doesn’t mean the nightmare has come true – this is a small investment by Salesforce.com, not an acquisition, and it’s quite clear that HubSpot intends to go public on its own. But if Salesforce.com 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 Salesforce.com 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, 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).

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.

Republished with author's permission from original post.

3 COMMENTS

  1. David: Thanks for taking the time to share your thoughts on what this development means for Hubspot and adding some clarity to a space that can be hard to wrap your head around when looking for solutions. My team currently uses Hubspot and I feel, while not perfect, it presents a good value while meeting our immediate needs (B2B lead gen). Our strategy relies heavily on success in organic search and Hubspots bias toward this approach made it a natural fit. I agree strongly with your take on the ongoing apples to oranges comparisons – it is pointless, confusing and borders on absurd. Compared to enterprise MA competitors (those developed to support enterprise marketing efforts dominated by outbound campaigns) Hubspot is relatively thin in capability. And the market share numbers ($Rev vs client count) are shameless, uneeded spin.

    If you’ve not read the discussion, the first place I encountered debate over the positioning of players in the AM was a LinkedIn “answers” thread from 2009 (Hubspots Volple and Shah weigh in).

    http://www.linkedin.com/answers/marketing-sales/sales/lead-generation/MAR_SLS_LGN/548663-42105

  2. As a SMB myself (solopreneur), my observation is that their pricing is all wrong, to be a viable solution to business owners of small businesses. For example, I’m a Salesforce Pro user, and it would cost $1,000 a month to have integration with Hubspot and Salesforce. Same problem with their insistence on using their website CMS. My sites are on a variety of platforms, including WordPress, Joomla and HTML. I want to be able to track visits to all of them, and optimize all of them for search. I’ve invested quite a bit in each of them – yet, unless I am willing to pay $1,000 a month, it is my understanding they would be deprecated in favor of a Hubspot CMS site, that could cost me even more. And how do they handle businesses with multiple websites and divisions?

    And lately, I’ve had trouble reaching a salesperson who will call me back to address these questions, so I guess I’m not going with them after all. I’ll continue using Leadformix, with nearly everything Hubspot Pro has, at $300 a month.

  3. It’s pretty amazing how companies speculate the potential success of a company. Whenever someones willing to invest millions of dollars into something–especially with the name google attached to it–we should assume its going to be an immediate success!!

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