Salesforce.com Shakes Up the CRM & Marketing Automation Industries

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.

Comments (6)	— Comments for this page are closed —

	Chris Nichols
	Now salesforcecom has to implement their third internal marketing automation system in just 18 months.

		Christy
		Why is that?

		Chris Nichols
		They originally implemented Eloqua, but then ripped that when Oracle bought Eloqua. They then implemented Marketo, however, was only months ago. Now they are implementing Pardot since they now own that software.

		spessard holland
		In a similar move whereby competitors acquisitions determine which internal apps they use, Microsoft is now throwing out ExactTarget. This is really something as Microsoft spent over 3 years customizing ExactTarget for their needs and uses this product for almost all marketing related emails that go out from the company. Ah, the politics of business systems.

	Alex Peneus
	Best independent analysis I've read thus far.

	Zach Kirk
	ExactTarget buying a company (Pardot) of less than $10M revenues for $95M is nuts, unless of course somebody else comes along and buys a $292M unprofitable company (ExactTarget) for $2.5 billion. This really appears to follow the bigger fool theory. I get the CRM and marketing products are complimentary, but that doesn’t justify bad financial decisions.

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So was the Salesforce.com acquisition of ExactTarget a smart move? IMHO, yes, but in typical Salesforce.com fashion the company significantly overpaid.

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