Rise Of The Digital Marketing Suite – Part III (Deep Dive: Salesforce.com)
In Part II of our series on the rise of the digital marketing suite we laid the groundwork for who is currently operating in the space today and selling into the CMO suite. The market has grown substantially in just the past 5 years and today calls big players like Oracle, IBM, SAP, Adobe and Salesforce the category leaders. For Part III on the landscape we continue to understand “how did all of these players get to where they are today, what are their strengths and weaknesses, and where are they going?”
We will again deviate a bit from the normal categories here and focus instead on each of these 5 main players and their businesses while coming back to our buckets from time to time.
First up was Adobe Systems. Today we cover Salesforce.com.
History - Since 2011, Salesforce (like Adobe) has predominantly acquired companies to get into this space, buying 3 companies at roughly 7.6-20.0x revenues for a total of $3.4B and like Adobe building only 1 product organically. Amazing that both companies spent almost the exact same amount to get into this space with tradeoffs. Salesforce did this with 3 less transactions but was about 2 years behind Adobe in thinking about the marketing cloud. Starting with the Social category in March 2011 Salesforce acquired Radian 6 ($326M EV / 9.3x LTM Revs) to enhance all of it’s existing products. The concept of a marketing cloud barely existed yet within Salesforce and it was not until their next acquisition in June 2012 of another Social category company called Buddy Media ($652M EV / 20.0x LTM Revs) that the company started touting the concept of a marketing cloud. They would immediately combine Radian 6 and Buddy Media post acquisition to form this concept of a marketing cloud. Then, in early 2013 the company took a pause from M&A and instead launched it’s own product to add again to its Social category called Social.com. Finally in June 2013 the company made its largest acquisition to date buying Exact Target ($2.3B EV / 7.6x LTM Revs) to build into multiple categories including Campaign Management / Email Marketing, Marketing Automation (via Pardot) and Content Management. Like prior integration, the company brought Exact Target and Pardot into the Radian 6 and Buddy Media family to make up what we know today as the “Exact Target Marketing Cloud.”
Strengths / Weaknesses - Salesforce has built a strong solution set for the CMO today with really strong products in Marketing Automation and probably the deepest solution out there right now in Social. Pardot is one of the best in the Marketing Automation category which gives them a distinct advantage over many of the large independent vendors as well as the big 5. They have no product to service the Analytics or eCommerce bucket and their depth in mobile and video like Adobe is somewhat limited. Before Exact Target they were severely lacking in the Campaign Management / Email Marketing, Content Management, and Campaign Management / Email Marketing categories but today they are close to having a full solution in every category. Like Adobe there is limited amount of integration and only time will tell if all of these solutions can unify to a great product for a CMO.
Go Forward - With Salesforce we know two things. First, they have publicly stated that they want a huge share of CMO dollars over the next 10-20 years. Second, they have an incredible visionary behind the wheel who is not price sensitive and sees the future. For a while many questioned what Radian 6 + Buddy Media would really get them but with Exact Target it is clear that they are going after all of the major CMO categories. We would expect Salesforce to really think hard about buying companies in the Analytics category as well as eCommerce to build the full solution. Finally we do know that the company has a history of going deep in each category so there is a chance that they pick up more businesses around Content Management and maybe Campaign Management / Email Marketing rather than Marketing Automation given the already great product they have in Pardot.
That’s it for Salesforce. Tomorrow we will move on to Oracle.
Rise Of The Digital Marketing Suite – Part III (Deep Dive: Adobe Systems)
In Part II of our series on the rise of the digital marketing suite we laid the groundwork for who is currently operating in the space today and selling into the CMO suite. The market has grown substantially in just the past 5 years and today calls big players like Oracle, IBM, SAP, Adobe and Salesforce the category leaders. For Part III on the landscape it is important to understand “how did all of these players get to where they are today, what are their strengths and weaknesses, and where are they going?”
We will deviate a bit from the normal categories and focus instead on each of these 5 main players and their businesses while coming back to our categories from time to time. First up is Adobe Systems.
History - Since 2009 Adobe has predominantly acquired companies to get into this space, buying 6 companies at roughly 5.0-6.0x revenues for a total of $3.2B and building only 1 product organically. Starting with the Analytics category in late 2009 they began with their biggest acquisition to date acquiring Omniture ($1.8B EV / 5.0x LTM Revs) and it’s SiteCatalyst SaaS product. Next in July 2010 they bought Day Software ($214M EV / 5.1x LTM Revs) and their line of CQ products to move into the Content Management category. Following in 2011 they went on a spree, acquiring Demdex ($58M EV / Undisclosed) in January to get into the Social category, Auditude ($128M EV / Undisclosed) in November to build further into the Analytics category following the Omniture acquisition and Efficient Frontier ($400M EV / 5.3x LTM Revs) in December to get into the Marketing Automation category. In 2012 the company took a pause from M&A and instead launched it’s own product to add to it’s Social category called Adobe Social. Sure they had launched some small bits and pieces along the way but this was the first major category that they tackled internally. In addition, this was also the first year that the company officially brought about the concept of the “Adobe Marketing Cloud” in sales material, collateral and effort and it now is basically the product they sell into a CMO. Finally in June 2013 the company acquired Neolane ($600M EV / 8.6x LTM Revs) to build out their Campaign Management / Email Marketing category and only time will tell what is next.
Strengths / Weaknesses - Adobe is a clear frontrunner given it’s depth and breadth of product in the market today and they are really only challenged seriously in most head to head business discussions by Salesforce or pointed independent vendors. Remember that they have a huge creative side to their business in digital marketing and digital media so are generally at a distinct advantage and go-to-market relative to other companies in the space. SiteCatalyst (Omniture), CQ (Day Software) and Efficient Frontier are clear market leaders in the Analytics, Content Management and Marketing Automation categories. They have no product to service the eCommerce category and their depth in mobile, social and video is somewhat limited. Finally, they were severely lacking in the Campaign Management / Email Marketing categoryuntil the Neolane acquisition and only time will tell if that solution will have success integrating into the broader Adobe sales platform.
Go Forward - Adobe has an almost complete solution at this point and we don’t believe them to really be acquisitive any longer save for a few spaces. They are patient, buy for value (usually 5-6x LTM Revs) and have been one of the more thoughtful leaders in the category here. That said, they still lack in eCommerce and while they publicly say that they are OK with partnerships we believe they will ultimately buy someone to complete their package. Second, their media optimizer product is widely used in search and online display but lacking in social, mobile and video. We expect them to continue to buy around this theme in Social and Marketing Automation.
That’s it for Adobe Systems. Tomorrow we will move on to Salesforce.
Rise Of The Digital Marketing Suite – Part II (Who Are The Players?)
In Part I of our series on the rise of the digital marketing suite we laid out specific categories that the CMO was buying in. We see 6 major buckets that CMOs are looking at spending money in and think most of today’s categorization can be broken down into those buckets. For my second post on the landscape it is important to understand “who are the players that are offering these products to CMOs and trying to access budgets?”
Sticking to our 6 categories:
Analytics – Adobe, Oracle, Microsoft and IBM are constantly involved in the discussion in this category. More independent vendors like WebTrends, SAS Institute, ComScore, AsterData, Yahoo!, Google, Infor, WPP, Nielsen/NetRatings, and Aprimo have also been very active in the category over the past several years.
Content Management (CMS) – Adobe, Oracle, Microsoft and IBM are also involved in this discussion in a big way. Salesforce is a recent entrant into the discussion and independent vendors like HP, Acquia, Drupal, OpenText, Joomla!, Alfresco, WordPress, and CoreMedia are also a part of the conversation.
Social – The big 5 (Adobe, Oracle, Salesforce, Microsoft and IBM) are major players within this area and continue to build scale and depth in the category. Visibile Technologies, Lithium Technologies, and Google are also a part of the conversation as the independent vendors in the space.
Marketing Automation + SEM – Again the big 5 are all active in this category but there are a fair number of large independent vendors that have had success in recent years selling to CMOs including Marketo, HubSpot, Efficient Frontier, Marin Software, Google/DoubleClick, WPP, SearchForce, IgnitionOne, Criteo, Kenshoo, and others.
E-Commerce – Oracle and IBM are involved in the discussion here with the other 3 majors notably out of the conversation to date. SAP, Demandware, eBay, and Shopify are the few other players out there that are also a part of the conversation.
Campaign Management / Email Marketing – The big 5 have a number of solutions in the category as well as independent vendors like YesMail, StrongMail Systems, Constant Contact, Experian/CheetahMail, and Epsilon.
Note that these lists are not exhaustive and are more a display of the world as we see it talking to many CMOs who buy these tools. The list is also not broken out by largest player to smallest player from a customer or revenue standpoint but I plan to do that in a later post as well as touch on some of the most interesting start-up companies in each category. One of the key takeaways is really that there are 5 major companies that have built a huge presence in accessing the CMO, with IBM having the greatest depth of product suite in the category. Now that we have the categories that matter as well as the players that are in it for Part III I will discuss how each of these players got to where they are and how they are positioned.
Charlatans & Noblemen In Software Sales
In helping our portfolio companies access new customers and potential revenue opportunities we have seen a lot of excitement from new technology buyers. At first this seems incredible, our companies get excited and then ultimately the lead doesn’t convert. Big company CEOs today know they need to be smarter about technology and this cascades down to the CMO, CTO and CIO level. As a result there is a flurry of activity today in the market. When the lead doesn’t convert we ask ourselves a lot - why did this happen? Did we sell too hard? Did we not qualify the lead enough? Were we talking to the right person? In many cases you are left puzzled as the CXO will be an active participant in the community, speaking at conferences, writing thought leadership, acting the part and generally “talking the talk” about new technology. Recently we’ve had a fair amount of success with a single question that helps differentiate a prospect and tell a founder whether the lead is on a research mission or actually interested in buying new technology.
What new vendors have you worked with in the past year that you are really excited about?
The question is rarely posed but incredibly powerful. You’ll get an amazing point of view of how the company views “new” technology just from hearing about the vendors they are working with. You’ll get a great understanding of why they are excited and what the organizational key needs and pain points are (presumably that this technology is solving). Most importantly you’ll get a high level view of whether they actually are a buyer of new technology tools, totally full of it and just a mouthpiece, or averse to even thinking or talking about new technology. The world is wide open for new business software entrants who want to disrupt traditional models but it is now more important than ever to focus and understand who is actually a buyer and open to new tools and who is a talker and not actually going to change.
Thoughts On SAP HANA Cloud
- While IBM, Oracle and SAP did a huge press push last year around their core new products we didn’t hear much thereafter. This was a major update post launch and it is clear that HANA Cloud is going to really be a big push for SAP in 2014-2015. They care so much they may need to de-emphasize pricing in order to spur adoption and are also trying to build out big ISV partnerships to support the growth.
- Management noted that HANA Cloud will be able to reduce the footprint of CRM and BW (business warehouse) deployments, for example, as one view of the customer is contained at the core database level. Effectively, they will sell less products end of the day here and move to more of a full platform versus bits and pieces put together.
- They have 53 customers on HANA Cloud systems currently live and 250+ go-live projects in the works. One customer, ConAgra Foods, noted that the flexibility to deploy HANA in increments (vs. a total rip-and-replace) was a key differentiating feature. Very important as emerging companies think about competing with SAP. The buyer wont need to rip out the whole solution any more which could be beneficial to incumbents.
- From the sales standpoint, SAP stressed that it is re-engaging at the Line of Business level as business users and executives are most focused on business outcomes (as opposed to IT departments that are focused on infrastructure). Just interesting to see them gear up in this regard and sell less directly into the CTO or CIO.
- Also on the sales side SAP went through a big re-alignment recently and they are now aligned by industry, with territories and accounts set up to facilitate long-term relationships in industries. While they haven’t put out the word yet from a hiring standpoint you could see industry-based solutions for verticals such as Financial Services, Insurance, Retail, and others popping up soon.
Rise Of The Digital Marketing Suite - Part I (What Categories Does The CMO Buy?)
At Bowery Capital a major area of focus for us is around the CMO. We talk to about 5-10 CMOs a week, mostly at medium to large companies to both understand the market to invest more wisely but also to help our portfolio companies access more customers. Since 2010 when we were at AOL Ventures we began to seen a flurry of activity around CMO spend from a new company formation standpoint. This has started to generate M&A and IPO events and we believe that 2014 and beyond will be great years for those that play in this space.
Given the amount of questions we constantly get from our portfolio about the state of the state, we thought it would make sense to provide our point of view and research. For my first post, it is important to understand “what are the categories that the CMO is buying?”
We break this down into 6 major categories**:
Analytics - Any tool that combines the power of actionable analytics and audience segmentation with value reporting and analysis.
Content Management (CMS) - This segment usually enables marketers to create, manage and optimize customized online customer experiences.
Social - Encompasses any tool that helps CMOs measure and manage marketing across social media sites, platforms, apps, etc.
Marketing Automation + SEM - Probably the most talked about segment, this combines portfolio and rules based ad management with intelligence campaign forecasting and targeted ad delivery.
E-Commerce - Any platform that encompasses and incorporates commerce for all channels including web, mobile and social.
Campaign Management / Email Marketing - Platforms that deliver sophisticated campaigns via email to reach potential customers and grow existing customer relationships.
There are obviously more categories and sub-categories that one could create but this is how we generally see it at Bowery Capital and many of the CMOs we speak with feel this accurately describes the market from a spend standpoint. When you start to think about your company selling into the CMO, start to think about these buckets. For Part II, I will talk about the major players in the categories to set a competitive landscape.
**Kudos to our friends at Evercore for coming up with these categories