Tuesday, March 25, 2014

Rise Of The Digital Marketing Suite – Part III (Deep Dive: Microsoft)

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, Microsoft, 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 buckets here and focus instead on each of these 5 main players and their businesses while coming back to our buckets from time to time.

We have already covered Adobe SystemsSalesforceOracle, and IBM.  Today we will discuss Microsoft.

History - Of the big 5, Microsoft has actually taken the most balanced approach to accessing CMO spend, acquiring 3 companies and building 2 businesses internally.  They are, however, the most prolific of the 5 majors from a dollars spent and market comparables standpoint buying those 3 companies for a combined $7B+ at a range of 11.7-60x LTM Revenues. Microsoft’s true beginnings in the space go back to 2007 when the company made a huge bet in Analytics, acquiring aQuantive ($6B EV / 11.7x LTM Revs) to build a complete end to end solution on the advertising side. While we don’t need to get into the details of the “2007 ad serving wars” or the fact that this acquisition has largely been written down, this was Microsoft’s first foray into accessing CMO spend and it made sense at the time. They waited 3 years to grow further into the space and in April 2010 went internal for the first time, launching the 2010 version of Sharepoint which had much deeper support for the CMO. This gave them a great internal tool to access the Content Managementcategory of CMO spend. Although the product dates back to 2001 it really was not until the 2010 version that you start to see them talk about the focus on the marketer with the product. Next in December 2010 Microsoft went internal for the second time, refreshing their Microsoft Dynamics product to include much more rules based marketing and campaigning components. This gave them access to the Marketing Automation category for the first time and again while the product dates back to 2003, Dynamics 2011 was really the first build that included marketing automation tools. Next in July 2012 Microsoft moved into the Social bucket, acquiring Yammer ($1.2B EV / 60x LTM Revs) to help organizations manage and measure marketing activities. Finally in October 2012 via it’s acquisition of MarketingPilot (Undisclosed / Undisclosed) Microsoft got into the Campaign Management / Email Marketing space. While undisclosed and small, we include this acquisition as it does represent a standalone bet in a specific category and does make up a part of their marketing suite. While they have always hinted at the importance of the CMO, it wasn’t until December 2013 that you started to see the efforts crystallize in a campaign they call “Reimagining Marketing" within the Enterprise division. We note that unlike their competitors they still to this day don’t really talk about a fully integrated solution in the market or label their product specific to a "marketing cloud" concept. In sum, the story is short and sweet with Microsoft in the space.

Strengths / Weaknesses - Like IBM, Microsoft is only recently really moving away from client/server based products towards the cloud. This has hurt them a bit in the space, but the scale of products like Dynamics, Sharepoint and Yammer should not be overlooked. Roughly 78% of the F500 continue to use Sharepoint and Dynamics still has 40,000+ customers and a huge stronghold on many market segments like hospitality and retail. They are good products for a marketer and still remain a trusted resource for many large companies. Yammer continues to grow from within and like Buddy Media (Salesforce) can be viewed as a strong success story within each company’s efforts to build a marketing suite. On the downside though, Microsoft still has a gaping hole in the eCommerce category and the aQuantive write down did not help the company at all in the Analytics segment. They now lack a strong product in that area and with many of their larger competitors continuing to drill down deeper it seems tough to recover at this point. Overall Microsoft continues to have strong products in several core areas but is noticeably lacking in others.

Go Forward - Unlike the other 4 players, Microsoft is a bit of an oddball in the space today. They don’t seem to want to build off of their existing tools via M&A like Oracle and IBM and instead make small incremental changes to core products like Dynamics and Sharepoint to access the marketer. In addition, they still don’t 100% embrace the marketing suite and do not offer a unified solution as far as we can tell. Compliment this with a CEO change and a long backlog of issues and we believe that Microsoft will largely be “steady as she goes” and out of the bigger picture in the coming years. That said if they did move forward and go deeper in the marketing space we believe that eCommerce,  Campaign Management / Email Marketing and Content Management are the likely places they would start. They have a hole in commerce and the other two categories are largely dated tools for the company. Finally the aQuantive deal badly burned Microsoft and we don’t expect them to acquire anything big in the Analytics area for some time (if ever again).

That’s it for Microsoft and the big 5 players in the space but as we know this doesn’t represent the entire picture.  Some standalone companies are better at certain things than even the big 5. As a result, next up we will walk through some of the larger independent companies and follow the same logic as these big 5 players.

Never too late to start…

Never too late to start…

Wednesday, March 19, 2014

Rise Of The Digital Marketing Suite – Part III (Deep Dive: IBM)

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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 buckets here and focus instead on each of these 5 main players and their businesses while coming back to our buckets from time to time.

We have already covered Adobe SystemsSalesforce, and Oracle. Today we will move on to IBM.

History - If Adobe, Salesforce and Oracle predominately bought their way to the CMO in recent years, IBM has taken a much more internal build strategy to access marketing budgets. The company has built 4 products internally and only acquired 3 businesses for a little over $1B. They have spent the least of all of the big players by far and also were the first of them to actually formulate the ideas for a marketing solution starting in 2010. IBM took a similar approach to Oracle in that much of their early M&A around the marketer was to build off of a main product they have offered for over 10 years called WebSphere Commerce.

Starting around 2001 IBM (like Oracle) started out in the eCommerce vertical. Around this time, the company re-vamped their old Net.Commerce product to a re-named IBM WebSphere Commerce and started offering the core product on-premise to CTOs and CMOs mostly to bolt on customer data to the core infrastructure. It was their first foray into the marketing suite and was an internal project from the beginning as a way to capture more share in retail. They took about 9 years to move further and in June 2010 acquired Coremetrics (Undisclosed / Undisclosed) to get into the Analytics space. While the numbers have not been released we add Coremetrics here given the size was likely $100M+ and the company makes up a large portion of the analytics package that IBM offers today. Next in August 2010, the company made it’s second acquisition buying Unica ($447M EV / 4.1x LTM Revs) to get into the Marketing Automation and Campaign Management / Email Marketing space as well as drill further into eCommerce. The product was a great addition on top of WebSphere Commerce and much of the talk around the transaction was drilling further into specific industries (again note the similar approach as Oracle) with Unica as an addition. With 4 of the 6 categories covered by the internal build of WebSphere Commerce and acqusitions of Coremetrics and Unica, IBM began to start talking about the importance of the marketer in late 2010. They were really the earliest to do this, it was just a bit opaque at this point. In 2011 IBM got into the Content Management space by going internal again, renaming their old Aptrix product to IBM Web Content Manager and talking a lot more about the focus of this product towards the marketer. With all of these solutions on board we start to see IBM crystallize their older 2010 thinking. By June 2011 they pull these 5 categories together into what they call “IBM Enterprise Marketing Management.” This remains their core offering today and note that unlike Adobe, Salesforce or Oracle the company does not use “marketing cloud” in name and sales material and instead goes with this term as their equivalent. In May 2012 the company moved further into Analytics by acquiring Tealeaf ($500M EV / 10x LTM Revs) for the most amount and highest comp paid to date. Finally in late 2013 IBM launched their final two internal products, getting into the much needed Social space via a product called IBM Social Media Marketing Solutions and deeper into the Analytics space via a product called the IBM Digital Marketing Network.

Strengths / Weaknesses - The theme of IBM in marketing has primarily been on-premise tools, things built internally, and an intense focus on commerce. As a result they have arguably the best solutions out there for a retail or commerce focused marketer. Coremetrics still outcompetes Site Catalyst and OBI EE in retail and is generally referred to as a strong product in the market. Unica also does extremely well in certain verticals and areas and the core IBM internal products (particularly WebSphere Commerce) do stand up on their own. They have, of all the big 5, the most integrated of product suites and have not historically faced the integration challenges given so much was built internally and on top of existing infrastructure. That said, Coremetrics has trouble outside of retail, Unica is a largely on-premise product and expensive, and the internal products that IBM offers are for lack of a better word aging. In a world where the move to cloud infrastructure is so important IBM is seriously lacking today and continues to lose share as a predominately hardware and consulting vendor of old.

Go Forward - IBM has largely missed out on the cloud revolution in marketing and still views their CMO access points primarily through the lens of their on-premise Smarter Commerce initiatives that they drive. That feels like a difficult spot to be in especially when their core offering of WebSphere Commerce isn’t particularly relevant to old school or next generation commerce marketers who are moving more to the cloud. As a result, we see the story ending one of two ways here for IBM.  The company has not historically been very acquisitive so there is the possibility of submitting defeat (in a theoretical sense) in marketing to Adobe, Salesforce and Oracle. They could really try to focus on their commerce segments and keeping those customers for as long as possible. The other approach would be IBM going “cloud shopping” and doing what Adobe, Salesforce, and Oracle did from 2010 until today. They would be behind on the racetrack but the market is still large enough for the taking. The former feels more realistic to us given their approach to date (with all the M&A in recent years they stayed out of the game) but we wouldn’t rule out anything with the current leadership and interest in the space.

That’s it for IBM.  Next we will move on to the final company, Microsoft.

Monday, March 17, 2014

Rise Of The Digital Marketing Suite – Part III (Deep Dive: Oracle)

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 buckets here and focus instead on each of these 5 main players and their businesses while coming back to our buckets from time to time.

Last week we covered Adobe Systems and Salesforce.  Today we look at Oracle.

History - Since around 2010, Oracle has only acquired companies to get into this space. They are the most prolific of the 5 majors from a number of acquisitions and total dollar amount standpoint having bought 8 companies at roughly 4.0-16.3x revenues for a total of $6.7B. Important to note that while Oracle started very early from an M&A standpoint they really did not conceive the idea of a true marketing cloud until 2013 like Salesforce. That said, their strategy can be considered a bit of “accidental genius” in that pretty much every acquisition they did was to build upon the core Siebel CRM product and drill down into what they called “industry specific enterprise applications” and a “customer experience cloud.” It just so happened that these applications involved buying what their customers wanted like an eCommerce platform, a CMS, social tools, and other value added services on top of the CRM. Step back today and a lot of these tools look good to a CMO.

Anyways, starting with the eCommerce category in November 2010 Oracle acquired Art Technology Group ($881M EV / 4.5x LTM Revs) or “ATG” as it more commonly known to really drill into the commerce vertical. They had success on the CRM side already with retailers and this was a logical next step to further their interests. In July 2011 they bought Fatwire Software ($160M EV / 4.0x LTM Revs) to again build off of the core CRM and into Content Management. Shortly thereafter in October 2011 Oracle made a huge bet in Analytics, acquiring Endeca ($1.1B EV / 8.6x LTM Revs) which today makes up a huge piece of the Oracle Business Intelligence Enterprise Edition (OBI EE) and was a bolt on acquisition to build off of Oracle’s existing BI tools. Not to be trumped, the company again made a huge purchase in October 2011 buying RightNow Technologies ($1.4B EV / 6.6x LTM Revs) to get into the Social space. In May 2012 they made their second purchase in Social, buying Vitrue ($325M EV / 16.3x LTM Revs) for their highest comp ever paid. Then in December 2012, the company acquired Eloqua ($871M EV / 9.7x LTM Revs) to build into the Marketing Automation space. With RightNow, Vitrue, and Eloqua on board this was the first time in the press that you saw Oracle talk about the CMO and a heightened awareness to the marketer. As a result by Q2 2013 after these acquisitions had closed you started to see the transformation to today’s “Oracle Social Cloud" and “Oracle Eloqua Marketing Cloud” from what used to be “Collaboration, Marketing, Selling.” Note that Oracle still does not have a unified sale to a CMO and it is still broken up within a few areas of their Business Solutions group. Following the public appearance of their interest in the CMO though, Oracle made its largest acquisition to date buying Responsys ($1.6B EV / 8.2x LTM Revs) to get into the Campaign Management / Email Marketing space. Their final acquisition to date came just a few months ago drilling further into the Marketing Automation space by acquiring BlueKai ($400M EV / 6.3x LTM Revs).

Strengths / Weaknesses - Oracle has one of the most comprehensive offerings out there today for the marketer and the sheer number of acquisitions in the space has allowed them to cover and go deep in pretty much all of our categories. Eloqua remains a market leader in the Marketing Automation space and the Oracle Business Analytics and Intelligence (OBI EE) suite only really goes head to head with Site Catalyst in the Analytics category. Vitrue continues to have a tight grip on the Social space although competition is increasing and there are a lot of strong products in that category. Some view a few “old and tired” names in their portfolio like RightNow in Social, Fatwire in Content Management, and ATG in eCommerce but these companies still have thousands of customers and solid growth numbers. Overall, Oracle still has a really strong end to end solution built from the CRM layer up that is tough to dispute right now.

Go Forward - Similar to Salesforce we know that Oracle is willing to buy assets to be competitive in the space and that they will pay up for whatever needs to fit their client needs. However they are the farthest along and are probably not really in need of many solutions at this point. There is some logic to them doing a bit of an M&A refresh around eCommerceSocial, and Content Management but that seems like a wild card given they are not losing huge share these days. They face hard integration challenges with recent M&A and still don’t sell a unified product to a CMO (yes they sell a “customer experience cloud” but that isn’t really specific to a marketer) and we think that this will be the focus of the next few years for the company.

That’s it for Oracle.  Next we will move on to IBM.

Sunday, March 16, 2014

Making tea is a lot more intense than I thought. At Norwood Estate in Ceylon, Sri Lanka.

Saturday, March 15, 2014
High tea in Ceylon, Sri Lanka.  Surreal place.

High tea in Ceylon, Sri Lanka. Surreal place.

Wednesday, March 12, 2014

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.

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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 MarketingMarketing 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 MarketingContent 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.

Tuesday, March 11, 2014

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.

My favorite photo from the weekend…

My favorite photo from the weekend…