How great is the cloud where you can connect everything? The ‘open’ spirit where everything nicely gets integrated. An open ecosystem with Salesforce as the undisputed leader. Yet, an open philosophy is not just about technology. It’s also about the players in that ecosystem. With the acquisition of ExactTarget by Salesforce, the effects of a changing ecosystem show and it will hurt many players in the industry.
Marketo, Eloqua, Neolane, HubSpot, ExactTarget and all other marketing automation vendors: what do they have in common? Indeed, they connect with Salesforce. Look at other marketing software platforms such as social CRM and email marketing: same thing. After having acquired social media monitoring leader Radian6 (now simply integrated with BuddyMedia in the Salesforce marketing cloud) and with the pending acquisition of ExactTarget, ‘common link’ Salesforce is changing the rules. But does it have a choice?
It was expected and predicted that after the acquisition of Eloqua by Oracle end of last year, Salesforce would make a move in the marketing automation space. Most analysts saw a potential acquisition of Marketo or HubSpot. Yet, Salesforce went for ExactTarget (and what many seem to forget: after Pardot, that was acquired by ExactTarget last year). It’s obvious Pardot was an important reason why Salesforce fought and won the battle.
The consequences of the announced acquisition already show. After a successful IPO, Marketo is less happy today: the early gains (and a bit more) are given back as Seeking Alpha reports: “Roth points out Marketo gets 90% of its revenue from Salesforce’s customer base, and thinks Salesforce’s purchase of a rival could cause “medium-term problems.” Will they continue to show?
Update: in the meantime, Marketo CEO Phil Fernandez reacted as well, emphasizing the strength of Marketo, the fact that Salesforce’s own customers have rated Marketo as the best marketing solution, the fact that the Salesforce move affirms the direction we’re heading in and underligns Marketo will continue working with ALL (in capitals) leading CRM solutions.
Fernandez has to react of course, the laws of the stock market. However, knowing the agressive price wars and sales practices in the marketing automation industry and the net margins of many vendors (often losses), I can assure you that there is more than the official statement. It’s not that Fernandez is such an active blogger. And as all PR professionals know: the CEO most of the time uses the corporate blog in times of crises. But, of course I might be wrong.
Only affecting the B2B marketing automation space?
It seems that the acquisition will mainly affect the B2B marketing automation space, even if ExactTarget, which bought marketing automation vendor Pardot in 2012, is also active in B2C marketing automation (with Pardot as the B2b offering). Yet, the core business of Salesforce is B2B.
I asked David Raab to share his views on this new step in a consolidating industry and he thinks B2B will be affected most. Update: in the meantime David updated his views after having heard the analyst call: “I’ve now had time to listen to the analyst conference call…it clarifies that Salesforce’s main goal was finding a single system that would support sophisticated cross channel marketing campaigns, with particular stress on heavy automation and new devices such as mobile. They do seem more interested in B2C than I would have thought”.
David Raab: “I think Salesforce will remain focused primarily on B2B, since that is the focus of its core CRM products (see update, however). This does make it much harder for B2B marketing automation vendors, even though I expect that Salesforce will continue to allow them to connect with its products.”
In the meantime this has been confirmed by Salesforce’s Benioff. However, he did point at the “dynamic nature” of the Salesforce AppExchange. And there is indeed reason to be scared. IDG News Service cites COO George Hu: “We certainly plan to continue to support all of our partners in the AppExchange…we’ve always had an open philosophy.” Yet at the same time Hu says “Salesforce.com’s ability to offer a unified marketing platform will result in many customers making the switch from other marketing products.”
The opposite would have been surprising. While many analysts point at the increasing decision power of the CMO in digital marketing investments and Gartner’s famous predictions in this regard, the evolutions we’re witnessing are not new. Just look at this 2010 interview with Selligent CEO André Lejeune (disclaimer: I was a marketing consultant for that company for some years). I mention that interview as Selligent recently officially announced it goes to the U.S. (David reported on that here and added it to his list of mid-tier B2C marketing automation systems, along with Alterian, Neolane and a few others including…ExactTarget.
Which vendors will be affected most?
So, I asked David if the plans of the company would be endangered in his opinion and what vendors would suffer most.
David Raab: “It will be especially difficult for smaller marketing automation vendors, who already have a hard time getting attention of potential buyers and now have another competitor who is likely to have a larger market presence than they do.”
Who is ExactTarget competing with today? Silverpop, Neolane,…?
David Raab: “ExactTarget certainly competes with Silverpop, and to some degree with Neolane. But they don’t offer sophisticated B2C marketing automation along the lines of a Neolane (mid-market) or IBM/Unica (enterprise market). So I don’t think this deal greatly affects the ability of new companies like Selligent to enter the mid-tier B2C marketing automation segment.”
The people at Silverpop don’t seem too worried and see it more as an opportunity and sign the CMO is taking the lead as reported before.
Lyris CMO, Alex Lustberg: “On the heels of Marketo’s recent IPO and Oracle’s purchase of Eloqua, Salesforce’s bold move into this space has been anticipated and signals a well-established trend toward further consolidation in the industry. The move also highlights the growing influence of the CMO in the technology purchase decision making process. It will be interesting to track the changing relationship between the CMO and CIO as enterprises seek to harness the power of integrated solutions to derive actionable insights and deliver measurable business growth. There is now a lot more pressure on the CMO to deliver bottom line results.”
What options do the marketing automation vendors have?
While all this is true and the evolutions can’t be stopped in an increasingly connected marketing software space where the customer and CRM are at the center, this is for sure:
- Salesforce has such a dominant position that the ‘open philosophy’ is really about technology and not that much about the partner ecosystem. It’s business as usual, even if some question Salesforce’s financial position. Salesforce will do what it has to do and continue on the road of offering it all, unless they’re forced to take another course of action.
- Marketing automation vendors and other players in the field of marketing software know where Salesforce is heading: offering a unified solution to its customers. And that means trouble, whether you want it or not. Because it will not stop here, even if Benioff announced ‘a break in acquisitions’ (does he have much choice?). Will it just be in B2B? The lines are getting thinner and David is probably right but we can’t predict the future. Update: David posted about the deal and makes a good point about web content management and about Adobe as well. He also mentions it will be about the B2C marketing automation space as well. Furthermore, as I’m analyzing the content marketing software industry lately I can tell you, based on reviews, that this is another industry knocking at the door once content marketing is professionalized and integrated with marketing automation – that is in bad need of content – as Marketing.ai, for instance does with HubSpot). Disclaimer: I’m a HubSpot partner.
- Ray Wang was quoted by IDG News Service saying that “overall, Salesforce.com will be in co-opetition with Marketo and all other marketing automation products, but the stakes will vary depending on the situation, Wang said.” But, even if “co-opetition” is an extremely good book and Ray has a point, something tells me you can’t compete with your partners too long. Always follow the money and we know the CMO decides increasingly on the money.
The big question is probably not if Salesforce had another choice in its’ competition with the Oracle and IBM powerhouses but if marketing automation vendors have another choice than to shut up and accept.
What do you think?
UPDATE 2: Craig Rosenberg posted some expert and industry views and there are some that are absolutely to the point (you can read them all here):
Raghu Raghavan (Act-On Software): “It is very clear that this acquisition is aimed purely at the financial markets as Salesforce tries to bulk up against the likes of Oracle and Workday, but it doesn’t serve Salesforce’s long-suffering customers.”
Matt Heinz (Heinz Marketing): “Salesforce is really late to the party on this. They haven’t been very quick to integrate products and platforms either, so I expect this acquisition might deliver quick value in terms of revenue and sales, but it’ll be quite awhile before we see the true product integration that will make sales & marketing’s lives much easier.”
Mike Volpe (HubSpot): “The deal shows that the marketing software industry is big and growing. It is so important that Salesforce now seems scared of the up and coming marketing software companies, and have spent over $3.5 billion on 3 different acquisitions to try to protect themselves from being disrupted.”
Update 3: the people at Sirius Decisions also shared their views and – obviously – add some good reasons why Salesforce.com (might have) picked ExactTarget/Pardot. One of them: licensing revenue model, rather than services…
Final note: watch out for the next move as Salesforce.com was not alone fighting over ExactTarget and we all know what that means…. The people at Neolane updated their marketing technology monopoly board and, yes, that’s a question mark at the end.