
Salesforce Buys ExactTarget for $2.5 Billion - Brajeshwar
http://allthingsd.com/20130604/salesforce-com-makes-its-biggest-acquisition-yet-buys-exacttarget-for-2-5-billion/
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Jd
Here's some perspective from someone deep within the Salesforce ecosystem:
Salesforce has very concretely and deliberately pursued the "imperial"
approach in the B2B/Enterprise market, which is to do a careful survey of
existing products in a particular space, the potential revenue to be gained
from expanding into that space, and what is needed to get a heads up on
existing products.

As is generally the case in the enterprise space, this means providing more
features than the competitors. There is also a network effect in that the more
features and integration points a particular platform has, the more valuable
it is.

Salesforce has done this extremely effectively, from salesforce automation, to
customer relations management, to customer service, etc. In many cases now it
is virtually unimaginable not to use Salesforce, since the feature set is so
extensive. One note here is that although the UI has had its warts, Salesforce
is actually has a much better UI experience compared to most other enterprise
apps (lightweight competitors tend to be better, but not deliver the feature
set).

In any case, marketing is a natural extension for Salesforce at this point and
I have ever reason to expect they will be successful at dominating this market
segment just as they have in other sectors and points on the value chain. If
they have to pay a bit of a stock price premium in order to do so that's not a
lot of sweat off Benioff's brow.

~~~
inthewoods
"Salesforce has done this extremely effectively, from salesforce automation,
to customer relations management, to customer service, etc. In many cases now
it is virtually unimaginable not to use Salesforce, since the feature set is
so extensive."

This is the same strategy that Microsoft has pursued for years - and it
sometimes works and sometimes doesn't - MSFT going after Intuit comes to mind,
as does their own Salesforce.com competitor.

ExactTarget is a good large-scale email tool, but it is a very below average
marketing automation tool. Now, they purchased Pardot, which is a decent, if
basic marketing automation tool - good for small business but nowhere near an
Eloqua or a Marketo - more comparable to Hubspot. So the question is how
integrated they can make all these various tools. To date the
Pardot/ExactTarget integration was rather weak - probably more to come on that
front. I could see a world where they use Pardot's front end and ExactTarget
just for scale email sending but the existing user base won't appreciate that
move.

Now, I look at the integration (or lack thereof) with existing Salesforce
acquisitions, and I have little confidence that Salesforce will be able to
build a world-class, fully integrated product. For reference, look at the
integration of Buddy Media or Radian6. So Salesforce may have all the tools,
but true integration between the tools has been historically lacking. Now
they're adding a company that is strong in B2C email and has a small B2B
marketing automation tool that they themselves are trying to integrate. Sounds
very complex and difficult - and sounds like something that would take a
number of years to get right.

The real question for me is what now happens to Marketo and Hubspot - Hubspot,
for example, has an investment from Salesforce, but was probably unavailable
for acquisition as they want to spin public. Now that Marketo is public, and
it looks like their business is not very sustainable (based on my read of the
S-1), they'll likely see their stock price dip to the point where they look
more interesting as an acquisition to someone. They're valued at around $800m
right now - so if they show poor financial metrics, I'd expect that to dip. If
they get cut in half, then a pick-up in the $600-800m range becomes viable -
about the same price as Eloqua - but I'm not sure who would be the buyer at
this point.

I think Salesforce did the right thing in terms of topline revenue
(ExactTarget does around $300m vs. $65m for Marketo) and customers
(ExactTarget has large B2C brands, Marketo mainly B2B), but they bought a far
inferior product. Maybe they pickup another company in the space for the
product?

~~~
mikecuesta
Not sure I agree that Marketo's business is unsustainable - clearly they want
to make more headway in the B2C space; the B2B Marketing Automation market
would seem to be saturated, but I would argue that there's still plenty of
growth for them for the next 3-5 years, at a minimum.

As far as I can tell, ExactTarget's marketing automation capabilities vastly
pale in comparison to Marketo or Eloqua, I could be wrong though.

~~~
tpiddy
something like 90%+ of Marketo's customers integrate it with Salesforce. Of
course Salesforce won't just cut them off if they have a competitor tool, due
to anti-trust issues, but it doesn't necessarily bode well for Marketo now
that Salesforce owns a competitor. Pardot is a fairly small piece of
Exacttarget though so potentially Marketo could still be a target at some
point.

Larger scale B2C marketing automation is generally much more complex than b2b.
Ecommerce databases are generally less normalized across businesses, aren't
hosted by an intermediary like salesforce and contain more data. Cross-channel
retailers with physical stores track a ton of transactions and customers. I
really don't think that any b2b marketing automation platform will make much
headway trying to go b2c. Hubspot has some success only because they focus on
local and small businesses.

~~~
dshah
As founder/CTO of HubSpot: We don't really sell much to local businesses.
We're in the SMB space but with an emphasis on B2B companies.

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jeremymcanally
I would comment on this, but DHH has captured my thoughts nearly exactly on
Twitter today: <http://twitter.com/dhh>

This is insane. $2.5b for a company that has lost money through its existence,
has a very small set of (likely not-so-diverse) clients (6,000ish), and makes
10% of what they paid for them in _revenue_? Strikes me as a crazy purchase,
but perhaps there's something else afoot that I don't see. I've been proven
wrong about this stuff before.

~~~
jhull
Buying ExactTarget adds 6000 more prospects/customers that Salesforce can sell
to. Assuming that it signs up a fraction of those to use Salesforce Service
Cloud or Data.com or any of the other Salesforce products, that's more money
and helps justify the price.

Oracle has been doing this for years (and probably where Benioff got his
playbook) They buy up a company, fold in their customers and cross-sell their
other products to them.

~~~
jeremymcanally
Yeah but assuming that works out as profitable, those customers (assuming they
all stay with them) would have to start spending 10x the money they're
spending with ExactTarget now on Salesforce products. That's a _big_ stretch
and risk, but again, maybe it'll work out for them. :)

~~~
meterplech
Well, the purchase is a onetime cost, and revenue is recurring. If they spend
2x what they are paying now they'd recoup the cost (in terms of revenue) in 5
years. Plus, that's not counting new customers for ExactTarget's services. If
you are a heavy SFDC user and were previously deciding between Marketo,
Hubspot, and ExactTarget, you may go with ExactTarget because you know it'll
be fully supported by SFDC.

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sudonim
We're the little guy competing against ExactTarget. I had no idea their
business wasn't profitable. From their customers who have reached out to me,
it seems that for web businesses to integrate with them there are huge
complexities (like mirroring your production database, and having ET engineers
write custom code for you).

Even with all this they've clearly been successful on the revenue front. With
an acquisition like this (company losing money), it'll be interesting to see
what SalesForce does to make them turn a profit.

~~~
RobGR
The ability to set up a dev or test environment to test integration has been a
problem with ET in past, maybe it still is (I did Drupal to ET integration
several years ago).

However, from what I have seen of Salesforce, which is not direct experience
but in watching demos over people's shoulders, their test environment setup is
very smooth. I think you have to pay more for it, but you can get a copy of
your environment, if you are writing custom plugins it checks that you wrote
tests, that those tests pass, and that those tests aren't stubs, before it
lets you put anything live. It seemed a legit best practices operation.

Maybe Salesforce can implement that setup for the ET service and APIs. In the
meantime I will checkout customer.io for the next project that needs email
campaigns.

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tommccabe
I use Exact Target, every day, and I'm very happy with their product and their
service. I won't speak to the valuation, but their technology and application
is great.

~~~
the_watcher
You would call their technology and application great? I use it every day as
well, and for me it's one of the worst pieces of enterprise software I have to
use. Unusably slow, and what should be very simple makes me jump through
multiple hoops.

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johnvschmitt
It's a natural fit.

Startups use Mailchimp & Sendgrid, etc. for email marketing, but then as they
mature & grow, they see the need for more mature (although, yes, more
expensive, complex, & slower) tools like ExactTarget.

Very similarly, how do startups track their customers & leads? Often, with no
CRM other than spreadsheets or in-house tools. When they scale & have >10
sales staff, they realize they need a more mature, slower, more expensive CRM,
& SalesForce is there.

So, yes, the acquisition price seems high, but the complementary fit is solid.

~~~
Pxtl
I used to work at a place that happily used SugarCRM (which is open-source)
for both email marketing and for CRM, so there are better CRM solutions for
small businesses than simply doing spreadsheets/in-house.

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magikbum
Another horrible deal for SF. BUDDY MEDIA ring any bells? I also loved this
bit "It ran a $21 million loss on $292 million in revenue last year."

If I make $1 a year that means I earned $21 million and one dollars more than
this company did last year.

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mrjaeger
"Salesforce is paying $33.75 a share, which amounts to an 11.7 percent premium
over yesterday’s closing price of $22.10. Salesforce shares are down by more
than 2 percent, or $40.16, in pre-market trading on the news."

How does any of that math make sense? Since when does 2% of $22.10 amount to
$40.16, or is my brain just not working so early in the morning?

~~~
klinskyc
It's awkwardly worded but they meant that the salesforce stockprice ( not
exact targets) is down 2% to its (at the time current) stock price of 40.16.
As you can see from this link, <http://finance.yahoo.com/q?s=CRM>. Its now
down to around 39.56, a 3.59% decrease.

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ianstallings
It sounds like they paid about 10x revenue per customer (according to dhh
<https://twitter.com/dhh>). That doesn't seem unreasonable, but I'm not sure
about the murky area of valuation. Is it high compared to other similar
acquisitions? Also, how does talent factor into a valuation?

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brianbreslin
What does exacttarget do?

~~~
Jgrubb
ESP - Email service provider. Sort of like Constant Contact, but for
enterprise. We send about a million email newsletters a day through them.

~~~
reddit_clone
So, spammers then.

~~~
runamok
Not really. Like sendgrid if you start generating spam complaints, lots of
bounces, etc. they'll shut you down. Their total deliverability is adversely
affected by any spammers that use their service.

