Salesforce acquires ExactTarget and puts their finger on the play button in a dangerous game of musical chairs

Congratulations to our partners, SalesForce (SFDC) and ExactTarget (ET) on their recent announcement.  Today, Salesforce announced that they would acquire ET for $2.5 Billion and the action was unanimously approved by both Boards of Directors.  This is the largest acquisition Salesforce has ever made to the tune of 3.6 times more than their acquisition of BuddyMedia ($682MM).

With only a few ESP providers left for the enterprise software companies to acquire, stock prices for the independents are on the rise. This is a game of musical chairs and Salesforce has their hand on the play button.

1.  Speed.  ET has 6,000 customers and 6 modules that would take Salesforce years to build.

The capabilities provided by ET, such as email, coupons, lead scoring, social listening and social publishing improves the ability for marketers to personalize content based on user behavior.  Email works and it works very well.  And if that weren’t enough, when combined with other forms of digital marketing, such as retargeting and display advertising, it works even better.  Consider the cost savings and increased revenues when companies can deflect calls to their call center by getting folks to return to abandoned shopping carts, to predict who might call based on their views of FAQs and then preempt the call with targeted emails addressing common issues, or to message customers due for say a renewal via email with incentives to go online to complete the renewal process.  ET has an array of these capabilities, the technology is mature, they themselves have been on an acquisition spree acquiring Pardot (for 95.5 Million), iGoDigital (for $21M), Frontier Digital (a Brazilian agency) and CoTweet.

2.  Because the CMO will have more budget for technology than the CIO or CTO by 2017.  

The winds are shifting and it’s enabling marketing departments to provide improved digital experiences to consumers.  And for those folks who like to “put the customer first”, consider the changing buying habits of consumers.  When was the last time you made a purchase for something say over $500 that you didn’t first begin the buying process online?

So what’s Adobe going to do?

Responsys and Silverpop are going to get squeezed out of new deals.   Salesforce is NOT going lose a deal based on price, their corporate culture is too ambitious.  I believe that for existing customers (about 115,000 customers and ET has about 6,000) the cross-selling opportunities will be a sweet deal.  That’s going to be bad for the remaining ESP providers.

With  the smaller independents fighting for every deal, it only makes sense for Adobe to pick up Responsys.  For heavens sake, what is taking them so long?  If Oracle comes in and adds Responsys to their line-up it’s going to be a terrible situation for Adobe customers because of the reasons we explained in our post telling Adobe why they should buy Responsys.

The SalesForce marketing cloud is legit now, here’s why:

We predicted that Adobe would buy Responsys, and that there would be a consolidation in the Email Service Provider (ESP) industry in our 2013 marketing technologies predictions blog posting and sure enough, it’s happening.

Mr. Benieff, CEO of SalesForce, said on the call where he announced the acquisition that Salesforce needed a “direct to consumer sales strategy”.  We agree.  I didn’t take SFDC seriously until now when they used the term marketing cloud, it just was solely focused on social.  Over the past 18 months, Salesforce purchased BuddyMedia and Radian6, two solutions that when put together provide digital marketers a powerful set of social listening and social publishing tools.  But with the acquisition of ET, SalesForce has demonstrated that they are committed and I believe they are going to be very successful in growing this technology to its enterprise and mid-market customer base.  Now Salesforce has email, web, mobile and social under one suite.  That’s a platform and platforms is what Salesforce does best.

The rest of the industry should be springing into action to buy what’s left on the market.  Experian got an early start bringing email marketing to their customers through their acquisition of Cheetah mail in 2004.  That  leaves Responsys, Silverpop, Neolane, Bronto, Constant Contact, and HubSpot (privately held).  IBM by the way has recently announced their Marketing Center and for what it is able to do, it does it very well.  It uses their Unica Campaign module to do essentially the ESP capability.  We’ll have a blog posting coming out on that soon, we just got back from training on that product.

Who else bid?

Other bidders rumored to be competing for ExactTarget were Oracle, Microsoft, SAP and IBM, but we don’t think IBM was too serious due to their recent product announcement for Marketing Center.  It is my opinion that Adobe also seriously considered the acquisition as well.  I can’t wait to see the proxy on this deal because I believe we’re going to see this list as the losers who missed out.  That   will really be telling to see where the strategies for the big software providers are going.

So What’s next for Salesforce?

They are going to need to integrate a lot of the features for ExactTarget with Salesforce beyond their App stage.  They need to go native with the ET Integration.  If that weren’t enough, Pardot is going to need a lot of investment to go from a mid-market tool to an enterprise tool for lead scoring.  ET has a lot of modules and they are built on different code bases:   you’ve got ET’s Email, Audience Builder, Automation Studio, Social Engage, and Mobile products.  ET was already trying to integrate their tools prior to the acquisition.  With the acquisition, I believe that the Salesforce integration with ET’s Email will take precedence.  All other ET centered integrations will come to a halt.

Salesforce is also reacting to Oracle’s acquisition of Eloqua last year.  Eloqua does lead scoring, so does Pardot, but Eloque was ready for Enterprise grade customers while Pardot was well suited for mid-market customers and B2B focused at that.  Salesforce is probably going to put a lot of energy in getting this capability ready for Enterprise customers while scaling up the capabilities for their B2C customer base.

Did Salesforce pay too much?

Nope!  This is Salesforce’s largest acquisition.  SalesForce is paying a 52% premium over the previous day close, it’s only paying 5.5 times the 2014 forecast.  Consider that Salesforce can immediately begin selling ET to their existing customer base, that they can integrate the social media components of ET’s software with Radian6, that ET bought Pardot  which allows it to do lead scoring and customized coupons.

Incremental revenue is expected to be $120M – $125M for the first year.  But with the strategic fit, we think that  should make back their investment in 7 – 9  years.  But it’s not the NPV that should concern the market, it’s the forcing of the hand in relation to the competitive response for their competitors.  This is a game of musical chairs and Salesforce has their finger on the play button.

Consider that Oracle paid 6.1 times forward revenue for Eloqua which does not have the same strategic value to its business line nor nearly the breadth of technology modules that ET has.

The other large software vendors have to be scared.  Constant Contact is a low end product, it doesn’t fit well for Oracle, IBM, Adobe or SAP.  Responsys is the top of the pack and should command the highest premium of all of the ESP providers.

How does this effect customers in Brazil?

Oddly enough, Salesforce actually gains quite a bit with regards to Brazil.  ExactTarget actually has a larger presence in the world’s 6th largest economy than does Salesforce.  This is an interesting role-reversal where the acquired company will actually provide about 80 new employees in region that can be cross-trained to promote the Social Media and traditional CRM solutions in the Salesforce product line-up.

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