James SpillaneMarketo, a leading marketing software giant has been acquired by a private equity firm Vista Equity Partners in an all-cash deal of $1.79 billion. Founded by Phil Fernandez and Jon Miller in 2006, Marketo offers a range of cloud-based marketing services like lead management, email marketing, mobile marketing, consumer marketing, etc. It has customers ranging from startups to tech giants such as GE and Microsoft.
Marketo was listed on NASDAQ in 2013, however, with this acquisition, it will be delisted and its ownership will become private again. In 2015, the company earned a revenue of $210 million from 4600 customers. Although the company has been operating at a loss, its revenue has been growing at around 40% year-on-year. Its valuation is almost twice of Eloqua, which was acquired by Oracle not long ago. Recently, Salesforce bought Dreamware, a SaaS e-commerce company for around $2.18 billion. These deals and valuations clearly indicate the robustness of Software-as-a-Service business model.
3 Important Insights From Marketo’s Deal
1. No Significant Impact On Marketo’s Customers
This deal is a private equity transaction and not a strategic acquisition. Therefore, no significant technology migration is expected in short to medium term for its clients. It means that the acquisition will not have a major technological impact on Marketo’s customers, at least in the near future.
2. Staying Privately Owned Is Good
Publicly traded corporations experience a lot of undue pressure in the short term. Sometimes emotions and perceptions play much bigger roles in the stock performance of a company than its business model.
Marketo was operating at a loss and predicted that it would continue to do so for the next few years. It is working on a next-generation marketing technology called Orion Project. Through private equity investment, the company will have sufficient capital to focus on breakthrough enterprise platforms and thus would have a competitive edge over other players. Marketo could not do this effectively if they continue to be a publicly traded corporation because of high pressure of delivering quarter-on-quarter growth numbers and other short-term pressures.
3. Consolidation Is In The Offing
Marketing technology industry is still in its nascent stage. The penetration of marketing automation among small businesses is very low. Most of the small business owners are willing to invest in performance marketing.
However, they don’t have time to compare thousands of options before getting hitched to one platform that delivers desired results. Also, they just don’t want to deal with multiple vendors to execute their marketing campaign. That is why the role of integrated and automation marketing software in the small business segment is becoming increasingly important.
It requires Marketing SaaS providers to develop intuitive software that includes most of the features that can make a real difference to businesses. This will lead to consolidation in marketing technology industry. Marketo acquisition is a clear sign of beginning of consolidation that is going to take place in marketing automation.
Conclusion
The operating cost of software-as-a-service has gone down significantly. However, the associated costs are still not zero. It requires a lot of investment and years of hard work to create a platform that does something meaningful to businesses. Thus as a SaaS company, if you aim for higher valuation, create a complete system that adds real value to the busiest people.
This article was written for Business 2 Community by James Spillane.
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Maaaan… all-cash 1.79 billion deal! 4.600 customers! Still, can’t believe it…
It means that a PE firm identified an investment opp in a SaaS org struggling to scale into the enterprise. They’ll clean house, reset, bring in enterprise relationships and players and offload it to a traditional software firm looking for a stronger foothold against SFDC in 18 – 24 mo. An industry shakeup it ain’t.
As long as Marketo remains independent, then we feel safe using the platform. If this aspect is compromised, it will effect many customers negatively. Let’s hope this remains the truth.
Vista is known for buying dysfunctional companies – they will shake out the long-term, higher priced employees and replace them with low priced, inexperienced ones. Product road-map will come to a screeching halt – no more innovation. Existing customers will get hit with 3-5x price increase when it is time to renew.
RIP Marketo.
Valuation and Acquisition of Marketo make a lot of sense. I believe marketing automation is still in its initial stage and has immense potential to grow worldwide. We are living in the era of marketing, and increasing number of marketing platforms has made it essential to use a marketing automation platform that performs repetitive tasks. Currently, marketing automation is limited to email marketing and social media sharing. There is a lot of scopes to improve the platform and develop enterprise platforms as well as automating many more marketing activities.
Thus current valuation of Marketo will inspire more entrepreneurs to develop innovative SaaS platforms.