Adobe-Marketo Deal Could Spur Marketing Tech Tie-Ups, New Strategies

Marketo almost didn’t get off the ground.

It was 2006, and Jon Miller and his Marketo co-founders were struggling to raise money from investors for their marketing technology startup. Their pitch was to use software to help businesses automate much of the process of tracking and managing the online sales leads they were getting from sources such as Google’s search engine, which was still relatively new.

“At the time, nobody thought you could make any money in software as a service if you didn’t have a product sold by the seat,” Miller, Marketo’s former vice president of marketing, says in a phone interview. “There was a whole history of bad investments in marketing technology from the first generation. We just got the door closed in our faces so many times.”

But Interwest Capital took a chance on Marketo and invested, Miller says. The startup was able to take its shot at the market.

Fast forward 12 years, and San Mateo, CA-based Marketo has become one of the leading marketing automation platforms—and one of marketing tech’s most valuable companies. Adobe (NASDAQ: ADBE), the San Jose, CA-based tech giant best known for Photoshop and other consumer software products, announced last week it’s buying Marketo for $4.75 billion. It’s the third exit for Marketo, which had an IPO in 2013 and was bought out in 2016 by Vista Equity Partners for $1.79 billion.

Adobe’s move is seen by multiple Xconomy sources as a play to take on Salesforce (NYSE: CRM) and Oracle (NYSE: ORCL) in enterprise marketing. But it’s also a watershed moment for the broader field, argues Miller, who left Marketo in 2015 to start another marketing-software firm, Engagio. He says Marketo was one of the last major platforms from what he considers marketing tech’s second generation to get scooped up. Miller says previous notable exits for that wave of companies include Eloqua’s sale to Oracle in 2012 and Salesforce’s acquisition of ExactTarget in 2013, through which it also picked up Pardot, Miller says.

Now, he thinks the sector is entering a new era.

Jon Miller

“I think this big price tag—the multiple that Adobe is paying [for Marketo]—I’m both predicting and hoping will spur additional investment in ‘martech’ platforms,” Miller says. (Of course, that could also benefit his latest company.)

Max Faingezicht, the chief technology officer of ThriveHive, a Boston-area digital marketing company focused on small businesses, expects more consolidation in the sector.

“We have seen this for a while and expect it to continue to be so, with a handful of big players building more and more comprehensive solutions at the high end,” Faingezicht wrote in an e-mail. “For the lower end of the market, the true small business solutions, there is still much more innovation and fragmentation.” He’s part of the consolidation trend, too: his current employer acquired his marketing-tech startup (the original ThriveHive) in 2016.

Miller thinks the deal-making by tech giants will spur smaller marketing tech companies to merge to try and take on the bigger competitors. It makes sense for a few reasons—there has been an explosion of marketing tech startups, making it hard for them to stand out, win venture capital, and build profitable businesses. Most of them won’t survive, he says.

“There’s no way the market is going to support all of them becoming big companies,” Miller says. “Most of the small guys aren’t even going to be cash-flow positive. It’s more about a thesis of ‘I can combine these things and build a next-generation profitable'” business.

As for other big companies that might try to expand their presence in marketing tech, Miller mentions Microsoft (NASDAQ: MSFT), which owns LinkedIn, and SAP, the Germany-based business software and services company. He says some industry observers considered SAP a contender to scoop up Marketo to shore up its business-to-business marketing products.

Might a company like HubSpot (NYSE: HUBS) be one of SAP’s targets? It’s possible, Faingezicht suggests. The Cambridge, MA-based firm is considered a leader in marketing and sales software, but its $5.7 billion market value still pales in comparison with the valuations of Salesforce ($117.7 billion) and Oracle ($203.4 billion), for example.

“The big question is, what happens with HubSpot?” Faingezicht wonders. “Are they going to be taken private by some large [private equity] firm? Probably not, but I can imagine SAP is lurking to see who they could buy to stay relevant.”

A HubSpot spokesperson says that a potential sale would be up to the company’s board, but she noted that HubSpot has turned down acquisition offers in the past.

Brian Halligan

In an e-mailed statement attributed to HubSpot CEO Brian Halligan, he wrote that the Adobe-Marketo deal is “further evidence” that businesses selling products and services to other businesses are increasingly trying to streamline and take a “platform approach to marketing, sales, and service.”

“It’s the thinking behind our own expansion over the last few years into a comprehensive growth platform,” Halligan wrote. (In its early days, HubSpot focused on search engine optimization and online marketing software geared toward small- and medium-size businesses.)

As for Adobe’s next move, Faingezicht says he wouldn’t be surprised if … Next Page »

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Jeff Engel is a senior editor at Xconomy. Email: jengel@xconomy.com Follow @JeffEngelXcon

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