0 Marketo Files for IPO: Will High Growth Outweigh High Losses?

Marketo made good today on its promise to file for an initial public offering (IPO). Congratulations to them for reaching this step. It’s a major accomplishment.

The S-1 registration statement gives considerable new information about Marketo’s business. Revenue for 2012 is reported at $58.4 million, an impressive 80% growth rate vs. 2011 although not quite the doubling that the company had forecast earlier.

More significant, the company continues to have huge losses – it lost $34.4 million in 2012, or 59% of revenue. By comparison, Eloqua lost just 7% of revenue in the year before its IPO, and even Salesforce.com, the benchmark for all Software as a Service (Saas) start-ups, lost just 20% of revenue in its final year as a private company.

 A loss that big is pretty scary. Part is due to heavy spending on sales and marketing – 65% of revenue – but that’s not the whole story: Salesforce.com had also spent 65% on marketing before its IPO (although Eloqua spent just 40%).

The difference is that cost of revenue (costs of delivering service to clients, including subscription, support, professional services, and other) was 42% for Marketo, vs. 20% for Salesforce.com and 32% for Eloqua. That figure hasn’t changed in recent years, suggesting economies of scale have yet to appear. A high cost of revenue makes it hard for a company to become profitable even as it grows, since much of the new revenue is spent on the new customers. SaaS economics aren’t supposed to work that way.

Marketo’s other operating costs (research and development and general and administrative) are also high – 52% of revenue, compared with 35% for Salesforce.com and 33% for Eloqua. That percentage has also been pretty much stable for the past three years – again suggesting that expected scale economies haven’t appeared yet.

Another way to look at it is this: Marketo would earn just 6% profit even if its sales and marketing costs were zero. So its losses aren’t simply due to high investment in new customers.  The comparable figures for Eloqua and Salesforce were 39% and 45%, respecitvely.

The S-1 also reports the company had 339 employees as of December 2012. Of course, the average for the year was much lower but, ignoring that, this still yields a perfectly respectable $172,000 revenue per employee. But it also means expenses are $273,000 per employee – much higher than the $200,000 rule of thumb. I know everyone at Marketo works incredibly hard, but something is clearly out of line in their cost structure.

Perhaps stock investors will look only at Marketo’s growth rate. There is certainly an argument that the company will eventually become profitable as it spreads its fixed costs over more revenue.   On the other hand, as I argued recently in DemandGen Report,  it may not be possible for any large marketing automation firm to thrive as an independent.  If that's correct, then Marketo's growth will never happen and the investors' only hope will be a buy-out by a larger firm.  Let’s hope the stock market sees hope somewhere in all this: otherwise, Marketo stock will be much harder to sell than its software.

0 FICO Buys Entiera Marketing Automation: Another Independent Option Gone

Three weeks ago, Intuit shook up the low end of the marketing automation universe by purchasing small business marketing shooting star Demandforce. Last week the action shifted to the high end, where FICO announced its purchase of Entiera, one of the few remaining enterprise class products.

FICO, the company formerly known as Fair Isaac and originator of the influential FICO credit score, first dipped its toe into marketing automation services and software when it acquired DynaMark in 1992. Since then, the company has continued to grow its marketing offerings, through acquisition and internal development.  But it sell these largely as add-ons to its core predictive analytics products. FICO statements make clear that Entiera will continue this strategy, both by providing new capabilities for event-triggered to existing clients and by making the full set of FICO products available to smaller companies.

FICO’s backing will certainly allow Entiera to sell to more companies. But, in sharp contrast to the Intuit/Demandforce deal, I see this acquisition as shrinking rather than increasing competition in the relevant market segment. Entiera was one of the few independent vendors still chasing the business of mid-size and enterprise marketing automation buyers. This group had already been reduced with the acquisition of Alterian by SDL last December and of SmartFocus by eMailVision the previous April. Of the firms on my list of B2C options from last September, only a handful (Neolane, Decision Software Inc, RedPoint and ClickSquared are primarily selling marketing automation software. The others are either more oriented to email services (ExactTarget, and I should add Responsys and Silverpop) or have minimal industry presence (MarketingPilot, Pitney Bowes' Portrait Software, Conversen, SmartSource Online, etc.).

In theory, FICO could finance a significant expansion of Entiera’s independent business. With $620 million in 2011 revenue and over $100 million operating cash flow, the company could certainly afford it. But marketing services are clearly just a sideline for FICO. So it’s likely they’ll use Entiera’s technology to support sales of their core analytical products to current customers and perhaps to deliver them more cost-effectively to new customers. That’s great for FICO and for Entiera’s founders. But in a segment where most of the major products are already owned by giant corporations (IBM, Teradata, SAS), marketers now have one less young vendor hungry for their business.

0 Beanstalk Data Adds Service to the Marketing Automation Recipe

Exploring a new marketing automation system is like biting into a bonbon: part of the fun is you never know what you’ll find inside.

Thinking in those terms, Beanstalk Data  is a tasty morsel. It provides all the basic B2B marketing automation functions: mass email, landing pages and surveys, behavior tracking, lead scoring, nurture campaigns, and CRM integration. And it adds just enough spice to leave a pleasingly distinctive flavor.

Regarding the basic features: email, landing pages, surveys, and behavior tracking do indeed seem pretty basic. Nothing wrong with that; Beanstalk is targeted at small to mid-size businesses for whom basic is just fine.

Lead scoring is also done the usual way: by assigning points to lead attributes and behaviors. But unlike most vendors, Beanstalk typically builds the scoring rules for its clients rather than leaving the clients on their own. The company starts with a standard set of rules that it has found work well for most clients.  It then modifies them and changes the thresholds that trigger actions such as sending a lead to sales. It can also combine the scoring rules with custom database queries to further refine how they trigger system activities.

Nurture campaigns are laid out on an unusual Excel-like interface with one row per step. That's fun, but the actual functionality is again pretty basic: each step executes in sequence, with no branching or filters to treat different leads differently.  Leads enter a campaign by meeting conditions defined in a filter, which can be built within the system interface or written in SQL. The campaigns can run once, repeat automatically at user-specified intervals, or be triggered by standard events or custom SQL queries.

Campaign steps do support an unusual variety of output formats, including email, list exports, text messages, Facebook posts, digital printing, call center, and Web posts to external systems. Steps can also change data within the Beanstalk database and schedule calls in the CRM system.

Speaking of CRM, Beanstalk has existing connectors for Salesforce.com, NetSuite and Leads360. It can synchronize data with other systems using batch imports and exports or via Web services. Beanstalk itself provides basic CRM features including call notes, task reminders, opportunity tracking, and drill-down to a lead’s contact history, behavior history, score history, campaign history, and link history. But the company stresses that these features are only intended for clients with a couple of CRM users; it does not intend to provide a comprehensive CRM solution for larger organizations.

The system also provides above-average flexibility in the data model, allowing unlimited custom fields and supporting multiple values within a single field. The multi-value feature is a way of storing data that would otherwise need a separate table.  

If you’re a true connoisseur of marketing automation systems, references to multi-value fields, SQL triggers, export via Web posts, and import via Web services may have you thinking that Beanstalk is more technically advanced than your average marketing automation product.  This is probably true, but with one big caveat: most of those capabilities are not directly exposed to clients.  Instead, the Beanstalk staff does much of the program set-up and database customization. 

This is partly the result of the system’s heritage – it was originally built by printing and marketing services company – and partly because Beanstalk has found that most clients lack the skills or inclination to do the work for themselves.

Beanstalk sees its marketing services as a major point of differentiation. The company is not exactly a marketing agency, but will help its clients to define strategies and develop creative in addition to setting up marketing automation programs. But clients aren't required to use Beanstalk services.  They are welcome to work with outside agencies or do this work for themselves.

This approach places Beanstalk firmly in what I’m coming to see as one of three camps for dealing with the shortage of marketing automation skills among marketers. The Beanstalk camp argues that marketers should build substantial marketing automation plans in advance, either by themselves or with help from a marketing automation vendor, agency, or consultant. I’d say most marketing automation vendors take this view.

The second-most common approach is to make marketing automation systems so easy to use that marketers can start by doing simple things with little advance preparation. The theory is that marketers will later advance to more sophisticated features in their own good time. 

The third camp argues that automation can let marketers run advanced programs without ever learning how to manage the details.

I pretty much agree with the first camp but am not dogmatic about it. It’s possible that each approach may work for some companies. It’s also true that the approaches are not incompatible: vendors who stress the need for planning still aim to make their systems easy to use and to introduce automation where possible. So it’s more a difference of philosophy and positioning than technology. But I'd still say that difference is significant, particularly in the expectations it sets for clients and in the likelihood of long-term client success.

Anyway, back to BeanStalk. Although it just hit my personal radar, the company was founded in 2007 and launched its product in 2009. It has somewhere between 50 and 100 clients, mostly small to mid-size B2B marketers and some in higher education. Pricing is starts at $1,500 per month for a complete marketing automation system, although clients who want just email and lead scoring can start for as little as $600 per month. Agency services are extra.

The company also has a loyalty system marketed under the Beanstalk Loyalty  label. This uses the same core technologies but integrates with retail Point of Sale systems to capture purchase information about individual customers. It then uses that information to deliver targeted offers and coupons via email, text messages, and direct mail. It also supports social media check-in at the retailers via Facebook or FourSquare.