Last week, Adobe Systems Inc. announced it had reached an agreement to acquire leading marketing automation firm Marketo from Vista Equity Partners for $4.75 billion. This marks the second time this year that Adobe has made a major play at expanding its dominant grip around the digital marketing space. In May, Adobe announced its acquisition of ecommerce product Magento for $1.68 billion. Last week’s news came just a few days after Adobe announced beating its third quarter earnings targets by hitting $2.29 billion, 24 percent higher than the same period in 2017.
While this is a clear win for Vista Equity, which turned around 150 percent profit (almost $2.96 billion) in two years, the verdict for Adobe is much more nebulous. Analyzing and determining whether this is a win or loss for Adobe warrants a more detailed discussion focused on the cost of the deal and its implications for which industry Adobe focuses on catering to. There is also a very real element of corporate partnerships and rivalries, which played a big part of this decision. Finally, one needs to address the redundancy Adobe has created with its existing marketing automation tool, Campaign.
The Cost of the Adobe-Marketo Deal
While Marketo was purchased by Vista Equity in 2016 for only $1.79 billion and Marketo’s estimated revenue last year was under $325 million, Adobe paid $4.75 billion for the company. This exaggerated valuation (15 times) suggests that Adobe sees much more value and potential in Marketo than currently being deployed to its customers.
When Adobe identifies a clear roadmap of integration, I expect the Marketo piece of the business to surpass its 2017 annual revenue by a country mile. At that point, it would make sense for Adobe to spend a big chunk of its $6.3 billion cash on hand to gulp the lion's share of the marketing automation business.
There are reports that some gamesmanship was involved in this negotiation and hence the high price tag. For one, it seems that Vista Equity might have reached out to SAP in the sales process and ended up getting a smaller bid from them. Another report is that the leak of the deal a week prior to closing was orchestrated to get Salesforce involved in the bidding war. Both of these reports are unconfirmed, but certainly fit the narrative. Having lost out of purchasing DemandWare (ultimately acquired by Salesforce) and Hybris (ultimately acquired by SAP), Adobe seems to be adamant to get the win by putting out an offer that cannot be matched. This can certainly explain why Adobe paid a king’s ransom for both Magento and Marketo.
Related Article: Adobe-Marketo Acquisition: What We Know So Far
Aiming for the Entire Industry, From Mid-Market to Enterprise
When Adobe purchased Magento and its approximately 200,000 clients in late May, it was a clear move to appeal to the mid-market. I wrote an article about all the obstacles facing Adobe with that shift of focus downward, such as price and internal culture. However, the purchase of Marketo is inconsistent with that shift, primarily because Marketo is more slanted towards B2B and enterprise clients. This could signal that while Adobe is trying to appeal to the mid-market, it is not surrendering an inch of its enterprise aspirations. If Adobe can achieve this monopoly over the entire industry from top to bottom, it could reap remarkable rewards for its shareholders. Naturally, the risk of failing here is very real and Adobe boiling the ocean could backfire.
Related Article: Adobe Makes a Play for Mid-Market Customers With Magento Buy
Adobe's Friends and Foes
Adobe’s rivalry with Salesforce is very well documented over the last few years, but reached a peak when Salesforce beat out Adobe in its purchase of DemandWare. However, the Marketo acquisition takes this competition to a next level. By purchasing Marketo, Adobe is making a clear play at Salesforce’s domain. This gives credibility to the reports of leaks of the deal in an attempt to entice Salesforce towards entering the bidding war. Adobe could also be preempting another assault from Salesforce, because of industry-wide rumors of Salesforce’s interest in acquiring Sitecore. Sitecore is Adobe’s biggest competitor in the content management system space and with Salesforce's annual Dreamforce conference this week, an announcement is very possible. Ladies and gentlemen, grab your popcorn.
The other relationship with impact here is Adobe’s strategic and long-term partnership with Microsoft. Marketo has a world-class native integration with Salesforce CRM that is heavily used by its clients. While I don’t believe that connector will ever be sunsetted, future enhancements will certainly focus a lot more on the integration with Microsoft Dynamics CRM (Salesforce’s biggest competitor in the CRM space). This is evident by how much Adobe put in to support the integration of its current marketing automation tool (Campaign) with Dynamics rather than Salesforce. Strategically helping your partners while shunning your competitors is a business rarity, but Adobe seems to pull this off beautifully.
Related Article: Microsoft, Adobe Partner to Boost Analytics, Cloud Hosting
Marketo vs. Adobe Campaign
At first glance, one might be shocked that Adobe will spend all of this money on a product (Marketo) that it currently competes with using its own marketing automation tool (Adobe Campaign), but a deeper look shows them to be a lot more complementary than competitive. Marketo is basically a marketer’s tool, very user-friendly and requiring (and permitting) very little customization, while Adobe Campaign might take more to stand up, but is very extensible.
While Marketo is more focused on B2B and enterprise clients, Campaign is often known as a fit for B2C clients. On a feature-by-feature comparison, Marketo is much stronger with email marketing, lead management, behavioral tracking, webinar marketing and program management. On the other hand, Campaign beats out Marketo with mobile optimization, search tracking, social media marketing, budgeting, calendar features and reporting. The biggest discrepancy in feature set is analytics, where Campaign is much more dominant (especially with Adobe’s world class analytics tool Adobe Analytics). In fact, Marketo had announced its plan to improve its Analytics and Reporting as a priority last year — now it can build that improvement on the back of Adobe’s platform. Particularly, leveraging all of Adobe’s platform which is not limited to Analytics but also includes personalization (Target), user management (Audience Manager) and artificial intelligence (Sensei). Ultimately, Marketo could be the missing piece that completes Adobe’s B2B platform offering to compete.
The dilemma of having two marketing automation tools becomes exponentially more problematic when faced with the fact that Adobe actually has three different marketing automation tools. When Adobe purchased Neolane in 2013, that was supposed to be the flagship Marketing Automation tool (called Adobe Campaign) for Adobe’s Digital Marketing Hub. However, five years later, instead of having Campaign fully integrated with the marketing cloud, Adobe has built its own Campaign version on the cloud (dubbing it Campaign Standard). In parallel, Adobe has maintained the original Neolane product as a legacy marketing automation tool, on premises (dubbed Campaign Classic). So, going forward, Adobe will need to reconcile the future of its marketing automation offering between Marketo, Standard and Classic.
The reason Adobe hasn’t sunsetted Classic (with its legacy UI and infrastructure) in favor of Standard (the future for Campaign) is because Classic still outshines Standard in many of the basic features of marketing automation. The move to purchase Marketo would make all the sense in the world if Adobe ramps up Campaign Standard on the cloud with the right feature set and sunsets Classic, giving the Bay Area tech giant the best two-headed marketing automation offering (Campaign = B2C and Marketo = B2B) and a significant chunk of the business out there.
Related Article: Adobe and Neolane, 1 Year (and a Few Days) Later
Adobe + Marketo: The Final Verdict
Too expensive? Sure, but good things are seldom cheap. Not to mention, Adobe has the war chest to afford overspending on luxury.
Redundant? Not really. Feature-wise and industry focus, Marketo and Campaign can be a complementary powerhouse instead of competing products.
No matter the price tag, Adobe’s bet on Marketo could pay off big time.
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