Questions Remain After Vista Equity Partners Purchases Marketo

Marketo (NASDAQ: MKTO) recently announced they were being acquired by private equity firm, Vista Equity Partners.  While the buyout offered a solid, but unremarkable return for Marketo’s shareholders above the public share price, the acquisition by a P.E. firm left some feeling disappointed that the suitor was not a technology company such as Microsoft, Oracle, Salesforce or Adobe.

Marketo acquisition rumors have been circulating for years, as Oracle snapped up Eloqua in 2012 for their Oracle Marketing Cloud and Salesforce acquired ExactTarget (including Pardot) in 2013.  Marketo, as the only major independent marketing automation provider that hadn’t been picked up by a major tech company in the CRM/customer analytics space seemed poised to be acquired by one of the big SaaS technology companies looking to fill out their portfolio of enterprise sales and marketing solutions.

Marketo and Microsoft teaming up made sense to me.  I oversaw a relatively large and advanced Marketo integration for two years in a recent role.  I witnessed the massive value that marketing automation technologies can bring to sales and marketing teams today.  Marketo was the best choice for us, but reevaluating our Marketo decision came up 1-2 times per year as competitors aggressively added new features and a spate of acquisitions presented consolidation opportunities between our various technology providers.  Marketo offered a solid feature set, pricing was in line with competitors in the industry and sticking with Marketo meant we didn’t have to deal with the pain of switching costs to a competitor.  Switching costs are high in the marketing automation space – a huge amount of customization and a massive learning curve of new platforms means moving to a competitor is almost guaranteed to negatively impact lead generation and sales initiatives. 

While Marketo was the best solution for us, it was not without its faults.  Marketo’s platform is ridiculously slow.  It wasn’t uncommon for reports and queries to take minutes to respond and, sometimes, they timed out completely. Marketo’s support forums were full of users complaining about performance and having to implement workarounds and hacks to get it to respond in a timely manner.  Slow system performance meant marketers had to spend their time waiting on the system to respond versus spending time focusing on building great campaigns and implementing automation to improve marketing efficiency.   An acquisition by a major technology company like Microsoft or Salesforce would have come with risks (would the product be absorbed and killed off?), but it also could have come with major benefits.  Microsoft and Salesforce know how to build performant enterprise applications. Having some of that performance know-how rub off on Marketo could have improved performance dramatically in the product which could have greatly increased customer satisfaction.

The acquisition by Vista Equity Partners was somewhat unexpected by many in the industry and leaves more questions than answers for Marketo’s customers in regards to future product roadmap and strategic partnerships with major CRM partners.

Question #1: Will Marketo’s Slow Platform Performance be Addressed?

A Marketo acquisition by a major enterprise SaaS provider offered hope of addressing Marketo’s performance issues.  Backing Marketo on a major cloud platform (like Amazon’s AWS, Microsoft’s Azure or Google’s Google Cloud) could present better scaling opportunities and even offer a revenue stream to Marketo in the form of letting customers upgrade their own instances in the cloud to an instance with more horsepower.  They may already host on a cloud platform, but opening that up to customers to upgrade their instances could be really exciting.  

Question #2: Will Marketo Improve Attribution Analytics and Data Insights?

Marketo’s solution is robust from an operational perspective, but weak when it comes to data analysis and providing a easy to consume view into customer data.  Looking at marketing campaigns and assets from a first-touch, last-touch and multi-touch model is key to understanding which activities are resulting in the most revenue for marketing organizations and Marketo’s solution is weak in that regard.  They do have features and functionality to help with it, but its a huge pain to implement and maintain.  Acquisition by a technology-first company who has a core competency in big data, data visualization and data analytics could be a massive win for the platform and provide that true visibility into marketing campaign attribution and ROI that so many marketers are lacking.

Question #3: Will Marketo’s Sale to Vista Equity Partners Help or Hurt 3rd Party CRM Integrations?

Despite being a very solid solution in the marketing automation space today, Marketo is vulnerable.  Salesforce’s acquistions of ExactTarget and Pardot means there is promise of a fully integrated sales and marketing CRM platform.  Last I spoke with Salesforce about their Pardot integration (spring 2015), full data unification was still in-the-works – marketing automation data and salesforce data lived in two backend databases and were constantly synchronized.  Synchronization like this is brittle, it opens the door to data merge conflicts, sync latency causing inconsistent data views between the sales CRM and the marketing automation platform (MAP) and difficult unified reporting of marketing and sales touches in one simple place.  Salesforce will hopefully ( (though maybe not) fix this as the ExactTarget/Pardot acquisition matures as full marketing and sales data unification would present a killer solution.  It was fairly unlikely Marketo would have been acquired by Salesforce (since Salesforce already had a strong marketing automation solution), but an acquistion by Microsoft could have offered the CRM + MAP integration via Microsoft’s Dynamics CRM.  Unfortunately, Marketo’s acquistion by a private equity firm means it still isn’t clear who will be their CRM of choice.  Marketo has a great integration with Salesforce’s CRM today, but it isn’t clear how long that will last.  If Salesforce starts to handicap that integration or offer advanced integration only through their own marketing automation solutions, then Marketo’s existing and prospective customers will have a painful choice to make – to go with a fully integrated solution from Salesforce or continue to buy two seperate solutions and deal with integration issues and cross their fingers that the relationship with Salesforce stays strong.   

Question #4: Will Vista Equity Partners’ Portfolio Companies Strengthen Marketo’s Product?

Despite the downsides of Marketo not being acquired by a technology-first company like Salesforce or Microsoft, there are at least two upsides to the Marketo acquisition by Vista Equity Partners.  The first is that Vista has some other great companies in their portfolio that could strengthen the Marketo product.  Return Path, for example, offers the potential for a high value email deliverability and email reputation management platform, something Marketo struggles with today despite their platform being so reliant on email marketing and email deliverability.  Return Path helps brands monitor and maintain email deliverability across the web.  So many email marketing team results are hampered by poor email deliverability that integrating Return Path into Marketo’s platform could make teams more effective on the Marketo platform.  It is an exciting prospect and could present an increase in contract values as well for an Advanced Email Deliverability module. 

Question #5: Will Marketo Continue to Innovate Post-Sale?

Vista Equity Partners will likely look to increase the value of Marketo with the eventual goal of selling it again, versus hold on to the company into perpetuity.  Maximizing enterprise value can be done in a variety of ways, ranging from increasing the value for customers (improving the product) to improving profitability (decreasing expenses).  While Marketo as a public company had to focus on quarterly and annual results, the sale to Vista may allow them to increase that time horizon to focus on building value for the next 5-10 years instead of worrying about short term metrics. This longer term focus could present a great benefit to Marketo customers.  A purchase by Microsoft or Oracle could have put the product at risk of being integrated into other business units (effectively killing the product) like we have seen so many times before with acquisitions by technology companies.  The risk, however, is that Vista’s acquisition will put product development on hold, in a quest to maximize revenue while minimizing investment.  This risk was articulated by analyst Ray Wang of Constellation Research who stated “Pretty soon it’s just about keeping a maintenance stream of customers and not really growing the market,” he explained. “What most of our customers are worried about [with the sale of Marketo to Vista Equity Partners] is the lack of innovation that could occur, especially given Vista’s reputation.”

It will be exciting to see how Marketo’s acquisition by Vista Equity Partners helps shape the product over the coming years and what the long term outcome will be for the Marketo platform.  Marketo is most vulnerable due to the absolute necessity of having a marketing automation platform integrate into a sales CRM and Marketo not having an in-house CRM solution.  I don’t see another company in Vista’s portfolio that offers that robust CRM solution, relegating Marketo to the awkward position of being an enterprise sales & marketing technology solution without the ‘full stack’ capabilities that Salesforce and Oracle can offer through their solutions.

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