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I would comment on this, but DHH has captured my thoughts nearly exactly on Twitter today: http://twitter.com/dhh http://twitter.com/dhh This is insane. $2.5b

I would comment on this, but DHH has captured my thoughts nearly exactly on Twitter today: http://twitter.com/dhh http://twitter.com/dhh This is insane. $2.5b for a company that has lost money through its existence, has a very small set of (likely not-so-diverse) clients (6,000ish), and makes 10% of what they paid for them in revenue? Strikes me as a crazy purchase, but perhaps there's something else afoot that I don't see. I've been proven wrong about this stuff before.

petercooper 13y ago
In the quotes they seem to playing on the "CMO will eventually have a bigger budget than the CIO" card. Whether this is a reasonable expectation, I don't know, but there seems to be the expectation of explosive growth in this sector. (I don't know the numbers or how Heroku has grown since but Salesforce did pick up Heroku relatively early in the cloud hosting lifecycle too.)
endlessvoid94 13y ago
It says they ran a $21MM loss on almost $300MM in revenue last year. Their growth rate combined with the LTV of their customers is probably very promising. Reminds me a lot of Palantir.
brown9-2 13y ago
The best part is that this is literally the last full sentence of the article: It ran a $21 million loss on $292 million in revenue last year.
- endlessvoid94 13y ago
  That may not matter -- in fact, most companies that take on VC money are not profitable for quite awhile, with the expectation that in the long term, the business will be enormous. Before making the judgement that "psh, they're not profitable", be sure the vectors look right. For example, have they been making that margin smaller and smaller, and is the revenue getting larger and larger? If so, then they're fine in the long term, and it's a sound investment.
  - photorized 13y ago
    We don't have any insight into their financials as far as margins etc. We do know they had raised $188MM, and had purchased 3 companies (according to CB anyway). My personal take on this, after looking at their funding history briefly - had their margins been getting smaller, they wouldn't have had to continue raising round after round. I don't get the fascination with subsidized revenue growth - almost anyone can do that with massive infusions of cash.
    - endlessvoid94 13y ago
      I don't think there's a fascination, I just think that's where most VCs invest their money, and it can be a compelling investment for acquisitions. The larger issue is that short term profitability is not the only thing to look at. It should certainly be one thing to consider, but there are lots of examples of companies that became enormous after a long period of unprofitability. And since ET has so much revenue and only 7% loss compared to that revenue, I can totally see how this would be a good investment for Salesforce.
jhull 13y ago
Buying ExactTarget adds 6000 more prospects/customers that Salesforce can sell to. Assuming that it signs up a fraction of those to use Salesforce Service Cloud or Data.com or any of the other Salesforce products, that's more money and helps justify the price. Oracle has been doing this for years (and probably where Benioff got his playbook) They buy up a company, fold in their customers and cross-sell their other products to them.
- jeremymcanally 13y ago
  Yeah but assuming that works out as profitable, those customers (assuming they all stay with them) would have to start spending 10x the money they're spending with ExactTarget now on Salesforce products. That's a big stretch and risk, but again, maybe it'll work out for them. :)
  - meterplech 13y ago
    Well, the purchase is a onetime cost, and revenue is recurring. If they spend 2x what they are paying now they'd recoup the cost (in terms of revenue) in 5 years. Plus, that's not counting new customers for ExactTarget's services. If you are a heavy SFDC user and were previously deciding between Marketo, Hubspot, and ExactTarget, you may go with ExactTarget because you know it'll be fully supported by SFDC.
- ergest 13y ago
  It's funny, we currently use ExactTarget and are working to move to SalesForce in a year
- hebegb 13y ago
  I think it's sort of the opposite (of acquiring ET for their customers). As a company "born Cloud", Salesforce have had to make sure their integration capabilities have been up to snuff, and other vendors have been able to leverage those integrations to reach Salesforce customers via the AppExchange (similar to the App Store). So the capability of using Salesforce whilst using other apps with integration has been a capability for a while, and so customers could tailor their own solutions to their needs, budgets etc. Except that more and more, customers want the one-back-to-pat/one-neck-to-strangle, and the associated 'one-solution, no integration' benefits. Hence Salesforce have been parking their tanks on the lawns of service providers. When asked for features, Salesforce response is sometimes "There's an app for that", however sometimes the demand for them to provide certain functionality is so great, or the opportunity large enough, that they'll enter a market in this fashion. They're currently doing something similar with identity management. Ping Identity had a solution they could sell you, but soon they'll have to compete with Salesforce Identity. Competing with someone who hosts the platform you're working on is possible, but it's definitely a disadvantage. The other factor here is what the other players are up to - Oracle recently purchased Eloqua, and for those of us in the Salesforce line of work, an acquisition like this has been expected for the last few months. Email marketing is an area in which Salesforce has been weak for some time, they didn't want to do it because it's not their core focus, and hey, "there are apps for that". But once Oracle moved, Salesforce were going to follow suit to block that advantage.
tpiddy 13y ago
I generally agree with DHH's assessment of CRM and think it is ridiculous it trades such a high p/e compared to similar companies like Adobe. That said, moving email providers is likely a huge pain in the ass for those 6000 customers. They are basically locked in for years and years. There may be potential to raise prices and gain profit from those customers. Internal investment to move vendors is likely in the hundreds of thousands. Salesforce already has a few of these same clients through BuddyMedia and other B2C offerings, but the cross sell of a marketing suite is what they are envisioning. I expect that outside of a potential Marketo purchase, they will purchase companies with more b2c or general marketing offerings, potentially search, display or other ad related products to compliment Social.com.
ripter 13y ago
We've lost profit because we do not focus on profit. We focus on revenue. This strategy has worked well for other companies like SalesForce and Amazon. This has allowed ExactTarget to spend more money on developers (like me), products, and to acquire other businesses.
psaintla 13y ago
BuddyMedia was losing money also it didn't stop salesforce from buying them for 600M http://www.businessinsider.com/look-inside-buddy-media-money-pit-2012-10 http://www.businessinsider.com/look-inside-buddy-media-money...

petercooper 13y ago

In the quotes they seem to playing on the "CMO will eventually have a bigger budget than the CIO" card. Whether this is a reasonable expectation, I don't know, but there seems to be the expectation of explosive growth in this sector. (I don't know the numbers or how Heroku has grown since but Salesforce did pick up Heroku relatively early in the cloud hosting lifecycle too.)

endlessvoid94 13y ago

It says they ran a $21MM loss on almost $300MM in revenue last year. Their growth rate combined with the LTV of their customers is probably very promising. Reminds me a lot of Palantir.

brown9-2 13y ago

The best part is that this is literally the last full sentence of the article: It ran a $21 million loss on $292 million in revenue last year.

endlessvoid94 13y ago
That may not matter -- in fact, most companies that take on VC money are not profitable for quite awhile, with the expectation that in the long term, the business will be enormous. Before making the judgement that "psh, they're not profitable", be sure the vectors look right. For example, have they been making that margin smaller and smaller, and is the revenue getting larger and larger? If so, then they're fine in the long term, and it's a sound investment.
- photorized 13y ago
  We don't have any insight into their financials as far as margins etc. We do know they had raised $188MM, and had purchased 3 companies (according to CB anyway). My personal take on this, after looking at their funding history briefly - had their margins been getting smaller, they wouldn't have had to continue raising round after round. I don't get the fascination with subsidized revenue growth - almost anyone can do that with massive infusions of cash.
  - endlessvoid94 13y ago
    I don't think there's a fascination, I just think that's where most VCs invest their money, and it can be a compelling investment for acquisitions. The larger issue is that short term profitability is not the only thing to look at. It should certainly be one thing to consider, but there are lots of examples of companies that became enormous after a long period of unprofitability. And since ET has so much revenue and only 7% loss compared to that revenue, I can totally see how this would be a good investment for Salesforce.

jhull 13y ago

Buying ExactTarget adds 6000 more prospects/customers that Salesforce can sell to. Assuming that it signs up a fraction of those to use Salesforce Service Cloud or Data.com or any of the other Salesforce products, that's more money and helps justify the price. Oracle has been doing this for years (and probably where Benioff got his playbook) They buy up a company, fold in their customers and cross-sell their other products to them.

jeremymcanally 13y ago
Yeah but assuming that works out as profitable, those customers (assuming they all stay with them) would have to start spending 10x the money they're spending with ExactTarget now on Salesforce products. That's a big stretch and risk, but again, maybe it'll work out for them. :)
- meterplech 13y ago
  Well, the purchase is a onetime cost, and revenue is recurring. If they spend 2x what they are paying now they'd recoup the cost (in terms of revenue) in 5 years. Plus, that's not counting new customers for ExactTarget's services. If you are a heavy SFDC user and were previously deciding between Marketo, Hubspot, and ExactTarget, you may go with ExactTarget because you know it'll be fully supported by SFDC.
ergest 13y ago
It's funny, we currently use ExactTarget and are working to move to SalesForce in a year
hebegb 13y ago
I think it's sort of the opposite (of acquiring ET for their customers). As a company "born Cloud", Salesforce have had to make sure their integration capabilities have been up to snuff, and other vendors have been able to leverage those integrations to reach Salesforce customers via the AppExchange (similar to the App Store). So the capability of using Salesforce whilst using other apps with integration has been a capability for a while, and so customers could tailor their own solutions to their needs, budgets etc. Except that more and more, customers want the one-back-to-pat/one-neck-to-strangle, and the associated 'one-solution, no integration' benefits. Hence Salesforce have been parking their tanks on the lawns of service providers. When asked for features, Salesforce response is sometimes "There's an app for that", however sometimes the demand for them to provide certain functionality is so great, or the opportunity large enough, that they'll enter a market in this fashion. They're currently doing something similar with identity management. Ping Identity had a solution they could sell you, but soon they'll have to compete with Salesforce Identity. Competing with someone who hosts the platform you're working on is possible, but it's definitely a disadvantage. The other factor here is what the other players are up to - Oracle recently purchased Eloqua, and for those of us in the Salesforce line of work, an acquisition like this has been expected for the last few months. Email marketing is an area in which Salesforce has been weak for some time, they didn't want to do it because it's not their core focus, and hey, "there are apps for that". But once Oracle moved, Salesforce were going to follow suit to block that advantage.

tpiddy 13y ago

I generally agree with DHH's assessment of CRM and think it is ridiculous it trades such a high p/e compared to similar companies like Adobe. That said, moving email providers is likely a huge pain in the ass for those 6000 customers. They are basically locked in for years and years. There may be potential to raise prices and gain profit from those customers. Internal investment to move vendors is likely in the hundreds of thousands. Salesforce already has a few of these same clients through BuddyMedia and other B2C offerings, but the cross sell of a marketing suite is what they are envisioning. I expect that outside of a potential Marketo purchase, they will purchase companies with more b2c or general marketing offerings, potentially search, display or other ad related products to compliment Social.com.

ripter 13y ago

We've lost profit because we do not focus on profit. We focus on revenue. This strategy has worked well for other companies like SalesForce and Amazon. This has allowed ExactTarget to spend more money on developers (like me), products, and to acquire other businesses.

psaintla 13y ago

BuddyMedia was losing money also it didn't stop salesforce from buying them for 600M http://www.businessinsider.com/look-inside-buddy-media-money-pit-2012-10 http://www.businessinsider.com/look-inside-buddy-media-money...