Adobe Acquires Marketo, What are People Saying?
After acquiring Magento in May for $1.68 billion, Adobe hit the news again in announcing they had 
agreed to take Marketo off the hands of Vista Equity Partners for $4.75 billion. This comes only two years after Vista Equity Partners purchased Marketo for $1.79 billion in cash, making it quite a profitable sale. It also shows a great testament to the value Adobe sees in Marketo as an asset to its overall business.
This acquisition has brought many opinions to the table, so let’s take a walk in and around some of the conversations that have surfaced in the wake of this shakeup.
Why Did Adobe Buy Marketo?
Firstly, this signifies a huge vote of confidence in the potential of martech as digital marketing guru Scott Brinker points out: “We don’t know exactly what Marketo’s current revenue is, but back-of-envelope estimates — extrapolating ~30% year-over-year growth from Marketo’s last published quarterly revenue as a public company back in 2016 — likely puts them below $4.75 million. That would put the Adobe acquisition at above a 10X multiple of Marketo’s revenue. That is a major vote of confidence in the future growth potential of martech.”
Another reflection of the value Adobe sees is perhaps in bringing Marketo onboard they’re leaving a bit of a safe harbor and squaring up to some formidable opponents. In the marketing services realm it’s well-known they’ll be up against Oracle, SAP and Microsoft but with Marketo also comes more power for Adobe in digital advertising data, pitting them against the likes of Google and Facebook. On this topic though, the biggest implication is the rivalry Adobe is resurrecting with its old frenemy Salesforce. There is a ton of speculation around the industry on why Adobe has taken aim at that one particular titan, even outside of any leftover wounds from when Salesforce beat out Adobe in its acquisition of Demandware back in 2016.
Some think the leak of the deal to media outlets in early September was a play by Adobe to incite a bidding war with Salesforce and could possibly be why Adobe had earmarked such a substantial amount to acquire Marketo. Secondly, amidst the rumors and pure speculation Salesforce is eyeing an acquisition of Sitecore, one of Adobe’s biggest competitors in the content management space, Adobe shot the first arrow in hitting Salesforce where it hurts, business-to-business sales and marketing services.
On the B2C side, Adobe has always had a strong position in the direct-to-consumer, direct-marketing and digital marketing but now, as Joe Stanhope and Rusty Warner of Forrester point out: “Buying Marketo gives them an entrée to two B2C markets they haven’t previously addressed that well: The considered purchase (i.e., expensive consumer purchases with a long and complicated buying process) and consumer sales where there is a human or distributed seller (e.g., sales reps, agents, and advisors).”
As with any acquisition, there is gold to be mined from a brand new customer base. Stanhope and Warner explain that while all but around 5,000 customers of Marketo are overlap customers with Adobe, that group represents an instant market for Adobe to sell these customers on a suite mentality to eventually adopt all Adobe has to offer in eCommerce, content, analytics and digital marketing solutions.
The final piece of the value puzzle is apparent in the fact that Marketo as a standalone product topped the list for many companies looking for a B2B marketing automation platform, giving Adobe an already strong entry into that market. Combine that with Forrester’s estimation that the global market for B2B marketing automation will grow at a 19.4% CAGR reaching $3.7 billion by 2023, and there you have the B2B motive.
The Other Side of the Adobe/Marketo Coin
Acquisitions of this magnitude don’t always come up roses for everyone involved. As Raj De Datta, CEO and Co-founder of BloomReach points out in a LinkedIn article, Marketo’s partners and customers are most likely the ones who will get the short-end of the stick.
The first point that struck me was the ‘loss of Entrepreneurial DNA’ which you might say we just saw with the founders of Instagram resigning in favor of more creative pastures taking with them their visceral investment in the platform they once built out of nothing. With regard to Marketo, De Datta highlights that many of the key employees for Marketo “will stay through their retention bonuses and then leave. And all of that means that the people that care most deeply for the brand and the promise will inevitably be gone within 1, 2 or 3 years.” He also made mention that with such a large integration, their remaining time will be filled with more meetings, and politics ironing out alignment initiatives and much less time spent investing in the advancement of the product.
Another way he notes customers will suffer is in an increased complexity. De Datta makes this point by looking back on Adobe’s ability to effectively integrate in the past paired with how hard it is to integrate SaaS systems overall: “The promise of an acquisition is a more naturally 'integrated solution.' The data is in there. How difficult is it almost ten years after the Adobe acquisition of Omniture to do something really simple – like take web analytics data and run a personalized web campaign? Or email campaign? Arguably, it is no easier than it was ten years ago when Omniture was an independent company. And that’s no surprise. What incentive does an acquirer have in re-engineering its SaaS platform to drive integrations when they make all their money selling you the new application? Remember, it's brutally difficult to integrate independent SaaS systems.”
The massive cheque Adobe wrote for Marketo also has to be cashed on something, in this case De Datta states in part it will be the customer experience that suffers as Adobe sifts out value. “A business case for an almost 10x multiple on Marketo’s revenue as a purchase price will no doubt include significant cost synergies. Adobe will take costs out of Marketo’s structure to realize value. What does that mean for you? Typically, fewer account managers serving you, fewer engineers building new functionality and fewer support folks taking your calls. All in all, a worse experience.”
Who Really Wins?
Aaron Pressman and Adam Lashinsky of Fortune even goes as far to say Adobe takes a backseat in the conversation of who wins with this acquisition, with Vista Equity Partners coming out way ahead by taking Marketo at a low point when Salesforce had made a move to trip it up, and turning it into a treat Adobe would snap right up: “Back then Marketo’s business was flagging because its one-time partner, Salesforce.com, had purchased a Marketo competitor called Exact Target. Jefferies analyst Brent Thill thinks Adobe is a two-time loser in the buyout game. He thinks Exact Target was the better asset, as was Adobe acquisition Magento compared with a similar company Salesforce bought, Demandware. ‘They are late to the dance with these two deals,’ Thill says.
The biggest winner here is Vista, which prides itself for being able to spruce up middling software companies by applying its long list of best practices to them. A $2 billion return in two years is about as good as it gets.”
Ending Notes
For all the speculation that Adobe was trying to tease a bidding war out of Salesforce and, some even saying Adobe specifically announced the acquisition days before Salesforce’s annual all-encompassing event DreamForce, there is evidence Salesforce just might not care. Besides, this week they've been busy announcing a partnership with a little company called Apple.
Everyone is looking to Salesforce for a counter move but their popcorn might get cold while they wait. As mentioned above, when Vista bought Marketo they were at a low point because Salesforce had just purchased Exact Target, a competitor of Marketo. Marketo's value has no doubt risen since 2016, but did it rise as high as Adobe paid or, was their need for it clouded by the residual wound still lingering from Salesforce taking Demandware away from them?
It’s no secret I find M&A incredibly interesting and entertaining to research and write about simply because around every corner there is a new conversation. Some highlight the pros, some emphasize the cons and some just incite critical thinking about the event and its impact on the market.
In reading Scott Brinker’s commentary, I found the two most positive points to leave you with on the Adobe/Marketo acquisition. The first being the inspiration entrepreneurs should feel with this exit of Marketo from the standalone martech space as it consolidates into a ‘tentpole’ solution. Adobe doesn’t fill every gap Marketo had, leaving wide open spaces for others to capitalize on and disrupt.
Secondly, he says what we all might be thinking, Vista Equity Partners now has a big gain burning a hole in their pocket and that “capital has to go somewhere.” They’re going to be looking for a place to put it, or they may already have an idea of where they want it to go, and it very likely could be anywhere. Scott adds “given the potential growth in the future of digital business and customer experience, writ large, some portion is likely to be reinvested in some kind of martech opportunity (and the boundary of what is or isn’t “martech” will continue to evolve accordingly).”
We shall see!
Laura Myers
A digital business, marketing and social media enthusiast, Laura thrives on asking unique, insightful questions to ignite conversation. At an event or remotely, she enjoys any opportunity to connect with like-minded people in the industry.