The knee-jerk reaction to Salesforce.com’s acquisition of Buddy Media is that the company scrambled to sell itself after Facebook’s IPO disaster ruined its own chances of an IPO. To that I say, fat chance.
The thing is, Buddy Media had no real need to sell. The company has more than doubled its year-over-year revenue growth and, last I heard, has 90 percent gross margins. Buddy Media has raised $90 million in venture backing and, as of last year, hadn’t even touched $70 million of it.* An IPO wasn’t even in its sights yet. This is all to say that a $689 million deal wasn’t dreamt up in the two disastrous weeks since Facebook has been public.
In fact, Buddy Media has always been a candidate for Salesforce.com. Buddy Media Founder Michael Lazerow has compared his company’s structure to Salesforce before, hinting that, some day, it might be attractive to SaaS players like it. Last year the company even beat out Salesforce for a TechCrunch “Crunchie” for Best Enterprise software.
The reason the company sold to Salesforce is the same reason its new partner-in-crime Radian6 sold to Salesforce last year: its literal sales force.
(The persuasive powers of Salesforce CEO and Chairman Marc Benioff, along with hundreds of millions of dollars probably helped.)
In an interview with PandoDaily, Lazerow expains that, when he sat down and mapped out his plan for the next few years, he’d need 1,000 sales people to achieve it. “We were always constrained by our ability to get this into clients’ hands,” he says. Right now Buddy Media’s total headcount including developers is around 300.
Salesforce has a powerful sales team, as does its social listening and CRM platform Radian6. Since Salesforce acquired it last year for $326 million, Radian6 has built up its own sales force and seen consecutive record quarters for deals and deal sizes, Marcel LeBrun, CEO of Radian6, says. He, like Lazerow, wasn’t building a company to sell it, until he met Benioff. “I discovered in the last year that Salesforce has a strong competency in sales execution,” he tells Pandodaily.
On a call with analysts, Benioff echoed the same talking point. Salesforce can accelerate these companies with its distribution, ie, sales force. “They have a great product but they’re distribution-constrained. Our ability to invest and grow distribution…is what we bring to Buddy Media,” he said.
Benioff conceded the challenges of that premise: Salesforce’s team of execs sells to B2B companies, whereas Radian6 and Buddy Media sell to consumer-facing companies and ad agencies. It’s a totally different constituency. “When we started, it was all about high-tech selling,” he said. “We’ve moved beyond that with Chatter (its social network for enterprise), customer service, and support (with Radian6), and [have] shown you that the whole concept of customer service was changing with social media.” Salesforce is now aggressively courting the budgets of Chief Marketing Officers, a category of buyers expected to spend more on IT than the CIO by 2017, according to Gartner.
That started last year with the deal for Radian6. The top thing Radian6′s customers ask for is the ability to publish and market with its listening and CRM platform, something Buddy Media is built for. And yet, the companies share customers because their offerings don’t overlap enough to compete. So yeah, the deal makes sense to me, much moreso than the recent deal Oracle, a middleware company that has yet to dabble in social, made to acquire Vitrue, a Buddy Media competitor.
The good ones are going fast: If Wildfire Interactive sells, remaining acquirers in this category might be better off to build themselves.
Everyone will say that this deal marks the biggest exit for New York since DoubleClick sold to Google for $3.1 billion in 2007. I have to note though, that DoubleClick went public in 1998, valuing it at something like $270 million. Then it merged with a large data collection agency, then sold in 2005 to private equity firms Hellman & Friedman and JMI Equity, spun off a chunk of its business to AllianceData, and then arrived at a sale to Google. Yes, it’s a sale, but how exactly are we defining “exit”? Technically the small IPO was DoubleClick’s exit.
Buddy Media is a big win for New York, in terms of legit exits – that’s two this year counting OMGPop – as well as in terms of angel-making. Lazerow and his wife Kass are already angel investors, having exited U-Wire in 1997. Lazerow has publicly invested in New York startups Namely and Savored. The deal no doubt made plenty of other early employees a chunk of cash as well.
When I asked Lazerow about his roots as a New York startup he said this:
I’m not going anywhere. The marketing world is based here and we got to a leadership position in a very crowded space because we’re here.
My goal is to continue to be involved with Techstars and host events here… If anything I would hope that this deal validates that New York is a very vibrant tech hub and one that isn’t mutually exclusive with the West Coast but an extension of it.
*Sentence updated as I’d initially reversed the amounts of venture capital Buddy Media had spent and saved. The company raised $90 million and has $70 million in the bank, as of last year.