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Marketo Grows Nicely, But Profitability in Question

Posted on Monday, Jul 16th 2012

According to Gartner, the CRM market worldwide last year grew 12.7% over the year to $11.9 billion. The researcher estimates that in 2011, the marketing automation software market was worth $2.8 billion. Online marketing services provider Marketo is growing fast in the segment as it prepares for an IPO.

Marketo’s Financials
One such player in the space is San Mateo, California–based Marketo. The company was founded in 2006 by Phil Fernandez and Jon Miller and is today among the fastest growing provider in revenue performance management. Marketo’s tools help customers by providing easy-to-use marketing automation, improved analytics, and increased sales effectiveness.

Marketo tools include Lead Management, which provides more power and flexibility to automate demand generation campaigns to be able to deliver improved leads. Its Social Marketing tool offers a suite of products that help make marketing campaigns social. Another tool, Sales Insight, prioritizes sales leads so that the marketing team can work on the hottest leads and close the sale faster. When I spoke with Fernandez, he discussed how Marketo’s tools have helped customers improve revenues by more than 40% for the first two years of use of the company’s services.

Compared with other SaaS players, Marketo is still relatively small. It earn revenues by charging customers a subscription fee. Prices start from $750 a month for the SMB customers and at $3,600 a month for bigger enterprise customers. Revenues last year grew 140% over the year to $35 million. Management expects revenues to double during this year. The company has more than 2,000 customers so far, such as Intel, Buddy Media, LinkedIn, and PayPal, to name a few. According to industry analyst David Raab, Marketo may not be turning in profits. Their revenues per customer are estimated to be $30,900 for last year, while costs were at $46,400 per client.

To date, the company has received $107 million in venture funding from investors, including InterWest Partners, Storm Ventures, Mayfield Fund, Institutional Venture Partners, and Battery Ventures. The most recent round of funding of $50 million was held in November 2011 and is said to have gotten the company a “healthy valuation.” Marketo expects to be able to list on the stock exchange by next year.

Marketo’s Acquisitions
Marketo recently made its first ever acquisition. In April 2012, it acquired Crowd Factory for an undisclosed sum. Crowd Factory’s tools help marketers engage the social media more effectively. With only two employees, Crowd Factory earned more than $1 million in revenues last year and was planning to triple the revenues this year. Marketo plans to use the purchase to add cross-channel capabilities and bring analytics to measure returns on the sharing of social campaigns, such as sweepstakes pages.

Some believe that Marketo may be on Salesforce.com’s buy list. However, Fernandez has earlier taken public two companies, Red Brick Systems and Epiphany, and is looking forward to continuing that trend. Revenues in 2012 could double to more than $70 million, and in 2013, revenues could reach $100 million. An IPO is still a long way away, but the company is growing nicely. Of course, the profitability question needs to be addressed.

 

 

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My company competes directly with Marketo and have chosen to bootstrap rather than take venture money. One important reason for this is the quality of the experience we want our customers to have using our software and interacting with our team.

When you take on venture investment as massive as Marketo has you must drive top line growth above all else. This burns a lot of cash as Mr. Raab notes in his analysis. It can also mean that marketing and sales scale faster than both human and technical infrastructure. This often leads to poor customer experience from a variety of perspectives.

Marketo is driving toward IPO and may well reach that point without having ever turned a profit. That's the game they've elected to play and by all appearances they'll be successful at it (congratulations are in order). Bootstrapping is an entirely different experience altogether, but there's more than one way to build a successful SaaS company… ;)

Michael Ward
Founder & CEO
Net-Results Marketing Automation

Michael Ward Monday, July 16, 2012 at 3:23 PM PT
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