Yesterday's acquisition of Pardot by email marketing vendor ExactTarget raises some interesting questions – both in terms of what the deal means for other email marketing firms, as well as its implications for ExactTarget in particular.
Earlier today, Demand Gen Report had the chance to speak with Act-On Software CMO Atri Chatterjee, who provided an interesting take on both questions.
A Closer Look At Pardot's Growth Trajectory
First, Chatterjee pointed out that the growth, revenue and employee headcount numbers, revealed by Pardot during yesterday's conference call announcing the merger, were a bit lower than expected. It's a point that analyst David Raab also noted in a recent blog post on the deal, and it showed that Pardot's founders and shareholders did pretty well under the circumstances.
"What jumped out at us was the fact that Pardot seemed to be slowing down a bit in terms of customer acquisition and revenue growth," Chatterjee said. "When you're looking at roughly 50% year-over-year growth, that's a relatively anemic figure for the marketing automation industry which is growing at 60%, according to David Raab."
Chatterjee, like Raab, said he was also a bit surprised that Pardot's headcount and revenue per employee were both lower than expected.
For Chatterjee, however, how the deal was structured might be even more interesting. With a deal that consisted mostly of cash (along with a small amount of ExactTarget stock) and no venture capital investments to cover, Pardot's founders and shareholders have essentially cashed out in advance.
"At this point, the question for ExactTarget is whether these people will stick around," Chatterjee stated. "Based on my own experience with startups, my guess is that after the next 6-12 months, all bets are off. Atlanta is a very fertile environment for tech innovation right now, and people will want to move on to other things."
A 'Defensive Move' Born Of Necessity
Taking a broader view, Chatterjee said that he's not surprised to see ExactTarget move to acquire marketing automation technology.
"In fact, I think there's pressure on companies currently involved primarily with email marketing to follow [ExactTarget] into marketing automation," he explained. "Email today is not enough; you have to move beyond that. So this was really a defensive play for ExactTarget, finding a company in the space that they could afford to buy and making their move."
All of this raises another question: What will ExactTarget, which has traditionally courted large enterprises in the B2C space, do with Pardot, which has focused on small and midsized B2B customers?
"During the conference call yesterday, it seems as if Pardot is going to be repositioned for the enterprise market," Chatterjee said. That will require the addition of enterprise-specific administrative, security and other features – including many that will have to be adopted from ExactTarget's existing code base.
"There's always a risk with integrations like that," Chatterjee explained. "ExactTarget's product stack is an older code base – some of it goes back a decade or more. Integrating that with a Product like Pardot, which uses a much younger code base, will always present some challenges."
Chatterjee also said he wondered what the acquisition will mean for Pardot's existing SMB customers. "What happens to the existing product roadmap, which is aimed primarily at SMBs?" he asked. "And what can Pardot's current SMB customers – the company's bread and butter – count on in the future? These are open questions."