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Pardot Marketing Software Review

 

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Pardot Company Viability Review

Pardot was acquired in October 2012 by ExactTarget (NYSE:ET) for $85.5M in cash and $10M in ExactTarget common stock. ExactTarget went public in March 2012 and prior to the IPO ExactTarget had raised $188 million from VCs including Insight Venture Partners and Battery Ventures. The company earns in excess of $200M annually, but is not profitable.

Other somewhat related ExactTarget acquisitions include CoTweet in 2010 for $8.1M and iGoDigital on the same day as the Pardot acquisition for $21M. At the time of the Pardot acquisition, Pardot counted about 1,000 customers. ExactTarget was founded as an email marketing company and the acquisition is designed to aid ExactTarget in deepening its marketing automation capabilities and appeal to both sales and marketing leaders. The Pardot solution looks to be very influential in helping ExactTarget achieve its strategic goals.

Some factors and accomplishments which suggest ExactTarget's Pardot solution will continue its market share trajectory at least through the short-term include the following:

  • ExactTarget may bring new resources, global reach, greater brand recognition and the will to achieve a market leadership position than was previously available.
  • Pardot was a profitable company at the time of its acquisition, which is a rarity in the marketing automation software industry. This business model success bodes well for ExactTarget.
  • Since its inception, Pardot had effectively doubled its growth rate annually. Whether this will continue now that the company has been acquired is unclear, but sales and customer acquisitions success over many prior quarters clearly shows that Pardot's momentum and trajectory should continue upward.
  • The company's flagship product, Prospect Insight, demonstrates continued innovation, high fit within its customer target market and solid competitiveness within the marketing software industry.
  • Unlike the majority of marketing automation software competitors which approach the industry as a green field opportunity and pursue customers broadly and without regard to demographics or segmentation, the ExactTarget Pardot software has carefully carved out its small and midsize business (SMB) market and adapted its company, culture, product, pricing, support and messaging to cater to this market particularly well.

As they say in the financial services industry, past performance is no guarantee of future results, and ExactTarget faces a number of business risks and competitive challenges such as the following:

  • The company's long term business strategy is unclear. How ExactTarget will capitalize on the Pardot solution remains to be seen.
  • Historically, Pardot was out-invested in terms of R&D, product advancement and promotion by its most direct competitors by a multiple factor. This disproportional spend is certain to separate the distance among marketing software products, although the timing of such is uncertain. It's still unclear whether ExactTarget will change this situation.
  • As Pardot caters to the SMB market, it is more susceptible to be encroached by a plethora of new start-ups as well as existing players advancing their marketing solutions. This encroachment is clearly underway and will as clearly erode margins and challenge pricing in the months and quarters to come.

As with nearly all marketing software publishers, including ExactTarget, the elephant in the room posing the greatest risk is Salesforce.com—and its potential to enter the marketing software industry directly. The current industry of small and growing marketing software publishers would incur sudden impact if and when Salesforce.com expands the marketing software functionality in its CRM product, to include lead management and marketing automation, and effectively advance its Marketing Cloud to include more than just social marketing. In fact, CRMsearch.com believes such occurrence is imminent and will produce predictable short term impact and less predictable long term results.

For the short term, many of the existing players will suggest that Salesforce's entry validates the market, and will bring a rising tide to lift all boats. While somewhat true, this is more a sentiment of denial and posturing. In reality, an initial marketing automation product by Salesforce.com will not match the functionality and automation of the existing marketing software products, but many customers will nonetheless accept a "good enough" solution that is embedded with their core CRM system. Over a longer haul, the current players will be forced to adapt in innovative ways. Some will move up-market, some will pursue vertical markets, some will become acquired by other CRM software companies matching Salesforce.com's entry, and some will cease to exist.

ExactTarget is potentially better suited to react to such risk than some competitors. ExactTarget delivers solutions beyond just marketing automation, and the company enjoys tight integration and good business relationships with other popular CRM software publishers such as Microsoft Dynamics, NetSuite and SugarCRM. In fact, while approximately 50% of ExactTarget's Pardot customers use Salesforce.com, that high percentage is actually much lower than many direct competitors, and approximately 30% of Pardot customers are evenly distributed among Microsoft, NetSuite and SugarCRM users.

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