Blog Article | Thomas Lee
Posted: December 4, 2018

“Marcrapo” no longer: the inside story of why Adobe paid $4.75 billion for unicorn software firm Marketo

Jill Rowley

“I hated Marketo,” Jill Rowley recently told me.

In fact, she even gave the software firm, which makes a platform to automate digital marketing, a not so flattering nickname during the company’s early days.

“It was Marcrapo,” she said.

“What I hated about them most was that they were lying to the marketing nation about how easy their technology was, about how simple, about how fast. Maybe your buttons are pretty but the process is not easy, a lot of things have to come together to get value out of the technology. I felt they were setting up a lot of marketers to fail.”

Before Vista Equity Partners in San Francisco bought Marketo in 2016, the company’s stock price had dipped nearly 40 percent below its IPO price. Bookings were flat and the company was generating negative earnings before interest, taxes, depreciation, and amortization (EBITDA).

Well, Marketo must have gotten its act together because Adobe recently purchased the company for a cool $4.75 billion, the largest acquisition in Adobe’s history.

Adobe’s decision to pay such a big sum for Marketo means Adobe wildly overpaid or Marketo had executed a remarkable transformation less than two years as a private firm.

It’s the latter, Rowley said, who joined Marketo as chief growth officer.

“I know the numbers so I know what we did,” she said. “I know the turnaround we did on bookings. I know the turn around we did on revenue growth. I know the turn around we did on EBITDA. But the world doesn’t know our numbers cause we’re a private company. I know that price is fully justified.”

A social selling evangelist

Rowley’s journey to Marketo is unique in itself. She spent a decade as a top sales rep at Eloqua, a competitor to Marketo, during which Eloqua went public and Oracle eventually acquired the company.

She came to realize that traditional commission-based sales models were becoming obsolete and that companies needed to exploit social media networks like LinkedIn and Twitter to establish stronger, more authentic relationships with customers.

Rowley joined Oracle in 2013 as a “social selling and social business evangelist” whose job was to train the software giant’s salesforce in her thinking. But she clashed with Oracle’s management and the company eventually fired her.

Rowley spent the next few years as a speaker and advisor, preaching her ideas of social selling to startups and corporations alike.

In spring of 2017, Rowley came across speech on YouTube by Marketo CEO Steve Lucas.

“I listened to Steve talk about this new world where nobody wants to be marketed to,” Rowley said. “What buyers want is authentic, human, helpful, engagement. We want to be listened to. We want sellers to know us, to care about us, to do things for us that are of value.”

The leader of the company she once called Marcrapo was now speaking her language.

“I watched the video several times, I’m not kidding,” Rowley said. “I wrote down Steve’s words.”

Marketo had endured a bumpy few years before Lucas began to turn the company around as private firm. The company had a reputation for making quality digital marketing software but lacked strong relationships with its customers.

“Marketo is a solid product and arguably one of the top three marketing products on the market today,” independent analyst Chris Fletcher, formerly with Gartner, wrote. “While Marketo is a good/great product company, I have heard consistently from user organizations that Marketo was not as strong a ‘customer company’ as some of its competitors, notably Salesforce and Adobe, which consistently score very highly in this area.”

Rowley out to Lucas through, what else, LinkedIn. The two eventually had lunch and Lucas invited her to join the company as chief growth officer, a position that allowed her to directly advise him.

Measuring the connection between marketing and shareholder value

Rowley’ job was to help Marketo establish deeper, more meaningful relationships with customers that transcended the usual vendor/client transaction.

“We were repositioning our core messaging to ‘listen to your customers, learn from them, engage with them,” she said.

Specifically, Marketo needed to not just develop products but establish thought leadership with chief marketing officers, Rowley said. The company needs to show how marketing investments not only generates sales but also impacts the valuation of the overall brand and business.

“Marketo has done very little in that area, which is exactly what I’ve been hysterical about,” Rowley said. “We’ve got this incredible marketing nation with thousands of marketers but where is our CMO nation? It doesn’t exist.”

Rowley cited the Forbes Marketing Accountability Initiative, an industry effort to create benchmarks and standards for executives to measure and communicate the connection between marketing and shareholder value.

“I want us to use this to open doors with CMOs,” Rowley said. “If we’re all certified on this new model around marketing accountability and we offer that to our potential customers and our existing customers, we’re leading with value, not with product.”

“Sales is becoming a lot less relevant to buyers,” she said. “What is most relevant is strategy, the contextual understanding of my business, my company, my industry, my team, my stage of growth, my challenges, my business objectives to whatever it is you’ve got to offer. It’s gotta start with value, and that’s so radically different… If you’re going to market to the CMO, you’ve got to have those programs and events, not just quota carrying, dick swinging sales people.”

Adobe, the ideal fit for Marketo

For these reasons, Adobe was the right buyer for Marketo. Companies like Oracle and SAP, the latter which was rumored to be especially interested in acquiring Marketo, would be a bad fit for the company, Rowley said.

“I told Steve ‘I’ll hate you if you let SAP buy us,’” she said. “Nothing against SAP at all, but for our customers, SAP would have been a really bad thing because our customers are marketers. SAP knows the IT profession. We need to be owned by someone who understands the marketing profession.”

Adobe is known for its creative/marketing expertise, having enjoyed strong relationships with customers through its popular editing and design software. Such a creative foundation allowed it to more easily expand into digital marketing and data analytics.

For example, customers that used Photoshop to create images or stories (creative) now want help on distributing and personalizing the content (marketing) and on determining whether such efforts are working (analytics).

“Everyone wants to be a storyteller,” Abhay Parasnis, executive vice president and chief technology officer at Adobe, once told me.

Moreover, Adobe has heavily invested in thought leadership around marketing and analytics. The company enlisted former Obama economic advisor Austin Goolsbee to launch a Digital Price Index. Adobe Digital Insights publishes research on digital marketing based on the analysis of real time data from more than 5,000 companies around the world.

Adobe also offers CMO.com, an online magazine devoted to “helping CMOs, senior marketers, and their teams become better marketers and deliver standout experiences in a digital world.”

Expanding the TAM

Adobe’s strategy to combine thought leadership with quality products has produced demonstrable financial results. In 2017, the company reported overall software subscription revenue of $6.13 billion, a 42 percent jump from two years prior. Adobe Digital Marketing was the company’s fastest growing business segment last year. Over the past 5 years, Adobe’s stock has more than quadrupled to $250 per share.

Did Adobe overpay for Marketo? Like Rowley said, we don’t know the numbers. But total addressable market (TAM) often plays a key role in calculating a valuation.

At Rowley’s urging, Marketo is positioning itself from a niche software maker that helps companies generate sales leads to a thought leader in how marketing can boost overall shareholder value. In doing so, Marketo has greatly expanded its TAM and thus its valuation.



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Thomas Lee
Article Author

Thomas Lee

Thomas Lee is the Senior Writer at SharesPost. He was previously a business columnist at the San Francisco Chronicle. Lee has written for the Star Tribune in Minneapolis, St. Louis Post-Dispatch, and Seattle Times. He is author of “Rebuilding Empires” (St. Martin's Press), his book on the future of big box retail in the digital age.

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DISCLAIMER: This blog does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The information contained in this blog has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.

None of the information contained in this blog represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

Any securities offered are offered by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost Inc. Certain affiliates of these entities may act as principals in such transactions.

Copyright © SharesPost, Inc. 2018. All rights reserved.

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