For chief marketing officers, investing in social media has quickly evolved from an experiment to a necessity. CMOs have come to realize that pouring $1 million into a 30-second Super Bowl ad is not even close to as effective as spending a fraction of that amount on generating product-related content on Facebook or Twitter.
For Salesforce.com Inc., a leader in customer relationship management software, the opportunity is obvious. After all, the $21 billion CRM market revolves around how companies organize and automate the processes of finding, keeping, improving and measuring customer relationships. Companies get the fact that social media offers unprecedented ways for them to understand and communicate with their customers.
But, like the change its software buyers have faced, the move to social marketing has posed a host of pressing questions for the San Francisco software company, says Salesforce senior vice president Marcel LeBrun.
"How do we become the company that provides the software infrastructure to help CMOs navigate that change, and listen to consumers and the insight gained from those consumers and measure the results?" he asks.
The answer: Strike the two largest acquisitions in Salesforce.com's 13-year history to buy the leaders in the building blocks of what the company dubs the "social marketing cloud." LeBrun was a founder and chief executive of Radian6 Technologies Inc., a provider of technology that lets companies track social Web conversations that Salesforce.com acquired last year for $340 million. On June 4, the company unveiled a roughly $745 million agreement to buy Buddy Media Inc., whose software enables corporations to publish and analyze the effectiveness of their social media-marketing campaigns.
The two deals create what some describe as an end-to-end software offering for companies and advertising firms that want to create, execute, monitor and analyze social media-marketing efforts.
"We didn't become this little thing on the side," says LeBrun, who also is general manager of Salesforce Radian6. "We were part of transforming who Salesforce is."
In fact, Salesforce aims to turn social marketing into its fourth billion-dollar business line, alongside its traditional CRM software, services business and cloud-computing platform. The opportunity appears impressive. Citing market research from Gartner Inc. and eMarketer Inc., Salesforce says that CMO spending is set to surpass that of chief information officers within five years, and social advertising is set to be the largest growth area in online ads next year.
In a recent study, Gartner said that the social CRM software market will reach $2.1 billion by the end of this year; that amounts to roughly 10% of the whole CRM software market. Gartner also said that by the end of this year, more than 60% of Fortune 500 companies will actively engage customers via Facebook marketing campaigns.
So it's no surprise that Salesforce isn't alone in running to keep up with this marketing evolution, and that Buddy Media drew interest from several others in the race. Archrival Oracle Corp., for example, is building its own capabilities to navigate the social sea change in marketing, and its chief, Larry Ellison, recently said his company sniffed around Buddy Media. Google Inc. reportedly made an offer for the company too.
Oracle in May settled on buying smaller social-marketing rival Vitrue Inc. for undisclosed terms (various reports put the price tag at around $300 million). Adobe Systems Inc. and IBM Corp. also have been busily snapping up companies in the space.
LeBrun describes Oracle's deal for Vitrue as one that brings its competitor a narrower product set, without the in-depth analysis tools offered by Buddy Media. Analysis is a key part of social CRM tools, especially when trying to figure out whether a company's social-marketing efforts are producing results.
"The key for us is that we could have spent $20 million and brought in a technology and integrated it, but the Salesforce philosophy has been to build it or buy the market leader," LeBrun says. "Let's not buy No. 3 or 5; this is a social juggernaut we're building."
Salesforce is not afraid of paying up. The deal for New York-based Buddy Media is not only the largest amount the company has paid for an acquisition, but also carries one of the highest multiples, according to Bank of America Merrill Lynch analyst Kash Rangan. Salesforce paid roughly 14 times Buddy Media's $50 million revenue run rate.
That said, the "stickiness" of customer engagement on social networks, along with today's constant connectedness and the ability to capture and analyze customer data, makes the high price forgivable, the analyst says.
"We believe Salesforce.com is uniquely positioned to leverage the social-marketing trend building on the success of its CRM platform," Rangan says.
Besides, Salesforce has gotten pretty good at acquiring, having turned earlier key acquisitions -- cloud-computing platform Heroku Inc. in 2010, call center software developer InStranet Inc. in 2008 and Radian6 last year -- into "very successful businesses," he says.
One thing that helped persuade LeBrun and Radian6 to join Salesforce was the fact that leaders from these acquisitions are still working at the company. Former Heroku chief executive Byron Sebastian is now Salesforce's vice president of platforms, while InStranet's former chief Alex Dayon is now the company's executive vice president of applications.
"All those leaders are still there and have growing responsibilities," LeBrun says. Salesforce CEO "Mark [Benioff] always says that acquisitions are expensive signing bonuses for amazing leaders."
Privately held Buddy Media, founded in 2007 by husband and wife team Mike and Kass Lazerow, employs roughly 300 people and claims about 1,000 customers, including some of the largest advertisers: Hewlett-Packard Co., Ford Motor Co. and Mattel Inc.
LeBrun played a pivotal role in bringing Buddy Media into the fold. After the Radian6 deal closed last July, LeBrun helped build a dedicated sales organization that works with CMOs within Salesforce.com. He repeatedly heard that clients were turning to Buddy Media to publish content and measure the results of their campaigns.
"They'd say, 'Wouldn't it be great to have it all in one place?'?" LeBrun says. He and Benioff met with several potential targets over the past three to four months before settling on Buddy Media.
For the startup's chief executive, Mike Lazerow, the biggest challenge once the deal closes might be the increased demand on his time.
"All of a sudden we had 1,000 sales people dying for us to talk to their customers," says LeBrun of Radian6's joining Salesforce. "As a startup, you'd pay to have dinner with 24 CMOs, but now it is hard to even find the time to do that. It's a good problem to have, but it's also a challenge."