I am still catching my breath. Adobe has agreed to acquire Marketo for $4.75 billion. The deal is the biggest in Adobe’s history and a massive encore to the acquisition of Magento for a mere $1.7 billion in May. On the one hand, I find myself proud to be a B2B marketer — to think that helping folks like me be more successful is worth $4.75 billion. On the other hand, you’ve just gotta wonder about that number. My colleagues Joe Stanhope and Rusty Warner — both of whom know a lot about Adobe and focus on B2C marketing — immediately got together to share our initial thoughts:

  • This is an awesome valuation. According to credit ratings agency Moody’s Investors Service, Marketo generated revenue of about $321 million in 2017, so the Adobe offer represents a valuation of nearly 15x prior-year revenue. For current Marketo owner, Vista Equity Partners (Vista), this is a pretty impressive performance. It purchased Marketo in May 2016 for $1.8 billion in cash, held onto it for two years, and hauled in a hefty $2.95 billion in profit.
  • For Adobe, the payback isn’t coming just from the B2B marketing segment. Adobe naturally wants to fill a gap in its lineup and capitalize on B2B marketing’s growth trajectory; Forrester is forecasting the global market for B2B marketing automation to grow at a 19.4% CAGR over the 2017–2023 period from a base of $1.3 billion in 2017. That’s $3.7 billion by 2023. But there’s a bigger and more immediate story here: Most of Marketo’s approximately 5,000 clients are new to Adobe and create an instant market for its extensive range of eCommerce, content, analytics, and digital marketing solutions.

So . . . In How Many Ways Does This Benefit Adobe?

We believe there are three sources of long-term value for Adobe:

  1. Yes, Adobe now gets to participate in the B2B marketing automation market. Global B2B marketers spend 22% of their marketing budget on technology — nearly as much as they spend on marketing programs and media. And 66% plan to increase their technology spend in the upcoming year, more than intend to do so in any other budget category. Although Adobe does have B2B customers, it was definitely a company at the periphery of B2B marketing automation. To participate in the market for B2B marketing automation, Adobe needed the functionality that Marketo brings. And Marketo is a very good choice. The company is on the shortlist in just about every B2B marketing automation platform selection.
  2. And Adobe is now a stronger competitor in the B2C marketing automation market. Although Adobe focused the acquisition announcement messaging on the B2B market, this acquisition strengthens its offering in the B2C marketing space, as well. Historically, Adobe has been strong in direct-to-consumer B2C, direct marketing, and digital marketing. Buying Marketo gives them an entrée to two B2C markets they haven’t previously addressed that well: the considered purchase (i.e., expensive consumer purchases with a long and complicated buying process) and consumer sales where there is a human or distributed seller (e.g., sales reps, agents, and advisors).
  3. Plus, the acquisition helps accelerate Adobe’s “customer experience” street cred. Adobe has already assembled one of the broadest enterprise marketing software suites in the industry, and the Marketo acquisition further strengthens its position. But despite its Adobe Experience Cloud rebranding, Adobe primarily focuses on the marketing buyer. It lacks the sales automation, customer service solutions, and — until its recent acquisition of Magento — eCommerce capabilities that complement rival marketing clouds from IBM, Oracle, Salesforce, and SAP. Adobe’s partnership with Microsoft enables it to address broader front-office requirements for certain markets, but Marketo’s extensive integrations with CRM systems will bolster Adobe’s ability to compete in CX-driven opportunities.

How Does This Change The Marketing Platform Landscape?

Adobe’s strength and reputation with B2C-focused firms is well established. Adobe is a Leader or Strong Performer in a staggering 13 Forrester Wave™ evaluations of marketing, digital experience, and analytics categories (notably in “The Forrester Wave™: Enterprise Marketing Software Suites, Q1 2018” and “The Forrester Wave™: Cross-Channel Campaign Management, Q1 2018“). Marketo provides an additional outlet for these capabilities, but Adobe is already so entrenched that it doesn’t significantly alter its fundamental trajectory or competitive outlook.

But for B2B marketing technology buyers and vendors, this acquisition fundamentally resets the competitive playing field. Actions Adobe has taken, and investment it has not made over the past few years, had rendered Adobe a nonviable vendor for the majority of B2B marketing use cases. That didn’t mean that Adobe couldn’t sell into B2B marketing companies or B2B2C marketing companies where marketing practice is closer to B2C use cases (more email, less account-based marketing, less complex contextual nurturing, etc.). But now it will be able to compete in the B2B marketing cloud business against Oracle, Salesforce, and SAP.

What Should Marketo Customers Think In The Short Term?

In the near term, Marketo customers should be delighted. Marketo’s exit from Vista occurs while marketing technology is making an existential shift. There is a lot of buzz about the number of vendors in the marketing technology landscape. But that really masks the reality that marketing automation platforms are folding into integrated enterprise marketing software suites, which themselves are consolidating. This trend is well underway as vendors like IBM, Oracle, Salesforce, SAP and, of course, Adobe bring fulsome portfolios to market under a “marketing cloud” banner. The market now rewards breadth and scale, and only a few marketing technology vendors have the technical capabilities and resources to compete. There is not much room for an independent platform to compete as a best-of-breed point solution, no matter how important the breed or how best the solution. Frankly, Marketo was running out of potential landing spots when it came time to exit Vista, as most of the major marketing cloud vendors had already filled their B2B portfolio gaps in other ways. This acquisition ensures that Marketo (the product, the people, the vision, the passion) has a secure future.

What Should Marketo Customers Think In The Long Term?

It’s time to choose your cloud, and the good news is you’ve never had more or better options.