Oracle acquires Eloqua. How will this affect the marketing automation industry?

Now the dust has settled on Oracle’s acquisition of Eloqua, it’s time to reflect on how this acquisition will alter the marketing automation industry as a whole.

On December 20, 2012, Oracle announced its intent to purchase marketing automation platform (MAP) provider Eloqua for $871m. The deal is scheduled to complete during H1 2013. Eloqua IPO’d in August at $11.50, and the Oracle bid of $23.50 was a 31% premium over the Eloqua share price of $17.92. Eloqua funder Bessemer Venture Partners immediately sold 5m shares for $121m.

Eloqua’s 2012 revenue is expected up 32% to c. $94m, but Eloqua is still to turn a profit. For nine months ended Sept. 30, losses widened to $7.6m, 37% higher than a year earlier. Oracle is paying a generous price for Eloqua at 9.2 times Eloqua’s trailing 12 months sales. Little wonder that Eloqua’s Board unanimously voted to accept the offer.

Eloqua will become part of Oracle’s Cloud-based Customer Experience offer which includes sales, commerce, service, content, social, and marketing. Oracle will make Eloqua the ‘centerpiece’ of its Oracle Marketing Cloud. The “compelling combination” of Oracle and Eloqua will deliver “highly personalized and unified customer experiences across all channels, enabling superior service experiences at every touchpoint”.

Oracle will significantly increase engineering investments in Eloqua’s products, delivering features and innovations more rapidly. Oracle will also integrate Big Data and Business Intelligence with Eloqua’s products for end-to-end customer journey management. In 2 years Oracle has acquired 9 customer experience software product companies. The idea is to ‘fuse’ these together. Curiously, one it won’t mention was its Market2Lead acquisition in 2010 who also offered marketing automation, but has since disappeared from the Oracle stable.

Eloqua’s CEO Joe Payne said: “Oracle is investing in marketing and in the cloud . . . our efforts will be enhanced by the global reach, resources and capabilities of Oracle . . . Eloqua will make substantial enhancements to what we offer our clients today by leveraging the financial and market strength of the world’s largest enterprise software company.”

So what is Oracle really buying?
Eloqua was founded in 1999 and IPO’d on August 1st 2012. Headquartered in Vienna, VA; 400 employees worldwide serve 100,000+ users in 1,200 clients including 81 of the S&P 500. Eloqua’s revenues come from B2B companies wanting more ROI out of their expensive salesforces. Most are in the Tech sector and Eloqua wants to diversify into similar sectors in manufacturing and financial services. AMEX, for example, is a $1m per annum global account for Eloqua.

The US accounts for 90% of Eloqua’s revenues and international operations are limited. For example, it does not offer a French or Spanish software version. 90% of Eloqua’s revenues are from subscriptions and support with only 10% from loss-making professional services. Eloqua’s primary investment has been in developing their brand – marketing & sales spend represents c. 50% of revenues. However the channel partner network and the direct account management capabilities are under-developed and require attention.

Oracle’s resources and market coverage, especially Oracle’s global direct salesforce and potentially their other channels will greatly help Eloqua. Product internationalisation will surely follow quickly, as will professional services profitability. Eloqua will move from being a best-of-breed MAP vendor into part of a much larger customer experience proposition and Eloqua’s addressable market size will increase by a factor of 10X or 20X overnight.

The acquisition is great for Eloqua as it enables them to eradicate their size and reach weaknesses. Their employees, management team and investors also benefit from a massive windfall (c. $810m). Given that Eloqua reportedly only had $200K in cash before their IPO, life is sweet.

It is also a good deal for Oracle. Eloqua’s core software is well respected and is of high quality. Oracle should sell plenty through their many channels to market. Eloqua’s products also enhance Oracle’s Cloud and Customer Experience plays against the likes of IBM and Adobe. So although Eloqua was expensive, it should turn out to be a shrewd strategic investment.

A few question marks remain however.

Oracle says “Eloqua’s management team and employees are expected to join Oracle after the transaction closes”. The culture of the friendly Eloqua family is very different to the hard-nosed commercialism of Oracle. How many Eloqua employees will stay is questionable. Some will set up as new Eloqua channel partners or join existing Eloqua’s channel partners. Oracle will hope key employees don’t jump ship to fast-growing competitive rivals such as Marketo.

Eloqua has a strong relationship with Oracle’s arch rival salesforce.com. Indeed they have recently embedded Eloqua with salesforce’s enterprise social networking tool, Chatter. Oracle pays homage to this relationship “Oracle also remains committed to enabling customers to use Eloqua’s Marketing Cloud in a multi-vendor environment including non-Oracle sales automation systems.”

Salesforce integration is undoubtedly a major plank in the Eloqua value proposition. However, Oracle has stated its intent to be No 1 in the cloud, which means eating Salesforce’s lunch. In the short term ‘co-opetition’ will pervade, but Eloqua is likely to drift apart from Salesforce and commit wholly to the Oracle platform. Eloqua’s competitors will no doubt raise this with Eloqua / Salesforce combination customers.

What does the acquisition mean for Eloqua’s competitors?
In the short term Eloqua’s competitors will conduct guerrilla marketing tactics offering advantageous commercial terms to win over Eloqua’s customers disaffected by Oracle’s acquisition. They will also be scrubbing up for take-over themselves. Responsys and ExactTarget have recently IPO’d and would be relatively equal acquisitions. In private ownership, Marketo, Hubspot and Silverpop are highly leveraged by venture capitalists no doubt keen to cash in like Bessemer has.

The No 1 acquirer suspect is SAP, which often follows Oracle acquisitions with their own similar initiatives. IBM is committed to further acquisitions in the marketing space also. Teradata might be interested as its Aprimo acquisition has seemingly stalled. Adobe has no real MAP play and might be tempted. SAS Institute and Microsoft are outside, but nonetheless interesting bets.

The marketing automation industry is now in its 2nd wave of acquisitions (the 1st wave being led by the IBM acquisitions of Unica and Coremetrics; and Teradata’s Aprimo acquisition) which herald increased market consolidation and concentration. More acquisitions will come in 2013. The market will move rapidly from being a fragmented group of small best-of-breed suppliers to being dominated by large applications vendors offering integrated complete suites of marketing, sales and service applications, available via the Cloud. The die is set, let the battle for worthwhile acquisitions and market domination begin.