Canned responses exist for a reason. While the language may be rote, the spirit is typically sincere. When I heard word of Marketo’s $50 million round, my immediate response was, “Good for them; better for the industry,” predictable though it may sound.
Whenever prominent institutional investors fund a company, the broader category also benefits from the attention, demand and innovation that follow. I fully expect this round – which, according to industry observers, brings Marketo’s total raise to $107 million – to brighten the spotlight that’s already shining on marketing automation and related categories like revenue performance management.
When it comes to Marketo’s funding, the question most observers will ask is: Why did they need to raise $50 million just one year after securing $25 million? The reason is fairly straightforward: Acquiring low-margin customers at the “base of the pyramid” is expensive.
Marketo recently launched a low-cost product that competes directly against HubSpot. In fact, Marketo's CEO referred to HubSpot as his company's "East Coast doppelgänger" in a recent Xconomy article. But when you compete against HubSpot, you're not only competing against a well-funded, well-oiled “inbound” marketing machine. You also compete against Salesforce and Google, each of whom recently made strategic investments in the company. Of course, it’s not only HubSpot in this crowded segment. SMB email giant Constant Contact, a nearly $650 million public company, is rolling out social media tools that inch it closer to Marketo’s small business offering. Then there are the ever-present price wars. Private players like Pardot, Genius, iContact and InfusionSoft are competing aggressively on price in what is becoming a highly competitive niche.
It’s for these reasons that I think the question shouldn’t be, “Why did Marketo raise $50 million just a year after raising $25 million?” but rather, “Why didn’t they raise more?” To beat HubSpot + Salesforce + Google + a whole host of others, they are going to need every cent … and maybe more.