Back in late 2009 we pitched dozens of VCs in an effort to raise money for Pardot. When asked the common question “who are your likely acquirers?” we’d always answer that Salesforce.com was perfect — the market leader with 100,000+ B2B CRM customers needed a complementary B2B marketing automation platform. Then, of course, we’d get the expected follow up question: why doesn’t Salesforce.com just build a marketing automation product now and compete directly?
Immediately, we’d respond with the answer every entrepreneur should give when asked why doesn’t big company ‘X’ get into their market: it’s not worth their time. Of course, this is a confusing response. As entrepreneurs trying to raise money, we’re arguing that marketing automation is a great market worthy of millions of dollars of investment. Yet, we’re also arguing that the most logical player to get into the market shouldn’t do it because it’s not worth their time. Well, what is it?
Here are the two reasons why Salesforce.com didn’t get into marketing automation sooner:
- Strong Core Business Growth – When the main business is growing at high double digits, it doesn’t make sense to take resources away from it to address a related market. As long as the core business is experiencing major growth, stay the course.
- Market Too Small, For Now – Startups often help create new markets that are small but fast growing. Marketing automation back in 2009 was too small for anyone to care about, especially Salesforce.com with their amazing growth. Put another way, if the related market can’t immediately add substantial revenue (e.g. > 5% of current company revenue), it isn’t worth their time.
Salesforce.com was smart not to get into marketing automation 7+ years ago as their core business was growing fast and marketing automation was too small a market. Eventually, it became clear that marketing automation was a bigger market than expected with growth much greater than the CRM market, making the acquisition of ExactTarget + Pardot a strong strategic move.
What else? What are some more reasons Salesforce.com didn’t get into marketing automation sooner?
David Cummings on Startups 
I often wondered the same topic. Saleforce was built to be the system of record for salespeople and this directly conflicted with what marketing automation was doing by being the system of record for Marketers. You said it best, taking resources away from your core vision can be a risky move. The product innovation will suffer, and your messaging will likely need to be altered to support a new market. I’m sure that by staying its course, Salesforce’s echo system grew stronger allowing other mature markets to grow along side of them and providing value to their customers. These customers benefited by setting up a proper marketing/sales engine and pay Salesforce more money as they scale and add more data, salespeople, support, and analytics. Should there be 2 systems of record for Sales & Marketing or just 1?
Yep. That’s it. SalesForce approached us in early 2009. At the time, we asked why they weren’t interested in Eloqua or Marketo. They said that they saw the market as too small and too niche. Eloqua was the leader at the time with only $50m in sales. We thought that they were crazy and didn’t understand where the market was going. But, of course, they figured it out a few years later. Better late than never!
It’s often cheaper (if you’re pricing risk) for larger companies to acquire “winners” of new and emerging markets that are adjacent to their core.
There is no guarantee that a new product team from a larger company will make the correct market decisions to build a winning product. So smart larger companies manage that risk by letting many others invest capital to solve the problem and then compensate the best of that group.
So two items of note way back when:
1) The AppExchange easily fulfilled any SFDC users for this thing called marketing automation. There was no need for SFDC to dive in and build a solution while there were “partners” ready to make it happen for this nascent market.
2) They did bring on board a landing page company early on (I think it was a 6 person team), but they were brought on not to muck up existing AppExchange relationships. I specifically recall that was a very sensitive point.
The AppExchange allowed SFDC to continually evaluate products, but as each day went by, it got harder and harder to jump in with their own solution as they did not want to alienate those SFDC users who adopted other solutions.
I think another factor would be education. When you are introducing a new technology to a prospect, education is a key part of the conversation. Up until the last few years, the cloud was a term that some businesses did not fully understand or trust. Salesforce was fighting the battle of educating and evangelizing on the benefits of the cloud. Now, that the cloud is more generally understood and accepted, they can educate on the benefits of complimentary services like marketing automation.