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Would You Rather Be a DMP or an ESP?

  |  April 23, 2014   |  Comments

Recent trends have led to email service providers (ESPs) and data management platforms (DMPs) becoming hot commodities in the mergers and acquisitions world.

If you have been reading any marketing and advertising trade press in the last year, chances are you've noticed a couple emerging mergers and acquisitions (M&A) trends:

  1. Marketing automation is incredibly hot
  2. First-party data was "discovered" as a potent ingredient for ad targeting

The two beneficiaries of these trends have been companies that two years ago had previously found themselves out of favor: email service providers (ESPs) and data management platforms (DMPs).

After Adobe bought pioneering DMP Demdex way back in 2011, there seemed to be little appetite for another similar acquisition. But sentiments changed. According to former Forrester Research principal analyst Joanna O'Connell last fall:

"Little more than third-party audience targeting platforms two years ago, today's leading DMPs are ingesting a wide range of owned and licensed data streams for insights and segmentation and are pushing data into a growing number of external targeting platforms, helping marketers deliver more relevant and consistent marketing communications."

The market definitely has a sudden appetite for DMPs. BlueKai, Aggregate Knowledge, and Knotice all saw exits that totaled more than $500 million to large players in the last six months. That's a whole lot of cookie segments. Is that all there is to a DMP?

As hot as DMPs have been, the email-marketing sector was 10 times hotter over the last 12 months. Once seen as a commoditized offering with many undifferentiated players competing on price, there were five major M&A events in the ESP market just in the last year: Oracle bought Eloqua and Responsys, Salesforce.com bought ExactTarget, Adobe bought Neolane, and IBM bought SilverPop. The combined exits exceeded a whopping $6 billion in transactional value.

What do acquirers see in these two sectors? They aren't social media and they aren't photo-sharing.

There are two big reasons that enterprise software companies suddenly started buying up ESPs and DMPs like hotcakes: chief marketing officers (CMOs) and mobile adoption.

The market for big IT software changed forever with application outsourcing. With large companies able to shift to nimble virtual data centers like Amazon AWS/EC2, the chief information officer's (CIO) role changed and their budget authority and need to spend money on expensive IT assets was proportionately reduced.

This C-suite shift left the CMO in charge of the fastest-growing sector of tech spending. According to Gartner, "Marketing is so inextricably linked to technology that by 2017, CMOs are projected to spend more money on information technology and analytics than CIOs."

Smart enterprise buyers realize that ESPs and DMPs are now largely bought and managed by CMOs. If you want to obtain a fantastic client list as well as a disruptive technology, you can do worse than buying an ESP. Besides a profitable revenue stream, it is also going to come with a list of hundreds or thousands of clients to cross-sell the rest of your enterprise stack.

Are ESPs really getting bought just for client lists? Just to reach the CMO?

There has to be another reason. Could it be email subscriber usage patterns?

Email is a native mobile application. As people started consuming information more on smartphones and tablets than other devices, email consumption and usage soared. Mobile email usage now exceeds 50 percent. And email is by far the number one app on mobile platforms.

The fact that DMPs aren't directly solving anyone's mobile targeting problems may explain why they are not as hot as ESPs.

When enterprise companies buy ESPs, it's obvious they're getting a great profitable revenue stream. But they're also getting access to CMOs, first-party data, and the mobile consumer. That sounds like a pretty good deal.

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ABOUT THE AUTHOR

Dave Hendricks

As president of LiveIntent, Dave Hendricks has overall responsibility for revenue, finance, legal, and operations. Prior to joining LiveIntent before its 2009 Series A, Dave was EVP of operations at PulsePoint (then known as Datran Media), where he worked with LiveIntent founder and CEO Matt Keiser and ran Datran's ESP StormPost. Before all that, Dave held senior roles at data management companies InfoUSA and Experian. A member of the founding executive team at ExperianCheetahMail, Dave began his email adventure at Pioneering ESP MessageMedia after running global partnerships for Oracle Corp. Dave was named one of Silicon Alley Insiders Top 100 technologists in 2011 and is active in several IAB Committees including Mobile and Email. Follow him on Twitter @davehendricks.

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