Behind Constant Contact’s $100 Million Bet

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When you meet the thirtysomething Wiley Cerilli, he strikes a humble, and unassuming, pose. “I tell people that I live at 17 Battery and have a bed in Brooklyn,” he says when asked for his view on where the industry is headed, referring to the address of his startup, SinglePlatform. “I think I know a lot about SinglePlatform and a lot about the needs of small businesses, but I’m probably not the best person to talk to about what’s going to happen over the next six to eight months.”

It’s a bit of a “we’ve just all got our heads down working” throwaway line that’s hard to swallow from a successful entrepreneur who just sold his company for a cool $100 million to email marketer Constant Contact last month, but there might be something to it.

Cerilli, a former sales exec at food delievery service Seamless, launched SinglePlatform in 2010 with the express purpose of helping small business adapt to a changing Web. He took his experience of selling to this market during the early days of Seamless, where he headed up partner sales, and infused SinglePlatform with a responsiveness that permeates deep within the culture of the company. The point was to make SinglePlatform, for all its high-tech profile, a company built on the back of relationships, its value driven by publisher partnerships on one end, and SMB sales on the other.

What we saw in SinglePlatform was a business that shared the right characteristics for Constant Contact: highly repeatable, highly horizontal, and solves a necessary problem that can be made easy enough for SMBs to use. — Gail Goodman, Constant Contact CEO

Three months after closing a round of funding from First Round Capital, RRE Ventures, New World Ventures, Gunderson Dettmer, DFJ Gotham and Seamless founder Jason Finger in September 2010, SinglePlatform gained its first real competitor. Yext, a fellow New York startup that had been in the pay-per-call business since 2007, lauched PowerListings – a way for businesses to publish listings information across a network of publishers. The company has since spun-off its pay-per-call play, and closed a $27 million series E on the back of its new flagship service, a pivot that put it squarely in competition with Cerilli.

For SMBs, SinglePlatform offers a way to publish content about their businesses across a range of local publishers that spans from legacy directory services like YP to location-based apps like Foursquare. The company has 10,000 customers who pay $495 per year for the service.

Cerilli’s preferred stodgy spin may be what makes the company a more obvious fit with Constant Contact, itself hardly known for the bleeding edge, but which boasts the heft of 500,000 small business customers. A survivor of the dotcom era that built a sturdy business in email marketing, Constant Contact has been knee-deep in a fervent push into hyperlocal in the last year.

Before CEO Gail Goodman met Cerilli at BIA/Kelsey’s ILM conference in March, Constant Contact had snapped up a loyalty play and a backend deals startup, launched a new social campaigns product, and was piloting its new deals service SaveLocal, which it would eventually launch publicly in early June.

Goodman says the push to expand beyond email marketing was both a response to the convergence of mobile and social around local as well as an answer to an internal juncture for the company. “Everyone starts with a first product and then there’s a moment when that starts to scale that you start to say, ‘what’s our expansion path,’” Goodman told me in an interview. “We’re at $100 million in revenue in email marketing and still growing well, but let’s invest now to make sure we’re on the next growth curve.”

Internally, the company made the decision to expand its focus beyond customer retention into acquisition, building in key elements around social engagement and content creation. Essentially, the thesis is that if you keep your existing customers engaged, they will promote your business through word-of-mouth. By the spring, the social and commerce elements were in place, but the firm lacked an effective tool for helping business create and distribute content — a central part of the company’s strategy.

When the deal was announced in June, Constant Contact’s stock price tanked, dropping nearly 18% in two days. Analysts buzzed that the company had over spent and that it was a “clear sign that new products cannot reaccelerate revenue growth next year,” according to a note from Dougherty & Co. Constant Contact projected SinglePlatform earnings at $10 million for 2013, setting the company’s valuation at nearly 14 times its revenue – well above the seven to 10 times revenue standard for “premium acquisitions” set by M&A advisory firm Architect Partners for the hyperlocal industry.

So why the big price tag?

“We had been looking at this particular space for a while and considered acquiring a similar company a couple years ago,” Goodman explained about the lead-up to the SinglePlatform acquisition. “What we saw in SinglePlatform was, one, a major opportunity for SMBs to be found and two, a business that shared the right characteristics for Constant Contact: highly repeatable, highly horizontal, and solves a necessary problem that can be made easy enough for SMBs to use.”

In the new combination, the companies, now as one in Constant Contact, face a local Web that has shifted substantially over the past few years as the amount of metadata — reviews, check-in’s, product data and more — has exploded. Local search, as a skeumorph of the legacy listings industry, has become a commodity in its own right. What’s valuable for both consumers and merchants today is discovery, and what powers discovery is content. While Yelp and Foursquare, and a deluge of yet-to-be-named startups, battle it out over the local consumer, it remains to be seen whether SinglePlatform offers the way through the noise. One thing’s for sure: Cerilli can’t tell you.

Steven Jacobs is deputy editor at Street Fight.