Unless you’ve been living under a rock for the last half-decade, you’ve probably noticed the frantic pace of mergers and acquisitions in SMB/local tech. The general theme is single-product companies either move horizontally (reaching out to all the markets that could remotely utilize their product) or, more often, vertically (seeking to cater to all the nuanced needs of a niche market) to diversify their product offering.
GoDaddy, First Data, Square, Groupon, and Yelp have between them acquired 60+ companies in recent memory, with several of those long rumored to be on the selling block themselves. The once one-dimensional category leaders in web hosting, payments, deals, and directories are now barely recognizable. These companies bought, built, and partnered their way into multidimensional marketing plays, fighting to stay relevant in the ever changing world of SMB tech. Each added 6-12 new products that span the gamut from apps to analytics and capital to commerce. But why?
I’m no longer a banker, so my mergers-and-acquisitions skills are a bit rusty, but my guess is that companies want to
- Increase Average Revenue Per User (ARPU) and make each customer worth the time and effort afforded
- Increase stickiness and make each customer more loyal
- Decrease Customer Acquisition Cost (CAC) and expend fewer resources for better return on investment
- Decrease complexity for customers
In other words, these companies want to add additional products to upsell and cross-sell SMBs to boost their profit margin. The also want to deepen relationships to retain SMBs — after all, it’s harder to leave a vendor if you use 3 vs. 1 of their services, lower the (often exorbitant) cost associated with acquiring them. And they also want to simplify their pitch to a diverse range of SMBs: an a la carte offering of 10 products housed under one roof if easier to digest (pun intended) than that same offering served up by 10 different vendors.
The most obvious example here is Groupon, which after a flurry of acquisitions has transformed itself from a one-trick pony best known for daily deals into a local commerce platform. After all, a daily deal is nothing more than a high-discount, high-cost, seldom-run ad; directory services, ordering platforms, booking platforms, delivery options, gift card offerings, Point of Sale devices, eCommerce options, inventory management services, et cetera, are ultimately far more sustaining.
I spend a lot of time chatting with vendors about what the next few innings hold. In short, it’s more of the same: buy, build, and partner to increase ARPU and decrease CAC.
Specifically, I spoke to
- A media company that wants to sell eCommerce, but doesn’t know which SMBs have an online presence vs. operate offline only
- An email marketing company that wants to customize its offering to cater to specific vertical markets, but doesn’t know which SMBs are cupcake shops vs. contractors or a slew of other business types
- A marketplace company that wants to sell ad products to SMBs with 4-figure ad budgets, but doesn’t know which ones advertise or even which are chains vs. single-location operations and thus have a propensity to spend
- A website company that wants to introduce an app marketplace, but doesn’t know which SMBs are in need of technology solutions or even have a willingness to spend on any
- A presence-management company that sells exclusively through channel partners (like web designers), but can’t identify the top in field, let alone proactively engage them
- A marketing-automation company that wants to “clone” their best customers, but has no idea what those customers have in common, aside from often-contradictory feedback provided by sales reps
- A commerce company that wants to exclusively market to SMBs via email, but doesn’t know which SMBs already use eCommerce and thus would be much harder sells since they require a reason to switch.
It’s mind-boggling that such adept companies with a cumulative valuation of north of $15 billion are stumbling with the most basic things. These multidimensional juggernauts are seemingly further than ever from knowing their customers beyond what happens in their own platform.
It’s not rocket science! Business intelligence data can result in simple insights that drive sales.
For example, all things equal, a boutique that uses eCommerce is less likely to switch to a new provider. A plumber in his 45th year of business operating sans-website is unlikely to get one. A highly-trafficked spa is more open than an owner/operator lawyer to appointment booking. A Thai restaurant with online delivery is more likely to add a second delivery service. A cafe that faces working-capital shortages due to payment imbalances or a pet store that wants to open a second location are better candidates for pitching a loan commitment. A bakery that posts a few times per year on one social media site is unlikely to benefit from marketing automation; and a dealer that pays a flat monthly fee to promote his listing online may be more interested in a cost-per-action-based ad model.
In the end it’s really all about “know thy customer.” Without business intelligence, you can’t.
Mo Yehia is a former banker turned human and co-founder of Sidewalk. He’s lesser known for stints at Sparkle Buggy Car Wash and Lehman Brothers. Backed by 500 Startups, Sidewalk’s business intelligence helps sales and marketing teams close more deals faster and to their dream SMB clients.