Lesson From Yodle’s Acquisition: Scaling SMB Performance Marketing Isn’t So Easy

yodlelogo2012-500x261

Web.com agreed last Thursday to acquire Yodle, an SMB marketing solutions provider (and my former employer) for $342 million. Web.com is best known for the domain registration and website hosting companies its acquired since 2010, namely Register.com and Network Solutions. While the acquisition is likely welcome news for Yodle’s backers and Web.com’s shareholders, the resounding message for SMB performance marketing vendors is one of caution.

As Local Onliner’s Peter Krasilovsky pointed out on Friday, Yodle was rumored to be eyeing more than $1 billion in an IPO just 2 years ago. As far back as early 2013, before I left the company, the hallways were filled with trickled-down rumors of an imminent IPO filing. That filing arrived in July of 2014 — but it failed to generate enough investor interest to move forward and was withdrawn.

So what happened to the rumored $1-billion-dollar company that had cracked the mystery of scalable SMB performance marketing?

It turns out that Yodle had, indeed, cracked the nut on acquiring SMB customers. The company grew from 10,000 customers in January 2011 to more than 58,000 in January of this year. While the growth rate slowed over the past 2 years, it’s no small feat to have added 580% more customers in a 5 year period. I saw the growth firsthand—the sales team in Yodle’s Austin office grew more than 400% during my 2 years at the company.

With this steady stream of new customers, Yodle’s weak IPO investor interest had little to do customer acquisition. While many have pointed to the company’s high CAC (Customer Acquisition Cost) as the root of its valuation challenges, the reality is that CAC is only high if you don’t retain customers for long enough to pay back that cost with a solid LTV (Lifetime Value).  The real problem facing large performance marketing vendors like Yodle is retention, or as Sharon Rowlands, CEO of competitor ReachLocal, phrased it, “massive churn”.

What do we know about Yodle’s retention rate?

The company’s S-1 filing in 2014 was cryptic about its true retention rate, instead opting to release a “tenured customer” retention rate that only included customers who remained around for a full year. (If you’re curious, this tenured customer retention rate was averaging 97.5% for the first 3 months of 2014.) The reality is that the vast majority of customers Yodle acquires do not stay for a full year. With no decent LTV to write home about, CAC is always going to seem too high.

Looking around at other players in this space, Yodle is not alone. Indeed, most major companies selling performance marketing packages to SMBs are locked in a constant struggle to survive. YP, Yelp, ReachLocal, Angie’s List, Groupon, Dex Media are just a few on the list. Retention is the main challenge for all.

It’s worth noting that there are a number of companies having success serving the marketing needs of SMBs. Companies like HubSpot, GoDaddy, Vistaprint, Constant Contact, Mailchimp, and Yodle’s new parent Web.com are all doing well.

The main differentiator here is that the successful companies in the space primarily sell technologies that solve a specific marketing problem. Most of them do it in a straightforward way and, perhaps not coincidentally, acquire the majority of their customers through inbound, self-serve channels. Most do not primarily provide performance marketing solutions.

What does all this mean for those of us who want to scale our success in marketing services for SMBs?

  1. Build companies firmly rooted in technology that solves specific SMB marketing problems.
  2. Sell your services in the most straightforward way possible.
  3. Keep your customers happy.

IMG_0256Mark Sullivan is director of partnerships for CallRail, a marketing analytics company used by more than 30,000 businesses in the U.S. and Canada. At CallRail he helps marketing agencies get the most out of call tracking data through advanced advertising analytics and software integrations. He frequently speaks at marketing technology conferences and writes for industry publications about trends in local search advertising. He can be reached via Twitter.

Tags:
0 shares
  1. GRITS
    February 16, 2016

    Great article Mark and valid points made. I wonder though, are investor driven companies ever really concerned about Small Business? Sure, they provide a sales source. But most often than not, that cost of service is huge to a Small Business. The Small Business can only keep it up for a few months, when they see no movement, sales increase, they bail. Could it be the huge disconnect that Big Corp has that creates this retention fail? Personally, I believe it is.

  2. Cindy Golightly
    September 2, 2016

    Many of these performance-marketing companies are “anti-SaaS” (Service-as-a-Software). Their fixed costs (sales; customer service) grow lockstep with revenues. There’s no inflection point with growth. Lacking any operating leverage, management can’t invest in automation to reduce labor costs. Innovation stalls. The product becomes tired, and churn grows, slowing revenue growth. It’s amazing Yodle landed the plane when then did. Interesting to see if Web.com will make anything of this.

    Small businesses IS a big opportunity, but the challenge will be to ink ROI. If you can’t measure sales, you will cancel the service. What’s needed is a product like segment.io which would connect AdWords, et. al. with hundreds of disparate job management systems that are used by SMB.

  3. Jay Griffin
    October 5, 2016

    The problem is that anyone selling digital marketing is selling a service, and services by their nature are expertise and experience. Fundamentally, it is all labor. Sure there are some software tools that can help organize data or API applications that can help efficiency, but at the end of the day digital marketing is tied to strategies that embrace unique content and the dollars to buy the expertise to create it and place it. SMB’s are mostly buying air from companies like Yodle, ReachLocal/USA-Today, YP, Dex, Webcom, and GoDaddy as they pitch their superior “technology” when it is such an insignificant aspect to succeeding online with a website, seo, social, and paid. There is a ton of technology out there – and the best of it is tied to data mining (quantitative and qualitative analysis)…not automatically doing something that moves the needle with the SE or publishing a bunch of crap that is never going to be seen on anything that remotely has any juice or is being casted to a linking farm (yes, they still exist). However, at the end of the day, many SMB’s are going to take a few dollars and offer it up to these companies and will be happy with them because they feel like they are doing something-especially if it is tied to something highly tangible like a website, albeit one they are in reality “renting” not owning.

  4. Scott
    April 6, 2017

    Good article Mark. I also spend a little time at the Austin Yoldle location. Going in enthusiastic, the more I learned the less I believed in the product until I finally reached a point of feeling downright yucky after making a sale. I think all web.com is buying is a list of suckers. The fact is there are no magic pills to get leads. It still takes web marketing knowledge combined with market expertise and customer insight. That doesn’t come in a $250 a month package.

  5. Scott
    June 19, 2017

    Like the other Scott, I also spent a little time in the Austin office. I noticed right away that very little effort was focused on retention. I had hoped my prior knowledge of online marketing would help me. They were not much interested in people with any expertise. Just “read the script like a robot no matter what the person says or asks”. The irony hit me immediately during training that we are selling modern marketing via outdated cold calling. When one of the founders, Ben I believe was his name, spoke to our training class I asked why we dont advertise. I was referring to online digital advertising targeting small business. The same inbound marketing we were selling. He gave me a ridiculous answer about why it would not be feasible to run a Super Bowl ad! What? I wanted to follow up but was not allowed to. For him to use Super Bowl spots as an example of why we don’t advertise worried me. It turns out I was worried for good reason. After 4 months of 120 calls per day I left just before going “YODLE” (It’s like going postal but worse)

Leave a Reply

Your email address will not be published. Required fields are marked *

Next Post

Street Fight Daily: Alibaba Buys 5.6% of Groupon, Apple and Google Struggle for Upper Hand