A coming-out party in app marketing

by Scott Denne, Keith Dawson

Although mobile apps have become an inveterate part of people’s lives, the software used to promote those apps hasn’t found much of a home within customer experience (CX) software stacks. Excepting those few companies whose apps are their business, most customers of large marketing clouds haven’t invested in app marketing. But there are signs that’s changing and with it, a larger universe of buyers could begin hunting for mobile app marketing targets.

Upland Software’s recent acquisition of Localytics marks one of the first instances where a broad CX software vendor has reached for a mobile app marketing provider. Localytics built its business providing app analytics and in-app content personalization, landing customers in traditional industries such as retail, telecom and media. The company generates $20m in revenue and was valued at 3.4x that amount in its sale – above the typical multiple for personalization specialists, a group of sellers that’s had trouble fetching above 3x multiples, as we noted in our recent coverage of Salesforcepurchase of Evergage.

Still, it took Localytics about a decade to achieve the size it did, as most businesses in traditional markets have yet to invest heavily in mobile app marketing tools. The idea that all of the CX components (sales tech, martech, servicetech) are being pulled by consumers toward mobility has been conventional wisdom for several years. Companies, though, are just beginning to implement the kinds of planning and technology deployment that will cement mobility at the center of their strategies. The acquisition of Localytics may be a sign that the broader CX vendors view mobility as a potential differentiator and short-term revenue opportunity.

According to 451 Researchs M&A KnowledgeBase, almost all previous purchases of mobile app marketing firms have been done by buyers from the same category. That’s not to say others haven’t grown a substantial business in app marketing. Companies like Applovin, IronSource and Appsflyer all generate annual net revenue in the nine figures, but have done so with a focus on mobile gaming – a trend we discussed in a recent report.

Although industries such as media, retail and telecom haven’t spent heavily on mobile app marketing, our surveys suggest those investments are ramping up. According to 451 ResearchVoice of the Enterprise: Customer Experience & Commerce, 42% of all businesses plan to interact with customers via a branded app in the next two years (48% say they already do). In that same survey, more than one in three (35%) said mobile marketing software would be among their organization’s highest marketing technology investments in the next 12 months. As customers invest, we anticipate more marketing software vendors to follow Upland in acquiring mobile app marketing capabilities.

BMO Capital Markets advised Localytics on its sale. Cowen & Co. advised the buyer.

Figure 1:

Source: 451 Research’s Voice of the Enterprise: Customer Experience & Commerce

LinkedIn set to move marketing services beyond its walls with Drawbridge

by Scott Denne

LinkedIn looks to be setting itself up for a second attempt to influence marketing spending beyond its own platform with its latest acquisition. The immensity of its audience profiles should have helped the company build a B2B advertising powerhouse, yet its influence has been barely felt beyond its own website and app. Five years ago, it tried to build out an ad network business but came up short. With the purchase of identity-resolution specialist Drawbridge, it appears set to try again, but differently.

The professional social network already has a substantial marketing business – it was selling roughly $700m annually in ads on its site when it was acquired by Microsoft in 2016. Reaching for Drawbridge should enable the company to find ways to leverage its data beyond its own site. The target developed technology that matches anonymous consumer profiles with devices, helping advertisers target the same audience across multiple devices – desktop, mobile and smart TVs. Such a technology would have little value in selling ads on LinkedIn itself as people must log in to the site to reach the content.

Still, LinkedIn is not likely to use Drawbridge to sell ads beyond its own properties. It tried that with the 2014 purchaseof B2B ad network Bizo, which it shut down less than two years later. Also, Drawbridge had started life as a programmatic ad network before selling its media sales business to Gimbal last year. More likely, LinkedIn will look to use the new assets to develop reporting and analytics capabilities for B2B marketers, as well as augment its ad-targeting data. Such a service would leverage both companies’ strengths in audience identity without saddling them with a low-margin ad business that both buyer and seller have already shunned.

According to 451 Research’s M&A KnowledgeBase, Drawbridge’s exit follows many of its peers in cross-device identity matching. The space has seen a wide disparity of prices. At the high end, ad network Tapad sold to Telenor for $360m. Most recently, Adbrain sold for scraps to The Trade Desk and Oracle picked up Crosswise in a seven-figure deal before that company hit $2m in annual revenue. While terms of Drawbridge’s sale weren’t disclosed, it likely falls between those extremes. Drawbridge had built a larger data business than any of its competitors, generating about $15-20m annually, and had raised roughly $60m from its venture investors.

Dropped phones

by Brenon Daly

Strategy doesn’t count for much in a shrinking market. Consider all the effort that tech vendors put into profiting from the emergence of the mobile phone, a wonderous device that helped move computing and communications out of the office. Whether through R&D or M&A, companies spent billions of dollars in designing, making and selling the shiny new gadgets that seemingly everyone wanted. And yet, in just over a decade, the trend has largely played out.

In a recent 451 Research survey, the number of consumers who said they planned to purchase a smartphone in the coming three months slumped to its lowest-ever reading. Just 7% of some 2,800 potential buyers surveyed by 451 Research’s Voice of the Connected User Landscape (VoCUL) indicated that they will be picking up a new device in the next 90 days. That’s about half the level of planned purchases from VoCUL’s springtime surveys at the start of the current decade.

Purchases of smartphones, like most other consumer tech products, tend to be driven by release cycles. New devices mean new buyers. And while that cyclicality still shapes the demand captured in our VoCUL surveys, the overall ranges have come down. Lower highs coupled with lower lows unequivocally point to a market in decline.

Peak to trough, the smartphone market has tumbled from just a few years ago when one in four consumers convinced themselves that they needed to buy a new device to a level now of just one in 14, according to our survey work. As demand for smartphones ebbs to a historic low, the strategies used by various tech firms to supply this once-promising market have been laid bare.

Across the board, companies don’t have a lot to show for their smartphone efforts. (Certainly nowhere near the enduring value created by the emergence of the PC industry in the previous generation.) That’s true whether the company tried to buy or build its way into the handset market. Tech giants that have successfully acquired dominant positions in other emerging tech markets stumbled with smartphones, writing off billions of dollars of their M&A spending (Microsoft) or unwinding deals altogether (Google).

Meanwhile, vendors that stayed in-house and focused on engineering must-have devices undermined their efforts by mistiming or mispricing their phones. (Amazon, the world’s most successful online retailer, couldn’t even really give away its Fire phone.) Even market leaders have resorted to building in gimmicks to spur demand that that blew up in their faces (Samsung’s Galaxy Note 7) or crumbled in their hands (Samsung’s stillborn foldable phone). No matter what they have tried, smartphone makers just haven’t been able to keep buyers coming back for more like they once did.

America’s first MAGA-deal

Contact: Scott Denne

T-Mobile’s marketing smarts propelled the company to the number three spot among US wireless carriers. Now the company is leaning on those same skills to get its $26.5bn acquisition of Sprint through regulatory approvals. Its pitch for the deal, which has an enterprise value of $59bn, is laced with potential benefits to the US, particularly benefits that align with President Donald Trump’s rhetoric.

The FCC already threw cold water on the pairing once before under a previous administration, so getting this one past the government was always going to be a challenge regardless of who occupied the White House. While highlighting the broader benefits of a large transaction isn’t new, T-Mobile’s push is remarkable in its breadth.

In addition to the usual talk about the negligible (or positive) impact on competition and consumer prices, T-Mobile and Sprint are highlighting the potential for the combo to create jobs (particularly jobs in rural areas) and beat China and other countries in having the first nationwide 5G wireless network – it even set up a website to promote the deal at AllFor5G.com.

The press release announcing the acquisition mentions ‘job growth’ or a similar idea 12 times. Compare that with the release announcing the previous $50bn-plus US telecom pairing – Charter Communications’ 2015 takeover of Time Warner Cable – which made just one mention of jobs. In fact, according to 451 Research’s M&A KnowledgeBase, only four other $1bn-plus transactions among US publicly traded companies mentioned the potential for job growth in their press releases. And none did so more than twice.

T-Mobile has been massively successful in catering to its customers with its ‘Uncarrier’ strategy. According to a February survey by 451 Research’s VoCUL, T-Mobile’s percentage of satisfied customers (49%) has lurched beyond its competition. Whether its purchase of Sprint goes through or not may end up turning on the legal merits, not its marketing chops. Yet it clearly feels compelled to make a political case for the match – announced a day before closing arguments in a specious antitrust action against AT&T’s acquisition of Time Warner – to an administration that’s been unusually active in stopping deals.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Nordstrom’s new line

Contact: Scott Denne

Retailers’ M&A strategies are moving on from the front to the back of the house. A pair of deals from Nordstrom – BevyUp and MessageYes – exemplify the trend of retailers shifting away from customer-facing businesses, such as mobile apps and e-commerce sites, in favor of supporting technologies with an aim toward changing how customers interact with brick-and-mortar businesses.

In BevyUp and MessageYes, Nordstrom obtains a pair of tools that it hopes will help it improve customer engagement with an app for in-store salespeople (BevyUp) and mobile commerce technology (MessageYes). Although Nordstrom will barely pick up 50 employees between the two transactions, yesterday’s announcement is noteworthy because it marks Nordstrom’s first tech acquisitions in three and a half years and comes as much of management’s time is focused on a contentious take-private proposal from the company’s founding family.

Moreover, Nordstrom is not alone in seeking internal capabilities to lead it to a flexible business model and new methods of engagement. Walmart and Target each inked deals last year (Shipt and Grand Junction, respectively) to build out their delivery capabilities, while Bed Bath & Beyond and Williams-Sonoma reached for virtual interior decorating capabilities with their respective purchases of Decorist and Outward. At Nordstrom itself, its last two tech transactions were for customer-facing properties – online retailer HauteLook and online personal shopping service Trunk Club. That’s different than the supporting technologies it nabbed today.

Amid declining sales and an existential threat from Amazon, retailers and consumer-goods vendors are turning toward tech to drive customer loyalty. According to 451 Research’s VoCUL: Corporate Mobility and Digital Transformation survey, 44% of respondents in those categories said that ‘improving customer experience’ would be among the top drivers of their software investments heading into 2018.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Under Armour’s decline continues despite aggressive M&A 

Contact:Scott Denne

As technology vendors intrude on a broad set of markets, companies from outside the tech industry are searching for assets to fend off the challenge. Under Armour was an early mover in that trend, but its continued decline this year shows that tech M&A isn’t an adequate defense.

In 2015, the athletic apparel company paid more than $500m to acquire three different health and fitness app providers – MyFitnessPal, Endomondo and Gritness. According to 451 Research’s M&A KnowledgeBase, non-tech buyers made $20.6bn in tech deals that year, an active, but not record, year that set the stage for 2016 and 2017, where companies outside of tech have spent $55.5bn and $48.1bn on tech M&A.

Under Armour said its acquisitions would enable it to find new ways to connect with customers and build brand equity. While it may have realized some of those benefits, it wasn’t enough to prevent an overall collapse of its growth rate as its wholesale channel got squeezed by retail closures and bankruptcies. The company’s third-quarter sales declined 5%, sending the stock down by one-quarter, part of a 58% retreat since the start of the year.

Its purchases haven’t helped much either. Revenue from those 2015 deals (plus a similar acquisition from 2013) generated just $65m through the first three quarters, up 5% from a year ago. That’s not to say that it shouldn’t have bought those businesses. Under Armour’s direct-to-consumer sales (roughly one-third of its revenue, encompassing its branded stores and online sales) are expanding this year and having a direct line to consumers in the form of owned-and-operated mobile apps likely played some part in that. And those apps could have a larger role in its recovery should Under Armour choose to decrease its reliance on retail partners.

It’s hard to say what the company could have done differently. Without those acquired assets, its decline may well have been steeper. And it can’t be chided for complacency, given the aggressive prices it paid – in total tech M&A it spent over $700m for assets that today, almost three years after its largest purchases, generate less than $100m in annual revenue. When it comes to retail, Under Armour’s woes suggest that tech acquisitions won’t shield a business from a transformation in consumer behavior.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Google’s smartphone redial 

Contact:Scott Denne

For a first marriage, it’s common to overlook a spouse’s flaws, harbor unrealistic fantasies about life together and spend unjustifiable sums on the wedding. A second marriage tends to be a more measured affair, with a conservative price tag and thoughtful evaluation of how the pairing fits into one’s broader life goals. The same applies to Google’s second purchase of a mobile phone company, as the search giant is paying $1.1bn for certain assets of HTC almost three years after unwinding its tie-up with Motorola Mobility.

While today’s deal marks a big commitment, it’s well short of the $12.5bn it spent for Motorola six years ago. Its reach for HTC differs from that earlier one – most of which it unwound in a 2014 divestiture to Lenovo – in more ways than price. With Motorola, Google envisioned itself becoming a marquee manufacturer of smartphones. This time, Google is making a more tactical move in the mobile market.

Google is obtaining the HTC team (and a license to related patents) that it used to build its Pixel phone, a collaboration that’s showing early signs of paying off. According to 451 Research’s VoCUL surveys, less than 1% of consumers with a smartphone own one made by Google, although the number planning to buy a Google phone sits near 3%. Even with those gains, Google’s phone business remains a long distance from matching Apple or Samsung.

But catching up to those companies, at least in hardware sales, isn’t likely the goal. Those same 451 surveys show that Google’s mobile OS, Android, has a larger market share than Apple’s iOS and more consumers prefer Android for future purchases. In that sense, the HTC pickup isn’t so much a break from its Motorola deal, but a continuation of the gains made from it.

Leading up to its acquisition by Google, Motorola’s sales were in a tailspin that continued after the transaction. Yet Google was able to build a broad ecosystem for Android during that time. That’s what it has in mind in nabbing the HTC team. Google is focusing its own hardware efforts on building high-end devices not mainly to sell devices but to showcase what’s possible with Android, making it easier for other hardware providers to develop functionality they’ll need in the competition against Apple, ensuring that Google’s software (and its cash-cow search engine) retains a place in the mobile market.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Ingenico moves past POS with $1.7bn Bambora buy

Contact: Jordan McKee, Scott Denne

Ingenico scoops up yet another European payments service provider to fuel its evolution beyond a point-of-sale (POS) terminal supplier. Today’s $1.7bn pickup of Nordic mobile payments vendor Bambora marks its third acquisition of 2017, the payment giant’s busiest year of dealmaking to date.

Its two previous deals of the year brought it international expansion – into Ukraine and India. Yet where Ingenico has spent the most money has been growth beyond its core POS business into services and other payment channels. Prior to todays’ transaction, its $1.1bn purchase of e-commerce payments company GlobalCollect in 2014 had been its largest acquisition. It also spent $485m for transaction-processing services firm Ogone a year earlier. Since that deal, Ingenico has inked eight acquisitions, according to 451 Research’s M&A KnowledgeBase.

With the bulk of its revenue indexed to brick-and-mortar commerce – and more specifically, hardware sales – Ingenico realizes that it must craft a digital strategy that will ensure its relevance as more transactions flow into card-not-present channels. By reaching for omni-channel capabilities, Ingenico expands the role it can play within its retailer client base while embedding itself further in their commerce options.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Enterprise mobile’s moment passes 

Contact:Scott Denne

The surge of smartphones over the past decade delivered a shock to businesses, changing everything from how they manage employees to how they engage with customers. Such sudden transformation leads to confusion, and confusion often leads to big acquisitions at salacious multiples. It appears that mobile enterprise technology vendors are no longer benefiting from that disorientation as deals dwindle and buyers look for tuck-ins and consolidation plays rather than strategic gambles.

Case in point: VMware’s purchase of Apteligent earlier this week. In the startup’s early days, it appeared to be defining a new category of mobile application performance monitoring. Instead, it’s folding into VMware’s workforce management tools at a price that’s likely short of the $50m that venture capitalists plunked into it.

Or take Tangoe. At just $305m, the sale of the device management firm leads the pack of enterprise mobile tech deals in 2017. It sold to Marlin Equity Partners for 1.6x trailing revenue and about one-quarter of its market cap at its zenith. Last year’s largest mobile enterprise transactions – a pair of telematics providers picked up by Verizon and Microsoft’s reach for app developer tools specialist Xamarin – all went off at above-market multiples.

The pace of deals – not just the type – is also shaping up differently from last year. Acquirers spent $6.4bn on enterprise mobility vendors in 2016, according to 451 Research’s M&A KnowledgeBase. This year, just $510m has been spent on 42 transactions, on track for less than half of last year’s volume. Investors are matching the drooping appetites of acquirers. By our reckoning, there has been just $112m of fresh venture capital poured into these businesses. That’s about the same rate as last year, when these companies drew about one-quarter the amount of funding that they did in 2013 and 2014.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

‘Eyeballing’ the farcical Snap IPO

Contact: Brenon Daly 

It might seem a bit out of step to quote the father of communism when looking at the capital markets, but Karl Marx could well have been speaking about the recent IPOs by social networking companies when he said that history repeats itself, first as tragedy and then as farce. For the tragedy, we have only to look at Twitter, which went public in late 2013. The company arrived on Wall Street full of Facebook-inspired promise, only to dramatically bleed out three-quarters of its value since then.

Now, in the latest version of Facebook’s IPO, we have last week’s debut of Snap. And, true to Marx’s admonition, this offering is indeed farcical. The six-year-old company has convinced investors that every dollar it brings in revenue this year is somehow three times more valuable than a dollar that Facebook brings in. Following its frothy offering, Snap is valued at more than $30bn, or 30 times projected 2017 sales. For comparison, Facebook trades at closer to 10x projected sales. And never mind that Snap sometimes spends more than a dollar to take in that dollar in revenue, while Facebook mints money.

Snap’s absurd valuation stands out even more when we look at its basic business: the company was created on ephemera. Disappearing messages represent a moment-in-time form of communication that people will use until something else catches their eye. (Similarly, people will play Farmville on their phones until they get hooked on another game.) Some of that is already registering at the company, which has seen its growth of daily users slow to a Twitter-like low-single-digit percentage. Any slowing audience growth represents a huge problem for a business that’s based on ‘eyeballs.’

And, to be clear, the farcical metric of ‘eyeballs’ is a key measure at Snap. In its SEC filing, the company leads its pitch to investors with its mission statement followed immediately by a whimsical chart of the growth in users of its service. It places that graphic at the very front of the book, even ahead of the prospectus’ table of contents and far earlier than any mention of how costly that growth has been or even what growth might look like in the future at Snap. But so far, that hasn’t stopped the company from selling on Wall Street.