Zendesk nabs Outbound in small step toward big goal

Contact: Keith Dawson, Scott Denne

Zendesk shouldn’t be at peace as it strives toward an aspirational growth target. The customer service software firm plans to push its annual revenue from $312m last year to $1bn by 2020. To get there it will need to change its mantra from upselling to cross-selling. Today’s acquisition of marketing software startup Outbound Solutions shows that Zendesk is doing just that.

Landing deals with tech startups ignited Zendesk’s growth – back in 2015 it noted that ‘unicorns’ accounted for 7% of its sales – and the majority of its new revenue comes from adding seats and larger contracts as those customers and others have matured. To be sure, Zendesk posts growth that would be the envy of many a SaaS vendor. Its topline soared 88% heading into its 2014 IPO and expanded by another 50% last year. For this year, it projects 32% to $421m, the midpoint of its guidance. Just maintaining that rate through the next four years would bring it a hair under its $1bn target.

Outbound won’t bring an immediate boost to sales for Zendesk – an infrequent acquirer and light spender on the deals it has made. The target appears to have just a handful of employees, limited funding and, in all likelihood, a price tag that falls at the low end of the range of Zendesk’s previous two purchases – BIME Analytics ($45m) and Zopim Technologies ($15.9m). What Outbound brings is technology that the acquirer can use to engage customer prospects whose responsibilities extend beyond the helpdesk.

Last fall, Zendesk announced a pair of new products – Explore and Connect – to angle its offerings from reactive customer support to proactive outreach and customer experience, a fertile category for the company as 38% of IT decision-makers expect customer service software to have a transformative impact on customer experience, according to a recent report from 451 Research’s Voice of the Connected User Landscape. Outbound supports the forthcoming Connect product with messaging features and supporting analytics to make those more effective.

But the path to nirvana looks crowded. Zendesk’s focus on customer support through websites and apps has kept it out of the crosshairs of large enterprise software providers and call-center technology giants. Now all of those players are looking to customer experience to break out of their niches in marketing, CRM and helpdesks. Zendesk should contemplate more ambitious moves than today’s tuck-in to build the broader software suite it will need to reach its goal.

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Posted in M&A