Recently, we’ve seen two SaaS unicorns announce acquisitions to grow their total addressable market. In the first instance, announced last week, HubSpot said they are acquiring Clearbit. HubSpot offers software for marketing, sales, and customer support teams, and they’ve already experienced tremendous platform expansion. With this most recent acquisition, they’re entering the contact data space, providing people’s names, company demographics, various types of email addresses, phone numbers, and other data sources to help sales and marketing teams be more productive.
In the second example, Clari announced their acquisition of Groove. Historically, Clari has operated in the sales forecasting and pipeline space, and Groove is a provider in the sales engagement space. The products are complementary but not competitive, and again, Clari is working to grow their total addressable market.
Over the last 10 to 15 years, the main conversation in SaaS focused on doing one thing really well. The idea was that if you were a best-of-breed product, a point solution, you provided tremendous value to the customer and stayed in your lane. Partly due to the incredible amounts of funding in 2020 and 2021, there are dozens of unicorn SaaS companies and hundreds of non-unicorn SaaS companies that are solid businesses but have slowed growth rates. Their teams and boards are looking for ways to grow faster and create more value, thus entering complementary markets primarily through acquisition.
The big idea is that while point solutions worked in the past when the markets were newer, now that the markets are more mature and competitors are established, companies that are still performing well have to find new avenues for growth to grow into or exceed their previous valuations.
From a consumer perspective, as an end user of these software products, there are definite pros and cons. On the pro side, there’s the potential for fewer vendors. Imagine having to support your sales and marketing functions with 10, 20, or 30+ vendors, and being able to simplify that number as companies add more products or modules to their platforms. You’re able to reduce the number of products you pay for and hopefully get some economies of scale or better pricing by buying more from the same vendor. Salesforce.com, having done this for over 20 years, has become the expert, acquiring many products and building a huge platform. However, with scale often comes significant challenges in maintaining agility and supporting the customer.
Are we seeing the beginning of the next platform companies that will become the Salesforce.com of the future, or will Salesforce.com itself acquire some of these emerging platforms?
On the con side for the end-user, fewer competitors can mean product functionality may not advance as quickly. The opportunity to influence the product roadmap or be a customer that acts as a sounding board will be more limited. The main downside is that it’s simply harder for a company to do many things well. The more products they add to the platform, the more likely it is that those products will not be as innovative as they were when they were the sole focus.
Expect this consolidation to continue, especially where platforms are emerging, and complementary products integrate well. Over time, we’re going to see more consolidation, but not as much as some might think. The nature of SaaS, with its predictable cash flow, recurring revenue, and great gross margins, means that companies can remain in a “zombie state”—not growing rapidly but not dying off either. They don’t have to transact, and they don’t have to be acquired. So, the majority will not consolidate, but for those that align well with a larger platform, look for more M&A activity, especially over the next two to three years, as larger, well-funded platforms look to expand their total addressable markets more aggressively.
Entrepreneur
via https://www.aiupnow.com
David Cummings, Khareem Sudlow
