New Deals Spur SMTP to Compete With HubSpot, Marketo, Act-On

There’s a battle brewing between tech companies in New England, the Bay Area, and the Pacific Northwest. What’s at stake? The future of technology for marketing.

The latest entrant is SMTP, a small Boston-area company that began trading on the Nasdaq in January. SMTP (NASDAQ: SMTP), formerly called EMUmail, has a long and complicated history. It started in the late 1990s and became an e-mail delivery and marketing company, led by entrepreneur and angel investor Semyon Dukach, who now heads the Techstars Boston startup accelerator.

In the past week, SMTP has acquired SharpSpring, a marketing automation startup based in Florida, for $5 million in cash plus up to $10 million in earn-outs. The company is also acquiring GraphicMail, an e-mail marketing company with offices and sales staff in South Africa and Europe, for $5.2 million plus earn-outs.

These may seem like small moves, but they signal increasing competition with established marketing-tech powers like HubSpot, Constant Contact, Marketo, and Act-On Software. And don’t forget IBM and Oracle, which have been driving consolidation in the sector in recent years.

Marketing tech is not the easiest field to write about, because it appeals mostly to brands and businesses. What may be most interesting to lay readers is the amount of money that has been flowing into the sector. In 2010, IBM spent $480 million to acquire Unica in marketing analytics. (Big Blue also bought Silverpop in marketing automation earlier this year.)

More recently, some related Boston-area companies have expanded significantly. Online marketing firm HubSpot has raised more than $100 million in venture funding as it pursues a future IPO. Constant Contact (NASDAQ: CTCT) has moved from e-mail and event marketing into broader online-marketing tools; its stock has been up and down since 2012, but its market cap is now $1 billion.

Companies on the left coast have hardly been sitting still, of course. San Mateo, CA-based Marketo (NASDAQ: MKTO) had its IPO last year and is currently worth over $1 billion. Meanwhile, Oracle snapped up marketing automation firm Eloqua for some $870 million after the latter company went public; in the past year, the Larry Ellison machine also bought Responsys, a cloud marketing software firm, for $1.5 billion.

And in the Portland, OR, area, Act-On Software has raised more than $70 million in venture funding as it eyes its own IPO. The marketing automation startup is led by CEO Raghu Raghavan, who also co-founded Responsys back in 1998 (small world).

The annual revenues for the established marketing-tech leaders tend to be in the $100-million range, give or take. For 2013, Constant Contact brought in significantly more than that—$285 million (with a modest profit of $7.2 million)—while Marketo’s revenue was $95.9 million (net loss of $47.4 million) and HubSpot’s revenue was $77.6 million (with an undisclosed loss). With profits few and far between, though, it’s interesting that company valuations have been as high as they are.

By comparison, SMTP is still quite small but is trying to grow profitably. The company, which has offices in Cambridge, MA, and Nashua, NH, is looking to go from $6 million to more than $10 million in annual revenue via its new acquisitions, says CEO Jon Strimling. Its market cap is currently $33 million, and its headcount is roughly tripling with the new acquisitions, to over 100 people.

“It’s a gigantic market and every company needs it,” says Dukach, SMTP’s chairman and former CEO, of marketing automation. “We plan to challenge HubSpot and Marketo organically.”

For now that may sound like a stretch. It would require a massive increase in product distribution, as well as efficient integration of the company’s new offerings—which also must demonstrate some advantage over other marketing software, whether in price, ease of use, or other factors.

But if you know where SMTP and Dukach come from (he’s a former MIT Blackjack team leader), you know to take the challenge seriously. We’ll be watching to see whether SMTP makes any headway against its bigger competitors, both locally and nationally.

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