Last week ChannelAdvisor acquired Marketworks. The purchase price was undisclosed.
According to the press release, the combined company will have 5,500 companies on a global basis. I believe ChannelAdvisor had aprx. 3,600 customers before the acquisition, so Marketworks added about 1,900 customers to the mix.
According to Scot Wingo, ChannelAdvisor CEO, this acquisition “gives us an entry-level product that we haven’t had until now. So we have a real cradle-to-grave solution, where as before we only had adolescent and up.” (from newobserver.com)
This acquisition follows a $30m venture capital round led by NEA.
A popular question of late has been why ChannelAdvisor hasn’t gone public yet. One hypothesis is that Wall St. liked, but didn’t love what they saw. None of the following ideas have been confirmed by ChannelAdvisor, they are just my thoughts after talking to a number of Analysts.
-A majority of ChannelAdvisor’s clients (maybe 3,300 out of 3,600?) were small eBay sellers paying ChannelAdvisor almost nothing in fees. Even though the company has done an incredible job of moving past eBay, the company is still known as the eBay seller helper. And for all the talk that eBay sellers are graduating from eBay onto marketplaces and comparison shopping engines, this is not happening quickly as the vast majority of eBay sellers are not sophisticated enough to move on at this point.
-ChannelAdvisor had already up-sold or attempted to upsell the majority of its 300 or so larger merchants multiple services – search marketing, marketplaces, comparison shopping – and therefore the company wasn’t going to significantly grow revenue from its current client base.
-ChannelAdvisor (for the most part) charges merchants a flat rate + % of sales. As merchants perform better, they expect a discount on the % of sales which means that as ChannelAdvisor grows revenue for its clients, it doesn’t participate fully in that growth.
So what is this acquisition all about?
-ChannelAdvisor quickly grows its client base and revenue.
-ChannelAdvisor becomes a bigger piece of the eBay, Amazon, Adwords, AdSense, Shopzilla, Shopping.com, etc. pie, thereby potentially achieving pricing power in some channels (although not all marketing channels work this way) or at least getting better attention/customer service in some channels.
-Marketworks primes the up-sell pump for ChannelAdvisor as ChannelAdvisor’s search marketing and comparison shopping solutions (at least) seem more sophisticated than Marketwork’s solutions which start at a very low $29.95/month.
So what’s next for ChannelAdvisor? I have a feeling it will take a bit to swallow the Marketworks acquisition, but if I were Scot Wingo, I’d look to other online marketing channels which I’m not currently selling to my client base – either developing new systems in-house or acquiring service providers in the following areas: email marketing, graphical advertising, video advertising, affiliate marketing, lead generation, domain parking.