Adobe today announced the acquisition of Magento for $1.68 billion. The purchase gives Adobe a missing piece of e-commerce platform that works in both B2B and B2C contexts and should integrate seamlessly into the company’s Experience Cloud.
It should also help Adobe compete with Salesforce, which offers its own cloud marketing, sales and services offerings and bought Demandware for more than $2 billion in 2016 to provide a similar set of features.
Brent Leary, owner of CRM Essentials and who closely monitors the intersection between marketing and CRM, says it fills an obvious void in Adobe’s Experience Cloud. “Now they have an offering that allows them to close the loop with consumers, who are able to complete a digital transaction that started online with the digital marketing tools already offered by Adobe,” Leary explained.
Leary also sees this deal bringing together Microsoft and Adobe, who have announced partnerships in the past. “But perhaps even more interesting is how it can strengthen Adobe’s relationship with Microsoft. As they are also missing an e-commerce element in their customer engagement platform [as well],” he pointed out. Leary believes this could lead to an even deeper relationship between the two companies as they each battle Salesforce.
Salesforce is the 10,000 pound gorilla in this space with revenue across its various clouds reaching over $8 billion last year. The company is on track to surpass $10 billion in 2018. It has set a long-term goal of reaching $60 billion in annual revenue by 2034.
Leary says it’s not necessarily the perfect match because so far Magento has focused on SMB customers, while Adobe’s target audience is clearly the enterprise. If you look at the other players in the space that have already taken the e-commerce platform leap, Salesforce got Demandware and SAP got Hybris, which were more suited to the target demographic of the business, but it think it was simply a case of the best option available.
But Cindy Zhou, vice president and principal analyst at Constellation Research, says Magento also has big customers. “Magento has become the commerce platform of choice for many large and medium-sized businesses, including Coca Cola. There is great synergy for Adobe to complete the customer journey,” she said. “From my perspective, the information potential of marketing for sale is what’s exciting,” she added.
This is not the first time the company has been taken over. Magento was founded in 2008 and acquired by eBay in 2011 in a deal believed to be worth just $180 million. The company went private again in 2015 with help from Permira Funds, which sources say paid around $200 million.
Today, the company has sold for nearly $1.7 billion. That’s a big increase in value since that purchase in 2011, and a five times sharper return for Permira, which brought in Hillhouse Capital Group last year as a co-investor. At the time, Hillhouse invested $250 million in Magento; presumably, he will also see a good return on investment in just one year.