GoDaddy has acquired Main Street Hub, a social marketing tools and services company, for $125 million in cash with $50 million in performance incentives, according to TechCrunch. This is interesting for several reasons:
- SMB marketing must evolve to support on-demand and in-home engagement.
- SMBs generally favor Do-It-With-Me and Do-It-For-Me (DIFM) models over Do-It-Yourself marketing services. Only 22.5 percent of respondents to the latest BIA/Kelsey survey of SMBs preferred DIFM services.
- Scale in services is difficult to achieve, and at 10,000 SMB customers Main Street is at a tipping point that will determine if it can grow.
GoDaddy’s 17 million U.S. small business customers must appear a ripe target for Main Street. GoDaddy, too, has searched for additional revenue from SMB customers. At some point in the negotiations, someone at the table must have said “Pitch [Main Street} to the 28 million SMBs in the United States, and we’re sure to generate a billion dollars or more in fees.” In fact, it would take 333,000 customers at Main Street’s current entry price to make that goal.
However, scaling up a services-centric business is much more complicated than automated services, such as website hosting or email marketing delivery. The cost of delivering marketing services rises with each client as that client adds services, scaling linearly, at best, or producing lower margins in many circumstances. When I worked on web hosting at hibu a few years back, the only viable way to deliver web sites was outsourcing to the Philippines, and even that was challenging.
The other factor to consider is SMBs’ tendency to bring services in-house once they feel they have a process they can reproduce. Main Street’s best customers are likely to migrate to automation and in-house resources if they succeed.
The next phase of marketing requires local familiarity, not simply marketing competence. This means people must be familiar with the culture they are marketing into, and that points to lots of U.S.-based consultants. That is not cheap, yet TechCrunch calls this acquisition a “perfect match.”
Main Street assigns an account manager to each small business client, with pricing starting in the $250/mo. range, or $3,000 a year. That’s a small market, representing a few million U.S. businesses, at most. Meanwhile, Salesforce, Oracle, Amazon, and others continue to move their services down-market, into direct competition for these companies.
GoDaddy is taking a big bet in an intensely competitive sector. It isn’t a sure thing, and requires additional features and local expertise that will be hard to scale.