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Aprimo escalates partnership with SAS: Tech firm says deal doesn't mean merger is in the cards

March 21, 2005

Last week, Aprimo and North Carolina-based SAS Institute Inc. escalated an agreement they entered last October. What began as a cross-promotion partnership has led to an outright integration of the two firms' software.

Aprimo President and CEO Bill Godfrey is certain his deal with SAS simply means sharing the trail for a spell. Ever the entrepreneur, Godfrey's eyes are on growing his firm large enough to conquer marketing's uncharted territory single-handedly.

But just as the untamed Old West gave way to the advance of railroads and settlers, Aprimo may one day have to bow before consolidation in the marketing software business. In that case, SAS could be sizing up Aprimo for eventual outright annexation.

"I'm not saying Aprimo is going to go bust in the next couple of quarters," said Ian Jacobs, an analyst with Sterling, Va.-based Current Analysis Inc. "But the market is changing around them."

In the partnership, Aprimo is the brash upstart. Founded in 1998, it has 120 employees and is widely recognized by analysts as a leader within the marketing software niche. Founded in 1976, SAS is a global software company focused on business intelligence and analytics, with 9,523 employees, 318 offices and annual revenue of $1.5 billion.

In Godfrey's eyes, the SAS deal gives him instant sales access to users around the globe, while preserving Aprimo's independence and upside prospects. At the same time, it prevents SAS from building its own copies of Aprimo's products.

Now on version 7.0 of its software, Aprimo has already developed 28 applications. Godfrey said his company has only begun to scratch the surface in automating marketing.

"To those who would say Aprimo is in a niche market, I could make the opposite case," Godfrey said. "They've got blinders on. In our seventh year, we feel like we're just beginning."

Godfrey points to his company's top-line growth. Although he declined to disclose annual revenue, he said it has increased 30 percent annually. Aprimo's head count peaked in 2001 at 160. During the recession, it shrank to 85. Godfrey said the downsizing was related to the shift from a venturebacked startup to an established firm driven by profit, not a slowdown in sales.

In any case, Aprimo is quickly regaining its former size. Godfrey expects to reach 140 to 150 employees by year's end. And while an initial public offering isn't in the cards for 2005, he said it's a key step in Aprimo's budding plans.

"Our goal is building an independent, highly valued enterprise. We just keep our heads down and keep running," Godfrey said. "Our challenge is to stay out front. Because in the world of software, people can catch up."

That's why analysts are simultaneously optimistic and skeptical about Aprimo's prospects. The history of computing has been the automation of everyday business functions. In the early years, programmers concentrated on territory like accounting and finance because transactions were easy to standardize. Marketing is a nebulous process based heavily on creativity.

"There's a reason marketing has never been mechanized," Godfrey said. "It's the last unautomated frontier."

But no matter how good Aprimo's software might be, analysts point out that most users want it to be connected to the rest of their systems. Aprimo may build the best railroad to the marketing frontier. But if the tracks don't connect back with the rest of civilization, few trains will travel there.

Analysts expect marketing software will, at minimum, need to be sold in conjunction with the other varieties of software that automate interaction with a user's customers. Ultimately, marketing software may need to be fully integrated with the even broader IT systems that tie whole companies together.

"Ideally, it's a loop. If you're just one peg in the loop, you don't have that easy of a time handing off leads to the salespeople, then off to customer support," Jacobs said. "My opinion is, it isn't realistic to do it independently over the long term."

To remain independent, as Godfrey hopes, Aprimo will have to continue to provide marketing software that's so leadingedge it's prohibitively expensive for even the big makers to replicate. Yet that could make Aprimo still more attractive as an acquisition target. And if the offer is high enough, everyone has their price, said Kimberly Collins, senior analyst for Stamford, Conn.-based Gartner Inc.

"If you look at their history, SAS has never done partnering very well," she said. "They're a company that does buy, and Aprimo is in their size. There's always a chance this will lead to something."

But Godfrey could be eyeing a roll-up of his own. Just last year, Aprimo bought out a smaller U.K.-based competitor called Then Ltd. Terms of the deal weren't disclosed.

"I really think their goal is to remain in the market for as long as they can. They have aspirations to grow larger before they sell out," Collins said. "Anybody who's met Bill Godfrey will realize this is a person who'd rather go out and acquire than be acquired."

Aprimo's prospects may boil down to the mind-set of most marketers. If they're willing to think using standardized business processes like their peers in other departments, Aprimo will likely become part of a big software firm's suite of products. But if, as Godfrey believes, marketers are so free-spirited and creative that they'll always need something more robust, Aprimo's future could be as big as the proverbial undiscovered country.

"As marketing organizations tend to be independent, Aprimo becomes more attractive," said Mitch Kramer, senior analyst for the Boston-based Patricia Seybold Group. "As marketing becomes more strategic or integrated, then companies will look for other ways to manage those resources."
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