Software-maker expands through public incentives: Exact Target must prepare for market’s consolidation

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It made for a great photo-op. With the morning sun shining brilliantly through the windows, Exact Target showed off its brand new headquarters in the Guaranty Building on Monument Circle. It was the second day of spring. Bipartisan smiles were the first item on the agenda.

Gov. Mitch Daniels, a Republican, was there to celebrate the fast-growing e-mail software-maker’s $1.14 million package of government incentives. So was Mayor Bart Peterson, a Democrat. Exact Target had earned its tax credits, abatements and grants in exchange for the promise to hire 100 new employees and invest $3.6 million toward expansion.

“It’s a great day, one I hope will be a precursor of many more to follow as Indiana makes an economic development comeback it’s waited on too long,” Daniels said. “I’m looking at this as the first robin of a new economic spring of promise and growth.”

The city’s Indy Partnership and the state’s new Indiana Economic Development Corp. worked as partners to broker Exact Target’s deal, Peterson emphasized.

“It’s really a team effort. That’s the way we have success in this city and this state,” he said. “When we all work together, it’s remarkable what we can accomplish.”

Founded four years ago, Exact Target makes software used for permission-based e-mail marketing. Think of it as the opposite of the random spam blasts that inundate your in-box every day. Economic developers were eager to retain the company. And Exact Target is equally happy to stay.

“I think it’s safe to say the city of Indianapolis and the state of Indiana have been a great place to build our business,” said Exact Target President Scott Dorsey.

Once the coffee had cooled and the television cameras were gone, it was back to business for Exact Target. That’s how the company attracted 3,000 customers and 130 employees in four short years. That’s how it plans to continue to add an average of 75 to 100 new clients and five to 10 employees each month.

David Daniels, research director for New York-based Jupiter Research, was optimistic about Exact Target’s chance to continue its trajectory. As one of the clearest leaders in a growing market, Exact Target has been building reseller relationships with advertising agencies. He lauded Exact Target’s ability to service the email communications needs of all kinds of users, from small businesses to global firms. Just two weeks ago, Exact Target inked the media conglomerate Virginiabased Gannett Co. Inc. as a customer.

But as brilliant as Exact Target’s prospects currently appear, there are no guarantees the future will remain so bright. The market for e-mail software is extremely fragmented, said Cambridge, Mass.-based Forrester Research Analyst Shar VanBoskirk, with more than 500 providers already jockeying for position.

And more come along all the time. They range from tiny startups with lowprice, no-frills downloadable tools to software giants that integrate e-mail marketing into much larger data analyticsdriven communications platforms.

Eventually, the industry will consolidate. It’s the latter type of competitor Exact Target should be most concerned about.

“It’s a very bloated market right now,” VanBoskirk said. “Sophisticated e-mail marketers are moving beyond simple delivery. Ultimately, I think the right approach is to have some kind of single solution. [Users] want a tool that can help figure out what the right [communications] channel is and deliver regardless.”

Exact Target is backed by venture capital investors, who will be looking for an exit event, like an initial public offering. To get to an IPO, VanBoskirk said, Exact Target will likely need partnerships with much larger software-makers, so end users can buy that one-stop single solution. Exact Target’s challenge is to make its product so valuable that bigger companies can’t afford to copy it.

“They [could] continue down this path and grow through partnerships, which I think would be their preferred channel. But honestly, I think they get bought before any of that happens,” VanBoskirk said. “Because they’ve positioned themselves as a tool, I think they’re a good acquisition for somebody with good analytics skills.”

Scott Dorsey, left, and Chris Baggot, co-founders of Exact Target, are moving their firm to a 30,000-square-foot space in the Guaranty Building on Monument Circle.

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