Tech deal escalates battle of titans

Marc Benioff and Larry Ellison have never held back their disdain for each other.

If Scott Dorsey and Chris Baggott harbored ill will toward each other, they would never get away with expressing it. Their wives are sisters.

The four CEOs and their respective companies—, Oracle Corp., ExactTarget Inc. and Compendium—might make Indianapolis into a bridge between two feuding Silicon Valley giants. Or put the city in the middle of an aggressive arms race in one of the tech industry’s hottest markets—cloud marketing.

Oracle, where Ellison is CEO, announced Oct. 17 that it bought Baggott’s Compendium for an undisclosed price.

The deal came three months after Benioff’s Salesforce, a major Oracle competitor, closed on its $2.5 billion acquisition of another company Baggott co-founded, ExactTarget.

To see a diagram of how the players connect, click here.

Baggott, Dorsey and Peter McCormick started the marketing technology firm in late 2000. Baggott left in 2006 and started Compendium, and the two firms have worked hand-in-hand over the years.

ExactTarget and Compendium now belong to two Silicon Valley power players with CEOs notorious for publicly blasting each other—at least until a few months ago, when they seemed to end their feud.

The rivalry wasn’t quite up to Coke-versus-Pepsi caliber, but it was enough to land Oracle and Salesforce in Fortune magazine’s list of “50 greatest business rivalries of all time.”

“The term ‘frenemy,’ I’m not crazy about it, but it may be more or less accurate,” Baggott said.

Harsh words aside, Oracle and Salesforce are racing the rest of Silicon Valley to bolster their cloud offerings. Marketing clouds are a particularly bustling area, and a big part of why Oracle and Salesforce came knocking in Indianapolis.

Oracle’s decision to pluck 25-employee Compendium from Indianapolis was a small enough deal that the software giant, worth $150 billion, did not have to disclose details.

But local tech boosters say the ExactTarget acquisition likely brought Oracle’s attention to Indianapolis, which led to the Compendium buyout. Baggott said his own involvement with ExactTarget as a founder did not play into the Oracle deal.

Marketing race

The “big boys” of software, such as Oracle, Salesforce and Adobe, began snapping up small content firms about two years ago, said Joe Pulizzi, founder of the Content Marketing Institute in Cleveland.

One statistic that comes up constantly in the industry: Gartner Inc.’s projection that the average chief marketing officer will spend more on technology than the chief information officer by 2017.

Silicon Valley is chasing the trend, and opening its wallet to do so. Oracle bought marketing automation firm Eloqua for $871 million in December 2012, and formed the Eloqua Marketing Cloud.

Salesforce anted up $2.5 billion for ExactTarget, and created the ExactTarget Marketing Cloud.

As a sign of the demand for marketing technology, Salesforce paid a hefty 53-percent premium on ExactTarget’s stock in an effort to outbid at least three other suitors. Analysts believe Oracle may have been one of the others, but ExactTarget never revealed its other suitors.

Compendium, while not nearly large enough to fetch a billion-dollar price tag like ExactTarget, established itself nationally among competitors, which are all of equal size if not smaller, Pulizzi said.

“They did their time and they made it work,” Pulizzi said. “You couldn’t go to an event and not see Compendium there.”

Oracle bought Compendium because more and more customers use the Internet or mobile devices instead of contacting salespeople directly, Oracle explained in a letter to its customers.

Big names battle

The marketing technology arms race between Salesforce and Oracle is a window into years of feuding between the companies.

A lot of the ill will has surrounded a falling-out between Oracle’s Ellison, the mentor, and Benioff, the protege.

Benioff was an Oracle wunderkind in the 1990s. At age 23, the company named him rookie of the year. At age 26, he became a vice president.

He parted ways with Oracle in 1999 to start Salesforce. But that’s not where tensions began. In fact, Ellison reportedly gave Benioff $2 million in seed money and took a position on the startup’s board.

Soon after, Oracle began selling competing software, though, which started the squabbling.

Among more passive demonstrations of their tiff, Oracle scheduled Benioff as a keynote speaker at a conference before bumping him to the end of the event, when few people would still be there to hear the presentation. Benioff quickly decried the move as a snub by Ellison and Oracle.

More blatantly, Benioff described Oracle’s cloud services as the “false cloud” in September 2011 at a Salesforce conference. Ellison rebutted the following month at an Oracle conference by calling Salesforce’s cloud a “roach motel.”

The verbal skirmishes are why the duo confused the general public in June when they unveiled their companies’ new partnership, which will combine cloud services.

Analysts at Stifel described the pact as “a bromance made in the cloud” in a note to investors. Raymond James compared the partnership to “The Odd Couple.” Still, Wall Street as a whole supported the deal.

The agreement is emblematic of the emerging practice of “coopetition,” in which adversaries cooperate in areas where they don’t compete, said Jeff Houston, an analyst for Barrington Research.

The cloud pact had operated for a while before the companies unveiled it, he said. The June announcement was more of a public display to show the companies buried the hatchet.

Partnership continues

Baggott expects Compendium will maintain its ties to ExactTarget, even though they’re owned by historical competitors.

“At the end of the day, from a business standpoint, we’re good partners,” he said.

He noted some of the other ways the competing companies are giving each other business. Salesforce, for instance, is a customer of Oracle-owned Eloqua.

“You partner some with your competitors and you compete with some,” Houston said. “Compendium will face some of the same situations.”•

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