Deal Radar 2010: Demandbase

From virtual trade shows and downloadable white papers to advanced Web analytics, approaches to B2B online marketing have evolved over the past decade to include products that better track and measure the effect of B2B campaigns and target customers more precisely. Industry observers say that in 2010, there will be a decided shift toward social media. Demandbase is one player that will soon roll out its own social media solutions for the B2B online marketing segment, which consulting firm ARM estimates was worth $3 billion in 2009 and will grow 8% in 2010 and 14% in 2012.

Demandbase provides technology and online services designed to help businesses generate more sales opportunities and revenue. Its products give clients validated contacts and B2B Web analytics such as detailed information about who visits their sites and tools for B2B sales prospecting, lead generation, marketing campaign tracking, and email marketing.

CEO Chris Golec founded Demandbase in 2006 with the vision to help companies generate more revenue from their online marketing budgets. He had spent several years helping companies build and manage demand generation programs in a way that focused on bottom-line growth and revenue risk mitigation. Golec became a software entrepreneur in the mid-1990s when he left GE to start a company called Supplybase. Like Demandbase, it helped different departments (procurement and engineering) to manage their global supplier base. Prior to becoming a software entrepreneur, Golec spent 10 years with GE and DuPont in global marketing, sales, and engineering roles. Martin Longo, the CTO, has also been involved with Demandbase since its inception and brings the technology know-how to the ideas that are generated.

Golec says that when Demandbase was founded in 2006, the appetite for subscription or on-demand software was growing. People in the industry were aware of a need to be more effective in both sales and marketing, but at the time, the greatest focus was on tools for sales productivity. Marketing technology as a general category had not historically generated acceptable returns for the venture community, so the number of financed start-ups was very low and everyone was referred to as doing “marketing automation.”

Demandbase took the view that online marketing was not working and that the problem was not automation but rather that for every marketing dollar spent online, only 1% to 3% of that dollar generated a response. The converse, of course, is that 97% of the dollars spent are, in a way, wasted. Demandbase aimed to create a product that helped customers (B2B marketers) generate more sales opportunities from their existing budgets through better targeting that brought the right people to a site (versus just clicks); faster response by following up when prospects are engaged online with a specific interest (versus no response); and converting more prospects by making it easier for people complete your intended call-to-action (versus accepting 3% conversion as an average).

The company’s four main products are Demandbase Central, a lead generation platform that supports the other products, and Demandbase Standard, Demandbase Professional, and Demandbase Stream. Standard is a pay-as-you-go service that delivers business contacts, either singly or in large batches, with an average cost per lead of $1.80. Professional is a volume-based subscription service that identifies and helps clients to contact website visitors, and it starts from $200 to $300 a month. The company’s newest product, Demandbase Stream, acts like a ticker across the desktop, streaming business traffic in real time. Demandbase also plans to introduce a new technology later this quarter that it believes will enable it to truly scale to the next level. This product will address a range of Web categories including CRM, social media, analytics, lead generation, advertising, search, and marketing automation.

Demandbase said that it had laid out its entire marketing product solution road map that stretched over a number of years. But, in response to industry and initial customer feedback that customers needed a way to target better and were tired of the cost, trouble, and risk of buying low-quality business contact data, Demandbase created its Standard solution, which customers have referred to as the “iTunes for leads” — a way to buy the exact business information needed, one contact at a time, without having to buy large lists. The next solution, Professional, leveraged the data platform that Demandbase had built in partnership with over 100 data sources, and allowed people to get contact data based on the companies visiting their Web site. No one had ever linked the two — interested companies with the right people to call.

One important question that may come to a client’s mind is, can I track Web site visitors? Are there any legal or moral restrictions? As Demandbase and competitor LEADSExplorer themselves point out, around 97% of visitors to a site don’t leave their contact information even though almost all company sites have this function. Visitors may not want to be identified. There are in fact no laws against the kind of tracking that Demandbase and its peers do. It is illegal to track private persons, and, as a commenter to the MIT Technology Review pointed out, the laws by which Internet service providers (ISPs) must abide would prevent a private person from being tracked by Demandbase and similar companies. This leads to a second question: how many useful leads could a service like Demandbase’s then provide? According to Customer Experience Matrix, Demandbase says that 50% to 60% of a site’s visitors are not traceable to any one company because they come from a generic ISP. Typically, only 10% to 20% of the remaining visitors match up with a client’s target company sizes, industries, or regions, which means that Demandbase’s product would report 5% to 10% of a site’s total visitors, more than the 2% to 4% who identify themselves.

At the time of its inception, Demandbase was self-funded by Golec, with investment by a few angels. The first round of institutional financing took place in January 2007 with Altos Ventures and Adobe Systems. In June 2008, Demandbase raised an $8 million Series B led by Sigma Partners, with participation from Altos Ventures and Adobe Systems. The company may raise more capital later this year but is also considering options to expand faster, sooner.

Competitors include LEADSExplorer, ZoomInfo, LeadLander, and Hubspot, and InsideView. LEADSExplorer, like Demandbase, stresses the comprehensive nature of its solution. ZoomInfo has lead generation and management products for sales and marketing staff, but it also has recruiting as a third area of focus with a product for HR professionals to find candidates. LeadLander’s product appears to be less comprehensive than Demandbase’s in that it allows clients to track who visits their sites but does not have a separate validated contacts solution. Hubspot places greater emphasis on designing a customer’s Web site and the content it contains for search engine optimization and to integrate with social media, and its Web analytics product includes information on competitors. InsideView also stresses how its products use information gathered from both social media and traditional sources. Demandbase has said that its new product will address areas like social media but did not specify how. Golec said that he believes Demandbase’s advantage lies in its focus on helping clients to make more sales using the information the analytics portion of its product provides.

Demandbase has over 1,000 customers across all industries in the B2B space, which translates to over 25,000 users of Demandbase software. Customers include Ziff-Davis, ADP, Oracle, SAP, Marketo, Satori Group, Inc., Crown Peak, and others.

The company targets medium to enterprise-sized B2B companies across all industries. Large financial and technology companies are customers, but so are small businesses including accounting firms, manufacturers, and even a local restaurant that is trying to generate more sales of its event space. Golec points out that every company is trying to do more with its Web site than just generate clicks.

The company began 2009 with 30,000 to 40,000 visitors per month and said that traffic grew tenfold over the year. Demandbase matches and scores more than 100 million Web visits each month, and its business contact database has more than 8 million records, 100% with business email addresses that the company validates.

Demandbase says that it gained traction simply by having a product that B2B businesses needed – leads for the sales pipeline in the form of truly validated contact information. The company grew threefold in 2008, and threefold again in 2009. Management expects the pace to continue this year and to achieve profitability by the year’s end.

As for an exit, Demandbase says that as it operates in a $30 billion to $50 billion market, an IPO or a variety of interesting M&A possibilities are options for the future.

Recommended Readings
Innovation in Sales Prospecting: InsideView CEO Umberto Milletti
Taking on Business Intelligence: Lucidera CEO Ken Rudin
Deal Radar 2008: InsideView’s Clever Maneuvering

This segment is a part in the series : Deal Radar 2010