1Mby1M Deal Radar: Act-On Software, Beaverton, Oregon

Last week we did a spotlight on entrepreneurs in the Northwest, and today we are featuring Act-On Software, based in Oregon, on Deal Radar. Act-On is a SaaS online marketing company focused on the “Fortune 5,000,000” – one of its goals is the commoditization of marketing automation so that it is available to businesses of all sizes. Last week, the company launched its online platform for SMBs and small marketing groups within larger organizations.

Act-On was founded by CEO Ragu Raghavan in 2008. Prior to Act-On, Raghavan was the co-founder and CTO of Responsys, Inc., which developed on-demand e-mail and life cycle marketing solutions for high-end retailers.

The initial idea for Act-On came about as the result of conversations between Raghavan and Subrah Iyar, the founder of WebEx. Raghavan’s “aha!” moment was realizing that webinars, a critical tool of most marketing departments, were completely external to and isolated from the marketing platforms of the day. He brought together many members of the Responsys founding engineering team and built a prototype that blended WebEx, Salesforce.com, and online marketing in a single platform. Cisco, which had bought WebEx, offered to fund the new venture, and the company was on its way.

The initial plan was to use Cisco as the sole sales channel. Repeated delays at the Cisco end forced Act-On to reevaluate its channel strategy. Raghavan decided to create a fully independent sales force focused on generating sales and building the company, irrespective of the connection to Cisco/WebEx. Iyer remains actively involved with the company, is an investor, and serves on its board of directors.

Act-On says that according to Forrester numbers, it is playing in at least a $4 billion market. It views this market as a continuum from e-mail marketing ($4 billion) to marketing automation ($250 million). It’s still a single market, says Act-On, because the company often run into prospects who are evaluating both types of solutions. The common thread seems to be (a) buyers need e-mail marketing for sure, and (b) they need more automatic marketing (for websites, events, etc.), but (c) they are not sure they are ready for everything that marketing automation seems to promise. The software is broadly applicable, so Act-On does not segment by industry or company size. It’s about the size of the marketing department, and one to 10 people is the company’s sweet spot.

Act-On’s Marketing Service combines various tools for inbound and outbound online marketing programs. The solution’s database automatically consolidates, profiles, and segments marketing data. Features include tools for e-mail marketing; forms and landing pages; website monitoring; automated programs such as free trials; events and webinars management with WebEx integration; and list management. Although e-mail marketing remains high popular, Act-On is trying to make it easier for marketers to use social media tools such as Twitter. For example, the platform lets users treat Twitter as an additional channel, alongside e-mail and Web ads, for invitations to new events or webinars. With Act-On’s unified reporting, users can see whether Twitter is more effective than Google ads in driving traffic to an event.

Pricing starts at $500 a month for three active users and 10,000 active marketing contacts. Pricing increases based on adding seats, contacts, or both. All contracts are month to month.

The market landscape for automated marketing is segmented across several quadrants. The first axis Act-On used was based on marketing system functionality. At the lower level are the pure-play e-mail marketing providers such as Vertical Response, ExactTarget, and Constant Contact. At the higher level are the marketing automation vendors such as Eloqua, Marketo, Aprimo, Manticore, Pardot, and many more. The second axis is based on the monthly subscription cost of each solution from less than $500 a month all the way up to greater than $1,000 a month.

In Act-On’s view, competitors are focusing on ever narrower and more specialized segments of a gigantic market. Eloqua and Marketo at the high end of the price scale have focused their products on process re-engineering as their starting point, while the lower end of the market such as Constant Contact, Vertical Response, and ExactTarget have focused on discrete point solutions, which, says Act-On, forces marketers to log into separate systems (Google Analytics, LeadLander, WebEx, etc.) from multiple vendors. Its aim is to offer an integrated platform that serves a variety of marketing channels and that, while powerful, can be used without by marketers who are not IT experts or who may not have an IT team to rely on.

The company has more than 250 clients, including bigger names such as Motorola, Siemens, IBM, and Progressive Insurance. There are both startups and more established companies, and clients come from fields that may be less trendy but very profitable, such as industrial equipment auctions, hospital satisfaction surveys, and hazardous waste disposal.

Initial funding of $2 million came from Cisco in early 2008. When Act-On decided to build its own sales and marketing, Raghavan and Iyer backed the company until the sales model was proven. In late 2010, Act-On approached four firms, had three term sheets, and brought two of them (U.S. Venture Partners and Voyager Capital) together for a $4 million round. Raghavan says that Act-On doesn’t need any more money to break even, but it might take more since money appears to be available on attractive terms right now. The company expects revenue of $5 million in 2011 and to be profitable by 2012.

At present, the focus is on building a sustainable, profitable, and significant business. Act-On’s model is WebEx – a “terrific company” that took no venture money. Says Raghavan, “We are following a growth trajectory that mirrors that of other successful companies. That being said, we are getting looks from some big outfits, but it’s way too early in our revenue growth for this to be interesting to us. Ask me this same question after we hit $50 million in annual revenue.”

Recommended Readings
Deal Radar 2009: Eloqua
Capturing Intent In Non-Search Performance Marketing: Zephrin Lasker, CEO Of Pontiflex

This segment is a part in the series : 1Mby1M Deal Radar