But it may be time to ask how much more investment money ought to be pouring into
Marin is the second company with a large social media marketing business to admit that, in fact, it doesn't make any money.
Marin's 2012 revenues were $60 million but it made a net loss of $26.5 million, after heavy expenses for sales and marketing, and interest payments.
Previously,
That's a lot of investment money chasing a much smaller amount of revenues.
To give you an idea of how fierce the competition is in social media marketing, consider that there are more than 260 "Preferred Marketing Developers" who serve
Those PMD companies all do pretty much the same thing: create pages, serve ads, deliver analytics and create apps for advertisers who want to be on Facebook. There are so many PMDs that Facebook has created a senior layer of "Strategic PMDs," companies who are a cut above the mass of PMDs.
In addition, Facebook tightened the rules recently on companies hoping to become PMDs: New candidates must demonstrate they are bringing ad dollars to the table before Facebook will let them sit down.
This, therefore, is a business that looks thoroughly commodified.
It begs the question: If two of the largest social media marketing companies can't make money, why do all these other companies think they can?
In fact, many of the smaller companies are not capable of funding their operations through their own revenues. Companies that have taken investment funding recently include Spruce Media, Sprinklr, Fetch, PowerVoice, Bread Labs, and Tiger Pistol.
Investors in Buddy and Vitrue can shrug, of course. The Salesforce acquisition was the biggest buyout ever in the space. Vitrue was acquired by Oracle for $300 million after it had taken $33 million in funding. Those investors have won, handsomely.
But investors in these 300 other companies might now want to ask some serious questions about how many other $300 million-plus deals are out there.
Just how many PMDs do there need to be?
The rush to scale.
“[I]t doesn't matter who that company is, whether it's General Electric or whether it's Philips or whether it's Bank of America or whoever it is in our portfolio of customers, in each and every case they're redefining, reconceptualizing, and re-energizing their own employees about how they connect their company with their customers, and that's why we call it a customer company. And the CMO is a relatively new entry into the conversation. That's why we spent $1 billion buying Radian6 and Buddy Media because we believe strongly in that. We need to buy more marketing companies.”
I'd add that Buddy probably also allows Salesforce to cross-sell Buddy's clients on its more profitable enterprise products, so it doesn't matter that much if Buddy is a loss-leader — it's actually helpful to Salesforce.
It's also the case that most of these companies are in their growth phase, in which they're paying to get as big as possible, as quickly as possible, before cutting back on the expenses once they have solidified their market share. Launching a brand new type of marketing — social media marketing didn't exist in any meaningful form five years ago — requires investment before it starts performing at scale.
So how might this shake out?
He also has 1,500 clients, including Nestle, Nissan, HP and eBay. So he's not worried about surviving and prospering.
That gives you some idea of what "scale" actually entails: If 1,500 clients collectively spend about $25 million, then each individual client is spending only a very modest sum indeed, on average, through SocialBakers.
And finally, Rezab also estimates "a majority of PMDs have under 100 clients."
Whether he's right or not, it's safe to say that a large number of them have far fewer clients than the big players like Buddy, Marin and SocialBakers.
And that, again, suggests that a shakeout in social media marketing may be on the way.