Impact of Acquisitions on Customers

Through an exploratory interview with Endurance International, the parent company of branded website hosting services such as Domain.com, BlueHost, TypePad, and more than 50 other brands, I learned of their $1.1B acquisition of Constant Contact. This sure beats the default listserv capabilities that comes default with web hosting. Endurance manages its brand properties as independent companies; e.g., the same way Honda is Acura, Toyota is Lexus, Peet's is Stumptown Coffee and Salesforce is Pardot. The business practice of allowing each subsidiary to maintain a brand identity independent of its parent is more commonplace than you think. 

The basics:

• 650k worldwide Constant Contact customers
• 90k net new hosting subscribers per quarter
• CC acquired 5% new customers from Endurance partnership before the acquisition

The most common impacts to customers are:

• Brand impact - not a factor here since Constant Contact's main office will continue to provide products and services under their own name
• Customer service - a potential factor; there are mixed reviews about customer service across Endurance's many brands since they were at one time individual companies. This is certainly a future concern to have one customer service voice for Endurance; but it doesn't seem to be a high priority at the moment
• Change in prices - I have not seen costs to the customer decrease after an acquisition and for the acquired company, despite being a lower cost provider of email marketing services, maintaining the pace of services rendered at that cost might prove challenging
• Change in product or service offerings - Plenty of acquired companies with good customer-oriented products and services have been shelved or eliminated from poor post-acquisition management. Marketers can only hope this will not be the case for CC.

Converting customers

Just because you acquired a company with thousands of users, doesn't mean that they'll also jump ship from their current web hosting provider to buy more services from your other subsidiaries.
Who's next? I suspect MailChimp or Aweber. These target the same customer base as Constant Contact.

VerticalResponse - acquired by Deluxe in 2013
Marketo - IPO in 2013
HubSpot - IPO in 2014
ExactTarget / Pardot / Radian6 - acquired by Salesforce
Eloqua / Responsys - acquired by Oracle
Silverpop - acquired by IBM in 2014

Here's an example from Aweber on customer acquisition costs:

Aweber 2015 metrics (SoundCloud webcast interview with Sean Cohen):

• 17 years in business
• 120k paying customers as of July 2015
• Most focused on driving acquisition and continued profitability, topline and bottomline
• Privately held, no VCs, profitable from day 1
• Avg customer pays $20/month

Aweber customer acquisition costs depends on customer lifetime value using digital marketing spend PPC and digital display ads. Referral marketing using affiliate marketing pays 30% recurring lifetime, for the lifetime of the customer. Some affiliates make five figures per month for referring customers.

To acquire a $20/month customer is all about lifetime value. The inverse of retention is churn. For Aweber monthly churn rate is in single digit percentages, on average 3-4%.

E.g., 100 customers x 4% churn = 4 customers/month loss

The minimum lifetime value (MLV) of an Aweber customer is $500 with customer acquisition costs of roughly 20% of MLV, or $100 that Aweber is willing to spend to acquire a new customer. The average Aweber customer stays for 20-25 months. 

Under its cheapest plan, Aweber generates $2.4 M in recurring monthly revenue ($20/month x 120k customers).