Bynder’s WebDAM Acquisition – ‘Stronger Together’ Or Proof That The Current DAM Software Market Does Not Scale?

Last Friday, we reported that venture capital funded DAM vendor, Bynder had bought up WebDAM from their previous owners, microstock media library, Shutterstock.   The irony of a DAM vendor being sold a fairly pedestrian DAM system by a photo library (rather than the other way round) will probably not be lost on those who have a few years experience in the DAM trade, but setting that aside, let’s dissect the deal and see what the implications are.

The key points appear to be the $49.1m price paid, whether there really is a DAM consolidation trend or not and the direction of travel: the larger firm selling a subsidiary, rather than the smaller one being swallowed up by a larger counterpart.  This is in-contrast to other DAM acquisitions, e.g. Aprimo/ADAM, Esko/MediaBeacon nor the original Shutterstock purchase of WebDAM from the founders in 2014.  A further issue is the relatively short period that Shutterstock owned WebDAM before deciding they did not want it any longer.

On the products themselves, I have seen the WebDAM platform and it can best be described as resoundingly average  (although I have heard a small number of people who have both more positive and negative opinions).  Bynder’s DAM isn’t very innovative nor ground-breaking either, however, they have invested in the visual presentation and the usability of the front-end asset catalogue areas (but less so the other aspects in-relation to cataloguing, metadata management and reporting/analytics etc).  As a form of cost de-duplication, this acquisition makes sense, but this is usually what happens at the mature stage of most tech markets, rather than the innovation/growth phase.

The price paid by Bynder for WebDAM is quite a strange figure, it manages to simultaneously be too high while not being big enough to be the ‘game-changer’ that I have seen it described as.  I do not know what WebDAM’s numbers were like, post-Shutterstock acquisition, but apparently they now have over 500 clients, which implies they were sold at a cost of of roughly $100k each to Bynder.  Given that these are mid-market DAM users and the contractual periods are likely to be relatively short (the minimal up-front commitment being one of the reasons SaaS/Cloud solution have appeal for end users) this seems expensive.  I don’t know the revenue per client either, but the ones that most mid-market SaaS firms pitch for tend to come in at around $30-40k per annum (as a very rough average).  This implies around three years to get their money back – assuming the clients all stay with them for that time and based on gross revenue only, not allowing for integration expenses.

Despite only owning them for less than four years, Shutterstock were clearly not offering Bynder a bargain to take WebDAM off their hands.  This suggests they must have sensed that Bynder were very eager to do a deal and would be prepared to accept a valuation which I would call ‘ambitious’.  If Bynder were doing fantastic business and routinely beating their sales targets then surely they would be taking WebDAM over ‘one customer at a time’ (as per the Michael Dell phrase) rather than paying $100k apiece for a job-lot of them?

The second issue with the sale price, is that while it might be relatively large number (for a DAM software operation) as tech firm deals go, this is very small beer.  I’ve heard Bynder refer to themselves before as a ‘unicorn’ which I had understood to mean an unquoted startup with a valuation of $1bn+.  I believe Bynder and WebDAM are of comparable size, so before the acquisition of their rival, there is an argument to say they would be worth about the same.  By their own measure, therefore (which I think is too high) they are worth about $50m.  Even if you combine the two valuations and add one to the other (which isn’t a very realistic calculation) that is still just 10% of a unicorn, e.g. the horn or perhaps a leg?  There are printing firms, chains of dental practices and car dealerships which change hands for these kind of figures (and often for a lot more).

The other topic I have read elsewhere is how this is further evidence of a consolidation trend in DAM.  There is something afoot with these moves, but they give the impression that the owners of many DAM software interests want to get out of the market now, rather than that there is an unprecedented level of customer demand.  There are still not huge numbers of mergers and acquisitions taking place, it’s averaging around one per year currently.  What is driving the kind of consolidation that the Bynder/WebDAM transaction represents is not rapid growth, it is slower than expected rates of customer acquisition (i.e. the opposite).

As has been noted on DAM News before, you need to contrast what vendors do with what they say if you want to understand their true intentions.  As such, this news needs to be analysed in the context of Bynder’s release of their ‘freemium’ DAM Lite system, Orbit last year.  That manoeuvre and this one give the impression that Bynder urgently need to scale up user numbers as quickly as possible, ideally they want paying ones, but even free ones will do.  What is driving their need to do this?  I think Bynder themselves want someone to buy them up.  To do that successfully they need to make themselves look as big as possible to bulk out the deal to a potential suitor, otherwise they appear inconsequential by the side of other tech businesses competing for investor’s cash.  WebDAM describe their customers in terms of organisations using their product (as is the conventional measure used by most of their industry peers) whereas Bynder call each of their users ‘customers’ and claim they have 250,000 of them.

The sense I get is either the Bynder management or their investors (or both) want an exit as quickly as possible and they are prepared to pay a premium to get to that goal more quickly.  As such, this is a ‘divorce of convenience’ for Shutterstock and WebDAM, which Bynder are subsidising.  I suspect Shutterstock have had a case of buyer’s remorse after getting involved in a human resource-intensive, low value, professional services + product business (which still defines the current DAM software market).  Shutterstock realised that Bynder’s North American sales operations were not hitting targets, so they could strike a deal that was far more favourable for them than spinning it off independently again or trying to find some other larger tech vendor to take it on (and having to write-off the expenditure incurred for less than the cash invested back in 2014).  It’s a great piece of business (for Shutterstock).

What about Bynder?  Who might purchase them, assuming my supposition is accurate?  If I had to pick a potential acquirer, I would imagine Adobe could be a possible counterparty.  The consensus among most of the DAM pros I talk to is that Adobe’s AEM DAM component is quite seriously lacking and that while they have some enterprise traction with the rest of the suite , the DAM isn’t being very well received.  They also currently have no answer for the kind of mid-market DAM products that people like Bynder and the numerous other similar SaaS/Cloud products can offer.  Adobe have a track record of getting into markets with one product and then swiftly changing horses if the mood takes them, so that could happen here.  The slick front-end is popular with marketing users (initially, at least) and I would imagine Adobe might view that as a potentially credible threat, especially when weighed up against the fragmented nature of the rest of the DAM market.  There is of course a further possibility, that anyone considering doing a deal might simply sit on their hands for a few years and see how they get on once the cash starts getting a bit tighter and their existing investors become more vocal about wanting to re-allocate their capital elsewhere.

There is a deeper and more serious underlying trend behind all this and that is a realisation that many people are having now: the current DAM software market lacks scalability as a business model.  In the intro to his blog post about this deal, Bynder’s CEO, Chris Hall opens with this:

“If we can learn anything from Mark Zuckerberg and Priscilla Chan; Beyonce and Jay Z; or Bill and Melinda Gates, it’s that together, we’re stronger. That’s why, today, we’re thrilled to unveil that Bynder has partnered with Webdam to create the tech power couple of 2018.” [Read More]

I note that all the ‘power couples’ described in the first sentence own sizeable stakes in very scalable businesses, whether that be selling user data/advertising inventory, hip-hop records or commodity business software.  The marginal cost of acquiring new customers in each case is vastly lower than it is for DAM software (a fact Chris might be reflecting on currently).

What about the implications for the clients of both firms?  I cannot see many reasons why this is good for them.  Possibly if you were a WebDAM customer and had your own case of buyer’s remorse about getting involved with them in the first place then the messy job of migrating will get done for you by Bynder (assuming you were happy with that option).  On the flip-side, if you were reasonably satisfied with WebDAM, you will now be co-opted into an unwanted mandatory platform migration exercise, with all the risks and upheaval that entails.  Since Bynder clearly need customers (at almost any price) if I were a user of their products I might be demanding a substantial discount on my fees now too, as you may well be granted it.

I have read elsewhere that this merger will stimulate innovation in DAM. I can’t see how that works at all (for Bynder and WebDAM customers, in particular).  Before this deal, Bynder had $50m (from either investors, cash reserves or a combination of the two) which they have subsequently handed over to Shutterstock’s stockholders.  That means $50m which could have been spent on R&D or product development now won’t be.  As discussed, it could take them up to three years to recoup this money from sales revenue, unless they get a further round of funding (or acquired themselves).  The fact they don’t need to compete with WebDAM means they are less likely to innovate because they will believe there is less pressure to do so.  It’s also probable that a good number of WebDAM employees (and some Bynder North America personnel) are going to get fired to reduce costs.  M&A activity is not usually renowned for being innovation-enhancing and is generally a signal that either investors and/or management want to start to take their chips off the table.

The other factor that is likely to reduce innovation is that Bynder are now going to be involved in a fairly major data migration project.  Based on their rollout of Orbit (which was a bit haphazard as they announced it six weeks before it was ready) I might be somewhat concerned about this if I were a WebDAM customer.  Unless they spend money on a dedicated migration team and brief them satisfactorily, they will be tied up moving WebDAM customers over to their platform, answering support queries about lost metadata, permissions/workflow incompatibilities and all the other collateral damage that can result from data migrations, however well planned.  I am not aware that Bynder have ever attempted a migration on this scale before so they will be learning on the job (albeit hopefully having hired some people to assist them who do not have to say the same).

I thought the Aprimo/ADAM tie-up last year was slightly more positive for the DAM industry (although that had issues of its own) since it meant that at least some larger tech firms were considering DAM as an essential component of their strategy.  This counters that trend, however, as the story is more about a disposal rather than an acquisition.  Despite their cool millenial hipster branding, I contend that, underneath, Bynder’s business model is quite a tired and old fashioned design agency-style approach where the management warehouse as many customers as they can and hope a lot of them don’t leave before they can sell out to someone else.  From a business perspective, this method doesn’t scale and it restricts innovation rather than encourages it.  My hope is that those with access to investment capital who still see some potential in DAM software might be grasping the folly of this strategy and some genuine disruption (as well as innovation) may result.  Whether or not that becomes the case remains to be seen.

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