If any deal sums up the direction B2B media is heading in 2012, this is it: Centaur, publisher of several brands undergoing an often painful digital transition shelled out £12 million last week in buying Econsultancy, a 13-year-old digital marketing subscription and event business with no print legacy (release).
Econsultancy has been a much-admired, profitable and fast-growing business for some time. But why now? And what will happen to the strategies of both companies? CEO and co-founder Ashley Friedlein explained to TheMediaBriefing that's it about making Econsultancy more analogue and its purchaser more digital....
The numbers stack up: Econsultancy's £6.6 million in revenue in 2011 was a 50 percent increase year on year, with EBITDA of £1.1 million. But a total potential acquisition cost of £50 million is a big number even for a fast-growing business. How will Friedlein get there?
In a word: subscriptions. Events and training have been the big growth areas in recent years but paid content still makes up 30 percent of revenues and Friedlein wants to see that increase.
He tells TheMediaBriefing: "We started out as a subscription business - we now call it membership, but it’s essentially a subscription. It’s a recurring revenue stream and we have thousands of customers.
"Subscriptions are down to about a third of our revenue but I would think it will go up to about 40 percent or even 50 percent. The scalable bit of our business is content - we have customers in 250 countries. That’s the benefit of being online and not in print - we can sell to anyone in the world."
Friedlein says the subscriptions - which merge access to reports with discounts on training and events - are the heart of the strategy as they provide the biggest lever on pricing. The business has consistently increased the price of its packages every year, with no detrimental effect on subscriber retention or acquisition.
He says: "The subscriptions bit is the most important and one thing we are looking at is the premium side of it. In terms of price we are cheaper than Forrester and Gartner - their price is ten times as high. We're already attracting more of what they would call C-level executives in America."
From digital to analogue
One of the key synergies from the deal is giving Econsultancy access to non-digital marketers:
"In the UK in digital marketing and ecommerce we have a particularly good position but having NMA as part of the offering will cement our position as the home of digital," he says.
“A company that just focuses on digital would be fine but now is the time to step it up. The opportunity for us to get our products and training in front of those people is very exciting. Some of those people are just getting to grips with digital."
While from Centaur's point of view, Friedlein's team has built exactly the kind of mixed business model with recurring, increasing revenue streams that large B2B publishers are looking to create.
“In terms of building a future business model for B2B media, we’ve found that we’ve got it reasonably right on the whole, in terms of paid content, diversified revenue streams, events.
“There are areas where Centaur realise they have to move towards and we can help that. And on the other hand, they have recognition in some areas where we do not and we’ll benefit."
As I wrote last October, Centaur has set an ambitious target of shrinking its dependence on advertising, increasing subscription revenue, converting print to digital, and adding £50 million of new revenue to the business by 2014 - all those boxes are ticked with this deal.
It's all about the bundle
Econsultancy's products range from one-off events and reports to a masters degree in digital marketing. But these are bundled into annual membership packages ranging from £495 to almost £6,000 a year. The business has about 5,000 paying members and 110,00 registered users.
The membership model is a masterclass in perceived value: A basic "silver" membership worth £495 costs only slightly more than a single report, but gives access to hundreds of reports, swathes of useful data and event invitations.
The company has built not just a customer base but a community of 100,000 people (now 110,000 I'm told it's up to 127,000) as this video demonstrates:
Ready for life in a new home?
As many entrepreneurs find to their cost, being part of a public company is a different challenge to running a lean team of 60 people with its own objectives. But Friedlein stresses the shared aims of building profitable products for marketers.
"We did speak to several people over the years - VC types, private equity, bigger companies, from around the world, to invest or to buy," he says.
"One thing was thinking about when would be the right time. Particularly we wanted a deal structure that showed a lot of growth to come, so we wanted an earn-out over a number of years so we could benefit from the future value of the company."
Friedlein and his original investors could see the deal price rise to an ambitious £50 million by 2016 - after which he may or may not stay with the business, or possibly take a wider role at Centaur. "If we deliver in our profit growth then that’s good for them," he says.
And for Friedlein personally, is there the same desire to grow the business after a sizeable pay-day from the acquisition?
"I'm not especially motivated by money. It's more about having started something from scratch and to see it being successful. I find the future of digital and Econsultancy’s market fascinating."
Picture by Paul_Clarke on Flickr, via a Creative Commons licence.