Oracle’s purchase of Datalogix is a huge data play — and a big punch back at Adobe

Corrected 1/5/2015 to indicate that Breyer Capital, not Jim Breyer personally, has invested in Datalogix.

Oracle‘s announcement last week of an agreement to buy Datalogix, a company that collects information from retailers and shares it with big advertising partners, is the latest in Oracle’s effort to assert itself as the leading vendor for marketers.

Oracle did not announce terms of the deal, but industry analyst Brian Wieser of Pivotal Research estimated it was in the high “hundreds of millions of dollars.”

The deal, announced during the slow days of the holiday season, was bound to miss the radars of a lot of marketers, and is worth looking at more closely. It’s one heck of a Christmas gift to Oracle’s sales force.

That’s because Oracle needed some urgent ammunition in its arsenal to go up against Adobe and Salesforce, which have gotten kudos lately from analysts for leading the way in marketing software technology. Adobe, specifically, has emerged as the leading “marketing cloud” vendor, or seller of cloud software tools that let companies market to other companies.

In October, Forrester said Adobe was the leading marketing cloud vendor, Salesforce was a close second, and Oracle was trailing with a bigger pack of other players, including IBM, SAS Institute, and Teradata. Forrester said Oracle trailed the leaders on metrics such as marketing technology offerings and overall strategy.

And on Tuesday, the day after the Oracle-Datalogix announcement, Gartner, another leading research firm, released its first report on the marketing cloud industry leaders, a copy of which VentureBeat obtained. That report also concludes that Adobe is the leader. Adobe outranks Oracle in its completeness of vision, Gartner said (see chart).

That said, Oracle’s marketing automation solution, Eloqua, ranked well in our recent VB Insight marketing automation report.

“While expensive and not the most user-friendly tool available, Eloqua ranked very high in our user surveys for maturity of solution and product reliability,” VB Insight analyst John Koetsier says. “The challenge for Oracle is that Adobe and others have moved beyond marketing automation to marketing clouds, encompassing all of what an enterprise needs for digital marketing … and Oracle has not been as clear about its vision or as aggressive in its execution.”

A race to own “attribution” of online advertising effectiveness

Datalogix is a significant player within this vendor competition because of its growing importance in confirming the success of online advertising, a segment that is exploding and was estimated at $147 billion this year.

Oracle is adding Datalogix to Bluekai, another data property it bought last year, to form what it is calling the “Oracle Data Cloud,” an initiative that hasn’t been talked about much but will get a lot of attention going forward. Privacy advocates may be concerned about the concentration of power at Oracle.

Adobe doesn’t have this sort of depth on the data side.

Large social networking companies, including Facebook and Twitter, use Datalogix data to better determine when consumers have purchased goods in the offline world after seeing the ads online — matching that is otherwise very difficult to do. This attribution is key in order for Facebook, Twitter, and other social networks to assert that advertising on their sites works well — especially when some credible critics say it doesn’t.

And owning such attribution data is even more important for a platform player like Oracle, now that social networks are emerging as leading sources of online content and advertising.

Here’s the big problem: People spend about 44 percent of their media-consuming time online, and so digital marketing spend continues to rise as marketers try to reach them. Yet, 93 percent of consumer shopping is done offline.

Datalogix provides masses of personal data

Here’s how Datalogix works, according to an in-depth account by the non-profit digital rights group, Electronic Frontier Foundation. Datalogix specifically relies on loyalty card data — cards anyone can get by filling out at a form at participating grocery stores. Datalogix then passes this data on to partners like Facebook, giving them information about specific individuals but making this data anonymous by “hashing” personally identifiable information. This includes hashed email addresses, hashed phone numbers, and Datalogix ID numbers. Facebook compares this data against its own dataset of users until it has a list of the Datalogix ID numbers associated with Facebook users. Then, Facebook can determine which group of its users, say, buy Ocean Spray cranberry juice after seeing an ad served on Facebook, by checking which Datalogix users bought the juice offline.

Datalogix provides data on over $2 trillion in consumer spending from 1,500 data partners across 110 million households, according to Oracle’s statement on the deal. More than 650 customers, including 82 of the top 100 U.S. advertisers such as Ford and Kraft, as well as 7 of the top 8 digital media publishers such as Facebook and Twitter, use Datalogix to enhance their media, Oracle said.

Oracle said that the combination “will provide comprehensive consumer profiles that will power personalization across digital, mobile, offline and TV. With Datalogix, Oracle Data Cloud will deliver the richest understanding of consumers across both digital and traditional channels based on what they do, what they say, and what they buy, enabling leading brands to personalize and measure every customer interaction and maximize the value of their digital marketing.”

The Datalogix deal, Oracle continued, “represents a further extension of Oracle’s Public Cloud strategy to combine IaaS, PaaS, SaaS, and Data as a Service on a common cloud and to transform SaaS business applications and processes by integrating data within these applications,” Oracle said.

Oracle was slow to move, but badly wants to catch up

Oracle, the large database and software company that historically has enjoyed much larger market share for its products among big enterprise companies than either Adobe or Salesforce, is scrambling to embrace the cloud to fend off those competitors. All three companies have broken into a sprint to serve the new, emerging class of business leaders — centered around the chief marketing officer — who increasingly make technology buying decisions. Within a few years, CMOs are likely to overtake chief information officers in their purchasing power, Gartner has said.

Adobe made an early move into the marketing cloud, by acquiring leading web analytics company Omniture in 2009, and Salesforce started acquiring companies too. Oracle has now joined the mix in a frenzy of deals. Last year, it bought Bluekai, which helps marketers measure how ad campaigns reach certain types of people. That deal was pegged at $400 million, according to industry reports.

(Two years ago, Bluekai had already partnered with Datalogix, to match audience data from Bluekai’s exchange to data relating to customer purchases from Datalogix.)

In December 2012, Oracle bought Eloqua, a marketing-automation software provider focused on the business-to-business market, for $871 million. A year later, Oracle ponied up $1.5 billion to buy digital-marketing software company Responsys, which targets consumers.

While these buys may seem impressive, Cory Munchbach, Forrester’s analyst on marketing technology, questioned Oracle’s commitment to the marketing agenda, noting that the company invited only CIOs — and no CMOs — to its opening keynote at Oracle OpenWorld this year.

That said, Munchbach did say Oracle appears bent on bringing data management platforms to the B2B world, where Oracle retains a larger market share than its competitors and therefore can differentiate itself from players like Adobe and Salesforce.

Munchbach, who wrote the Forrester report in October, told VentureBeat on Sunday that the Datalogix acquisition may help Oracle but will take time:

It can be really compelling for Oracle with the potential to create sort of a customer super ID based on the data assets from Datalogix, BlueKai, etc. It’s a massive task for them to do this, however, so we expect it to take some time and not have any immediate consequences. Marketers want more data to inform decisions and create competitive advantage, so in that way, this is a practical addition by Oracle.

But the downside from the marketers’ standpoint is that this removes another independent data provider from the market, so marketers are left with few “neutral” players in the data space. This is yet another example of an acquisition that allows Oracle to talk extensively about what they will be able to do and all of these hypothetical scenarios that this will enable, but as I’ve said before and will likely say again, we’ll believe it when we see it.

With fewer neutral players in the data space, what does this mean for digital ad leader Facebook?

One big question is how the deal will affect Datalogix’ partnerships with players like Facebook. Oracle was quick to address this issue, saying in its announcement that it is committed to “keeping Datalogix an open data platform, with deep integrations and partnerships across the entire digital publisher and adtech landscape.”

To be sure, Datalogix has several significant competitors, including Acxiom, a publicly traded company, and Epsilon, which is owned by Alliance Data. Facebook partners with both of these companies.

The fate of Datalogix is arguably the most important to Facebook. The company has been trying hard to change the perception that advertising needs to lead to click-throughs in order to be effective. Facebook argues that if an advertiser can inject itself into a Facebook user’s reading stream, this can foster brand affiliation, which can lead to a purchase down the road, including an offline purchase, especially if the product is targeted and relevant.

Datalogix is the partner Facebook most often cites in its efforts. Indeed, a Datalogix study performed internally for Facebook two years ago found that, on average, 99 percent of people who saw Facebook ads and then bought a product in a store never clicked on an ad at all. Facebook’s chief operating officer Sheryl Sandberg cited the study to bolster the point that Facebook’s ads aren’t supposed to lead to clicks. However, it’s unclear how reliable the study’s methodology was, because Datalogix clearly had its own interests at stake.

Datalogix, which is based in Westminster, Colo., had been preparing for an IPO later this year, having raised $86 million in three rounds of capital, including $45 million of that earlier this year led by Wellington Management company. Jim Breyer, a large early backer of Facebook, who until last year was on Facebook’s board, is also (indirectly) an investor in Datalogix, through Breyer Capital. [Updated to correct information on Breyer Capital.]

How Datalogix helps Facebook advertisers get even more information

Here’s how Facebook’s targeting program, called “Custom Audience,” works. First, advertisers can upload their own limited information about their customers from their CRM database, such as email and phone numbers, and Facebook lets them match this data with Facebook user profiles containing the same information. This is a good step, as far as it goes, because advertisers can target ads to their past customers by reaching them on Facebook.

However, what if advertisers don’t happen to have enough robust customer data of their own? That’s where Datalogix comes in: Facebook can call upon its partnership with Datalogix, or with other providers of data such as Epsilon, or Acxiom, to provide data about millions of others customers, including what they have shopped for and where they have shopped in the past, so that advertising partners can retarget them too. If customers end up buying from the advertiser, attribution players like Datalogix can share in the credit for giving the advertiser the lead.

In one documented case, written up by the New York Times, Facebook used Datalogix data to show how a three-month ad campaign on Facebook for MegaRed krill oil prompted more people to buy the health supplement.

A slap at Salesforce too

Finally, the Datalogix purchase will make Salesforce sit up and take note. Salesforce had partnered with Datalogix earlier this year and made it part of its Marketing Cloud. Two months ago, Salesforce had launched Wave, its own data and analytics cloud, to much fanfare — another initiative that must have annoyed Oracle’s sales team.

With so much complexity in the market place, it’s difficult for customers to make sense of the landscape without relying on expert independent analysts like Gartner and Forrester. But those firms take 12 to 18 months to update their “marketing cloud” reports. In that sense, Oracle’s acquisition of Datalogix can be seen as perfect timing. Oracle’s sales people can now point to any report that shows Oracle trailing behind Adobe and Salesforce and call it outdated because it didn’t foresee Oracle’s special initiative around advertising data.

[Full disclosure: VentureBeat recently has launched its own initiative, called VentureBeat Insight, to complement Gartner and Forrester data by taking more rapid snapshots of the marketplace and by surveying hundreds of real customers of marketing technology.]