Buddy Media Turns a Page

The company's popular platform for Facebook brand pages faces new rivals

I was glad I hadn’t worn heels—the floors of Buddy Media’s New York headquarters were carpeted in balloons. The company had recently celebrated its fourth anniversary, which had included morning mimosas and finger-paint graffiti that covered every inch of exposed glass. Even though its official mission statement includes orders to “laugh” and “celebrate,” the party had not included a clown, a magician or a baby donkey, as CEO Mike Lazerow promised on Twitter.

The past year has been good to Buddy Media. The company won a TechCrunch “Crunchie” for Best Enterprise software, on top of about a dozen other such distinctions. It made its first acquisition, opened two new offices (in San Francisco and Singapore), and more than doubled its headcount to 220. This August, it raised its largest round of funding: a $54 million Series D valuing the company at $500 million.

Buddy Media has become the go-to platform for building brand pages on Facebook. It’s got 90 percent gross margins and more than 500 clients, including eight of the world’s top 10 brands (Sprint, NFL, Target, and Ford, to name a few). It’s the biggest, oldest, and most recognizable company of its breed—one that’s been careful to avoid stepping on the toes of social ad agencies.

Buddy Media, in fact, aims for partnerships with agencies, rather than competition, counting Digitas, Razorfish, Publicis, and backer WPP Group among its clients.

In the past year, however, Buddy Media’s competitors have proliferated, all of them claiming to do what it does—only better, faster, simpler, more holistically, more specialized, more sophisticated, more user-friendly. To stay on top, Buddy Media won’t be able to rely on the sometimes haphazard methods it took to get there.

Lazerow and his wife Kass, serial entrepreneurs, started the company in 2007 with $1.4 million in seed money. They resolved to build something—unsure of exactly what—to help brands, publishers, and retailers harness Facebook’s new open Web. “It was very much like a startup, like throw stuff against the wall and see what sticks,” Lazerow says.

They tried everything from developing virtual currency, to launching an ad network, to building apps, to agency-like marketing services, winning clients like Starwood Hotels simply because it existed. (Back then, social media spending was as hit-or-miss as Buddy Media’s business model.) But when Facebook launched Pages in March 2009, “it was a no-brainer,” Lazerow says. “We knew brands were going to need content management systems, a retail presence, all of that.” The company quickly launched one of Facebook’s first page management systems. Its clients (including, to this day, Starwood) jumped on board.

Later that year, when Facebook announced its Preferred Developer Consultant Program (a list of Facebook-approved vendors for brands), Buddy Media was among the initial 14. Now there are at least 85 vendors, including several ad agencies that provide Buddy Media-like tools but also supply strategic and creative services. New competitors are entering the market in droves, having watched businesses like Buddy Media weather the experimental phase and fine-tune the social marketing software business model.

And despite sharing investors with Facebook—Peter Theil, Ron Conway, Zynga founder Mark Pincus, and the European Founders Fund—Buddy Media’s relationship with the company does not guarantee an inside track. In fact, Lazerow was as astonished as the rest of the market by Facebook’s Timeline profiles, unveiled at the Sept. 8 developers conference.

Competition in social service software has become so fierce that in 2010 Buddy Media accepted a nominal $5 million investment from WPP not because it was desperate for cash—Buddy’s venture backing now totals $90 million—but because it didn’t want a competitor getting that capital. “I didn’t need their money,” Lazerow says. But WPP was itching to make a social play, if not with Buddy Media, then with a rival, he explains.

One of its bigger rivals is Wildfire Interactive, a two-time winner of seed money from Facebook’s fbFund, which lends capital, mentoring, and marketing to developers. It’s even used by Facebook itself to manage its 50-plus fan pages. Another, Vitrue, also offers location-based mobile marketing software to clients like American Express, McDonald’s, and AT&T—and as of February 2011, the company had been tripling its count of blue-chip clients on a quarterly basis. Context Optional, the social CRM company that sold in May to digital ad company Efficient Frontier for $50 million, provides a menu of options, including display and search ads, and social community management to clients like Dr Pepper and Wells Fargo. There’s also Syncapse, Shoutlet, and KickApps, all of which have respectable chunks of venture backing. Friend2Friend provides customizable campaigns and dashboards to clients like Universal Pictures, Focus Features, and Volkswagen. ThisMoment last year launched a platform that unifies brand channels across YouTube, Facebook, Myspace, and other social networks globally.

These competitors for the most part embrace Buddy Media’s software as a service (SaaS) model, pioneered on the Internet in other categories by the likes of DoubleClick, Omniture, and Salesforce.com. It means they make money on software licensing fees and stay clear of the ad agency game. Once a client is set up, it’s mostly self-service, on a one-size-fits-all platform. The model has the benefit of scale, speed, and simplicity—but the detriment of inviting pricing competition.

“It’s clearly not difficult to [build a platform],” says Vince Broady, CEO, ThisMoment.

“It’s just software,” adds Scott Johnson, managing partner of New Atlantic Ventures, which invests in ad startups. “It can always be copied, improved, and out-marketed.”

The point is not lost on boutique shops that offer both marketing and technology services, such as Mr Youth, Banyan Branch, Carrot Creative, noise, and Resource Interactive.

“If they’re just a tool, then it’s a race to the bottom on price,” says Matt Britton, CEO and founder of Mr Youth. The shop, launched in 2002, offers services including brand development and online creative—for Neutrogena, for instance, it created a Web series—as well as custom social software.

“At the end of the day [these software kits] are tools—not full solutions,” adds Chris Petescia, chief product officer and co-founder of Carrot Creative, which specializes in social media strategy, design, and development. (Red Bull, PepsiCo, and MTV are among its clients.) “They are by necessity templated (read: rigid) and priced at a per-build fee.”

Creating custom platforms, says Blake Cahill, a principal at Banyan Branch—which launched as a full-service shop offering both technology and marketing services—is part of the evolution of social advertising. Ten years ago, every website, he says, was designed with an out-of-the-box template; now, they’re all custom built. He believes brands will quickly outgrow the offerings of Buddy Media and its software-only peers as they seek more unique user experiences and more control over their social campaigns. 

Lazerow counters, “We see our system as foundation technology that probably gets you 90 percent of the way there to what you need. And if there’s something you need to do custom on top of that, great. We are not in the world of mutual exclusivity.”

And, of course, tiny agencies can’t scale like an SaaS company—a creative shop can only take on so many clients at once. Also, the turnaround time is slower; Carrot Creative typically takes a month and a half to get a custom social platform out the door, for example.
This may be why Lazerow says Buddy Media isn’t too concerned about the competitive threat. Which isn’t to say it’s not watching its back. The company, for instance, has been racing to roll out new products, and Lazerow admits that, at one point, Buddy Media was too  dependent on Facebook.

The company’s offerings now also include: ConversationBuddy, a publishing platform and dashboard used by clients like Mattel and Johnson & Johnson to manage discussions on Twitter and Facebook; ReachBuddy, which helps clients like PepsiCo and Hearst Magazines Digital Media integrate social content from Facebook and Twitter into their websites; ConversionBuddy, a set of sharing buttons designed specifically for e-commerce; and a full analytics suite, the result of its acquisition of Spinback in May.

Buddy Media’s own platform is open to developers as well, allowing publishers and agencies to build apps that can be syndicated to their own clients.

And the company hasn’t hesitated to drop big branding dollars of its own, uncommon for a b-to-b software provider. It has burned up to $40,000 in a month on marketing, plastering its colorful “Power Your Connections” campaign (a shift from its previous imagery of utilitarian power tools) across airports, events, and in magazines. “I don’t think anyone can doubt that we’ve out-marketed and outsold everyone combined,” Lazerow says.

Buddy Media also remains on the prowl for acquisitions and recently hired Dennis Morgan, the man behind $5 billion worth of acquisitions at Yahoo, as its CFO. He’ll have plenty of money to play with in his new role: Of Buddy Media’s $90 million in venture backing, it still has around $70 million sitting in the bank. The category is expected to capture $3.1 billion in ad spending by 2014, with VCs, brands, and agencies all eyeing that growth. Buddy Media won’t be the only one with money to burn.