Analysis: Demystifying Facebook's unusual CRM acquisition

Facebook is acquiring CRM platform Kustomer to offer companies access to tools that can help them carry out business on its platforms. Facebook said it will offer Kustomer the resources it needs to scale its business, as well as improve and innovate its product offering. Although Facebook did not reveal the acquisition value, Wall Street Journal reported that it is expected to be "a little over US$1 billion", citing its sources. 

Kustomer is an omnichannel CRM platform that brings customer conversations from various channels together into a single-screen view. It helps businesses automate repetitive tasks so their agents can maximise the time and quality of interactions with customers. Following the acquisition, Kustomer businesses will continue to own the data that comes from interactions with their customers. Facebook said it eventually expects to host Kustomer data on secure Facebook infrastrucutre and in doing so, it will act as a service provider at the instruction of business customers.

Facebook explained that this move is "an industry standard practice" among many companies that offer service solutions. While it will not automatically use Kustomer data to inform the ads that a user sees, Facebook said businesses will have the option to use their data at Kustomer for their own marketing purposes, which may include separate advertising services on Facebook.

The acquisition comes as businesses have had to adapt to an evolving digital environment. Customers are increasingly messaging companies instead of calling and more than 175 million people contact businesses via WhatsApp daily. Kustomer currently has a working relationship with Facebook, having integrated into Facebook Messenger and Instagram messaging. Headquartered in New York City, Kustomer was founded in 2015 by Brad Birnbaum and Jeremy Suriel. According to the company, it has raised over US$174 million in venture funding and is backed by renowned venture capital firms including Tiger Global Management, Battery Ventures, Redpoint Ventures, Cisco Investments, Canaan Partners, Boldstart Ventures and Social Leverage.

The latest acquisition can be considered unique, since Facebook has had a history of acquiring mainly tech or social platforms such as CrowdTangle, Instagram and WhatsApp - but largely these acquisitions are consumer centric. However, the move reinforces Facebook's vision of building up its capabilities in the business scene.

In recent times, it made further entry into the online shopping space by unveiling Facebook Shops and Instagram Shop to empower small business owners and global brands to create a single online store for consumers to access on both Facebook and Instagram. Meanwhile in October, WhatsApp said it will increase investment in the shopping feature on its WhatsApp Business app. The shopping feature aims to expand on ways for people to find available products and make purchases right from a chat. It also wants to make it easier for businesses to integrate these features into their existing commerce and customer solutions.

According to WSJ, Kustomer was valued at approximately US$710 million in a private funding round about a year ago. Evidently, it is not a small fish. Prantik Mazumdar, MD, CXM group at dentsu international, told MARKETING-INTERACTIVE that the acquisition is a strategic move to boost its commerce and payment play globally. Also, it is "a very critical strategic move" for Facebook to help the platform increase its revenue stream from commerce and further diversify beyond advertising. Facebook reported a 22% increase in ad revenue, from US$17,383 million in 2019 to US$21,221 million, in the third quarter of 2020. 

With Facebook Shops and in-app shopping available via WhatsApp, Mazumdar said an integration with an automated, social CRM workflow platform such as Kustomer, will help it strengthen its offering for its business clients. With more than 175 million individuals communicating with businesses on WhatsApp alone, Mazumdar believes there is a critical mass of commerce customers who could be well served through a platform such as Kustomer.

This is a long-term, billion dollar strategic investment by Facebook that could pay off significantly, as the social media giant focuses on CRM-driven customer experience management solutions, powered by data and AI.

At the same time, Kustomer also has benefits customer service representatives too. As the platform offers a single, centralised, synchronised window for customer service agents to respond to customer inquiries, Mazumdar said it could boost productivity for customer service representatives. Additionally, users will also get an improved customer experience through the automated, centralised, social CRM workflow system that removes the need to open multiple tabs and respond to queries manually in a generic fashion, which is the norm in most businesses today.

While Mazumdar believes that the acquisition will help Facebook diversify beyond advertising, Cameron Richards, CEO of CPR Vision Management said it should seemingly lead businesses to spend more on Facebook advertisements, adding that the acquisition is "a great fit and a win-win" for both.

"By definition Kustomer is not a true CRM firm or platform. Whereby Kustomer specialises in customer-service platforms and chatbots, which also fits Facebook’s move into social commerce," he explained. With the acquisition, Facebook can improve its offerings for businesses that have a presence - in some cases, their primary digital presence - on the social network.

According to him, some of the most successful venture capital and private equity firms assess a possible target with three questions - Do we like each other? Is there leverage? Is the commercial ask realistic? Richard's said Facebook's acquisition of Kustomer is "a classic example" of this approach, given there was a prior relationship and commercial history in place between both parties, since Kustomer is integrated with Facebook Messenger and Instagram messaging. 

Also weighing in on the conversation is marketing director of AKINN and LUXIEE, Freda Kwok, who believes this is "a smart move" on Facebook's part, given that social media platforms are fast becoming the channel of choice by consumers to interact with their favourite brands.

"There is greater emphasis and investment by brands towards community manage and customer service via social media channels as well, with strict SOPs on turnaround and response times. It is also an increasingly common habit among consumers to turn to social media for the fastest response by brands, with the perception of always-on interactions," she explained. As such, Kwok believes this acquisition will certainly bolster Facebook's integration into business operations and customer management, and enhance their support to the sales process.

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Photo courtesy: 123RF

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