Here's The Real Reason Syncapse Went Bankrupt - And It's Not Facebook's Fault

We recently reported on the bankruptcy and layoffs at Syncapse, a Facebook preferred marketing developer (PMD) that had taken $45 million in funding, had ~180 employees globally, and clients such as Coca-Cola, Johnson & Johnson and JPMorgan Chase. (PMDs perform social media marketing services for advertising clients.)

Social media marketing is supposed to be a huge growth industry, and Facebook's ad revenue is growing by leaps and bounds.

Yet Syncapse never managed to make more than $15 million a year in revenues, and was never profitable.

Recently Matthieu Chéreau, CEO of another of Facebook's PMDs, Tigerlily Apps, emailed to tell us that he disagrees with our coverage, in which we suggested that it was unlikely that 260 PMDs, all performing similar services, could all survive in the long run.

Rather, Chéreau says, Syncapse's problem is that its business model was out of whack: Facebook PMDs need to operate like software-as-a-service (SaaS) companies, which take fees for licensing their dashboards to clients rather than taking commissions on placing paid media.

The proper portion of total revenue for SaaS license fees at a PMD should be 60-70%, Matthieu Chéreau says. A Syncapse, it was 25%, he says.

Here's his case:

A few days ago, Syncapse filed bankruptcy and laid off more than 100 employees. This news first came as a shock. But as numbers were progressively disclosed, it eventually made more sense: how is that possible to invest about $45 million into a SaaS company that is not even able to make more than 25% of its revenue in licenses? True, Social has been a quite immature market for years, which is why companies such as Context Optional or even Buddy media sold themselves lots of services (including community management, apps customization, etc.).

But as Brands are getting more social-savvy and focused on optimizations, we can expect Social marketing platforms to get closer to the licenses-to-service usual SaaS ratio (i.e above 60%). In any case, whether it is bad finance or bad product, or a little bit of both, this news has certainly much more to do with the company itself, than with the market trend depicted by Jim Edwards in his article.

Speaking about this market trend, I’d like to challenge it right away: the fact that Syncapse is a PMD doesn’t necessarily mean that Syncapse is expected to take all of its revenue out of Facebook owned and paid actions, and struggle doing so among more than 250+ PMDs.

We really need to see the bigger picture here: social marketing platforms are more and more focused to acquire, qualify and value customers across the social web. Facebook or even Twitter are not an end in themselves, but a mean for brands to create compelling contents and experiences, relevant for all the users they want to inspire and convert across multiple devices. That means the bigger picture doesn’t only consist in leveraging owned and paid actions of social platforms. (Pinterest will introduce many ways for brands to leverage its community, also we’ve still seen noting with Instagram, and yet the potential is enormous, it goes the same with Tumblr, etc.).

Social marketing is also being tied to CRM, analytics and big data efforts, for the sake of social research and direct optimization of marketing actions that lead towards more personalization and more conversion. All those challenges shows why the piece of the cake for PMDs is way bigger than just Facebook. On the top of that, successful social marketing platforms who manage to reach a licenses-to-services ratio above the average, and a license margin above 70% (which is a standard in the SaaS industry) will eventually be as profitable as other (more mature) SaaS businesses.

It’s high time to wake up and not see in social marketing platforms only flawed social promises, but true market and products insights, as well as real business by the means of data mining, tracking and targeting. It’s a whole new age of social marketing platforms, that are becoming more mature, ready to deliver concrete results, that matter for companies. Companies who wish they were more consumer-connected, and are investing to be so in the few next years.

The end of Syncpase is not the end of the era: it’s the beginning of a new one, which I find much more exciting to tell the truth, and will deliver (as opposed to the previous one) on its promise of real ROI and business growth for brands. Social marketing is no more: make room to social business.