Syncapse Bankruptcy Documents Lay Bare The Financials Of Marketing On Facebook

Syncapse, the social media marketing management company that filed for bankruptcy recently, collapsed despite having a roster of blue chip enterprise clients — such as JPMorgan Chase and Coca-Cola — and 100 small and medium sized business clients, according to a copy of the asset sale document prepared by the investment bank charged with restructuring or selling the company.

On paper, Syncapse sounded like a great business. It was founded by CEO Michael Scissons, who headed Interpublic Group's Candian ad sales for Facebook back in 2006. Interpublic is one of largest ad agency holding companies. It eventually became an investor in Facebook, making millions when its stake matured after the Facebook IPO.

Syncapse's client list included Anheuser Busch-InBev, Amway, Coca-Cola, Diageo, JPMorgan Chase Bank, Johnson & Johnson and L’Oreal, the documents claim.

The company had three out of Facebook's four Preferred Marketing Developer badges, giving it the right to serve ads on the Facebook platform. Only Adobe has all four qualifications, the documents say.

Perhaps best of all, Syncapse had a low cost base. About 80 of its employees were in India, earning just $27,000 a year, the document says:

Syncapse’s R&D and support, were centered in Gurgaon, India, which is a rapidly growing high-tech suburb of New Delhi. Previously with approximately 80 employees, and an average annual salary cost of $27,000, Syncapse India was a cost-effective, scalable R&D and support centre.

Yet its revenue — garnered after it was backed by $45 million in venture funding — was always paltry. Here's a snapshot:

The documents blame Syncapse's reliance on RIM/Blackberry as a client for its collapse. As the troubled mobile phone maker pulled back its marketing spend post-2009, Syncapse was unable to win newer, richer clients fast enough, the documents say:

Syncapse’s revenue was historically heavily concentrated with RIM/Blackberry, which accounted for as much as 89% of the company’s revenue in 2009, but <10% in FY2013. As RIM reduced its marketing spending, due to its own market challenges, Syncapse had to backfill the decline in RIM revenue with other enterprise clients. While top-line revenue growth appears flat and net income performance has been volatile, the Company had underlying, year-over-year growth, ex-RIM, with the addition of major enterprise clients during periods of significant investment in product development.

We described yesterday that Syncapse was not profitable in any financial period after 2009.

The sale document, which you can download here, should be sobering reading for executives working in social media marketing management companies. Facebook has more than 260 preferred marketing developers feeding ads and other marketing activities into Facebook's system. Facebook books about $6 billion in ad revenue in any given year. That "market" is far smaller than U.S. TV advertising ($64 billion) which is served by far fewer ad buyers.

And, worryingly, every time we've seen hard numbers come out of social media marketing companies — even the successful ones — they've always been losing money.