Email provider lands funding?

A little over a month ago VC firm Greylock Partners led a funding round raising $15 million for Constant Contact, an email marketing vendor that targets small businesses and nonprofit organizations.   Huh?  Why would Greylock invest a sizable chunk of change in a space that is becoming increasingly commoditized and has low switching costs and barriers to entry?  Greylock is an extremely smart VC, right?  I mean they successfully invested in Doubleclick, Epsilon, and Red Hat among others.

My theory is this - Greylock invested in Constant Contact because -
• Small business is a hugely underserved market and small businesses are traditionally technology adoption laggards.
• Sinking disproportionate amounts of money in a market that traditionally grows organically allows them to “buy” accounts and build “value” rapidly.
• Email is just the first in a whole slew of services that the $15 million can build, package and provide small businesses.
• Once Constant Contact gains sufficient momentum it becomes a great merger or acquisition target yielding a nice return on investment for the VCs (Greylock!) who backed it.

WIM: Greylock got a lot of the company for its investment which means it will get good money when it sells.

As with any bet, this one has its risks - the market may never take off; small businesses tend to look for services locally and this market may stay fragmented; costs of doing business with small businesses may remain high; Google, Yahoo and/or Yellow Book may get serious about this market sooner or later which positions Constant Contact as a nice target.

So what do you think?  Is email evolving out of the commodity mode to something else? Is small business going to realize its potential as a huge untapped market?   

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Comments

re: Email provider lands funding?

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re: Email provider lands funding?

I think small business will increasingly realize the power of permission-based email in order to do relationship marketing with their customers and prospective customers. I work with several thought leaders in the field of professional services, and they use this venue to cement their expertise in the minds of their audience. Along with blogs, it's another arrow in their quiver.