April 04, 2014
Wheelings & Dealings: Tesco's Dunnhumby Makes a Purchase of Its Own In Sociomantic
By Steve Anderson
Contributing TMCnet Writer
While Tesco is one of the biggest names in retail on the planet—it's said to be just after Walmart in terms of overall size, making it the second largest retailer of all—it's also been shown to be branching out a bit. Putting the power of big data projects to work in its own operations by acquiring the data science firm Dunnhumby, it's been learning a lot more about what its customers like, don't like and might want via combing records created by loyalty cards. But there's likely to be another expansion afoot as Dunnhumby made an acquisition of its own in the form of Sociomantic Labs.
The deal itself had been rumored to be in progress since March, and the price Dunnhumby paid for Sociomantic is as yet unrevealed. But the possible price tag (News - Alert) on the deal could have gone as high as $200 million, and sources that were “close to the negotiations” suggest that it came in the “low hundreds of millions,” which puts the price somewhere between $100 million and $200 million.
Dunnhumby—and by extension Tesco—has been really stepping up its marketing capabilities of late. Back in 2011, Dunnhumby picked up BzzAgent, a company that allows companies to build a structure by which users can compete for a shot at free or deeply discounted products and talk about those products online. Such a practice hopefully will hopefully in turn fuel good word-of-mouth promotion and give an advantage in terms of selling those items. Sociomantic, meanwhile, has its focus on advertising with a special focus on e-commerce, so it looks to be part of an expansion effort in terms of online sales, a point that many retailers are trying to augment especially after the last holiday shopping season, where plenty of users turned out to shop online, yet not so much in the brick and mortar stores.
Of particular interest here is that Sociomantic has reportedly been profitable ever since it got started back in 2009. In 2013 alone it generated revenues for the year that were likely better than its sale price—measured in the “couple of hundred million dollars” range by Simon Hay, Dunnhumby's CEO—so this move came as a surprise to some.
So what could Dunnhumby—and by extension Tesco—do with Sociomantic? Some points immediately emerge, like bringing that big data prowess to Tesco's online operations, or simply allowing Sociomantic to operate as normal to give Dunnhumby a boost to its cash flow profile. A business, at the end of the day, lives and dies by its cash flow. Dunnhumby already works with several major names from Coca-Cola to Kroger, and offering up an extra service like those Sociomantic can offer, from streaming customer relationship management (CRM) tools to advertising issues, might help to make Dunnhumby a better value in the minds of current customers. There's seldom anything wrong with offering added value; it often persuades customers who might ordinarily drop a service to stick with that service when cash starts getting a little tight. Just look at cable companies who might make special offers to those who threaten cancellation, and the outcome of a little added value becomes clear.
While it will likely be some time before we see the full impact of Dunnhumby's purchase, it's likely to have quite a bit of value no matter how it's put to work. There may be some big things coming from Dunnhumby and Tesco soon, so keeping an eye on the news here should prove worthwhile in the long run.
Edited by Cassandra Tucker