Website-Builder M&A Continues: The GoDaddy Edition

M&A activity in the website world continues to pick up. After reporting recently on Wix’s quiet but notable acquisition of Websplanet, GoDaddy announced last week that it has acquired Neustar’s domain registry business. This continues a long line of deals in the website builder space, as we’ve predicted.

But before getting into the macro-dynamics of the sector, what’s GoDaddy’s latest pickup all about? It includes Neustar’s back-end registry and domain security platform. This joins technology already in place at GoDaddy for domain registration and hosting — a foundational component for any website provider.

Stepping back, one could be forgiven for letting this news pass their daily feed with little attention or fanfare. Indeed, domain registration and hosting is a sleepy and commoditized function of online commerce. But it’s notable in light of the larger trend of expanding functionality and vertical integration.

Our speculation — rather than an explicit acquisition driver for GoDaddy — is that a more expansive domain registration platform could align with goals for customer retention and ARR. Domain hosting is a nice recurring revenue stream, and a customer base that can be upsold to other website services.

As we’ve examined, the website sector is seeing lots of M&A and feature expansion to broaden SMB offerings. That includes Automattic’s new content monetization tools and GoDaddy going deeper on marketing and social tools. There’s also movement in the other direction with Constant Contact launching websites.

The thought is that a larger bundle boosts revenue per user, retention and lifetime value. It’s all about having more tentacles that reach into business operations, thus anchoring a given vendor in SMB marketing support. That can engender a lock-in effect, pursuant to the all-important recurring revenue.

The GoDaddy/Neuestar news aligns with this concept in some ways, including deeper customer relationships that a vertically-integrated approach can engender. Given that domains are inexpensive and among the first steps of SMB inception, they can be the “tip of the spear” for lifetime relationships.

As noted above, the deal also fits our prediction that we’ll continue to see lots of M&A activity in the SMB website sector.  As we wrote in December:

Website Builders Continue to Broaden Functionality: As the website sector in general matures, there’s less growth so competition intensifies for market share. The result is a spate of moves in the past six months to beef up their bundle of services with more functionality to attract customers and reduce churn. This has ratcheted up as website builders like GoDaddy, Automattic and others are rapidly expanding (though building and buying) to offer marketing and promotion, in addition to the core “presence” functionality of websites. That will continue into 2020, with feature expansion that most prominently includes email marketing, SEO and CRM. 

We expect more M&A in the website builder space later in the year, though activity could be tempered to some degree in the near term by shaken investor confidence in the current uncertain state of the world. We’ll report back as we hear more about this deal, as well as other consolidation in the website sector.

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