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UK retailer Tesco acquires BzzAgent, digital 'word-of-mouth' pioneer

Posted by Scott Kirsner  May 23, 2011 07:35 AM

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BzzAgent founder Dave Balter is in London today to announce that his Boston social marketing company is being acquired by a subsidiary of Tesco, the world's third-biggest retail chain.

BzzAgent created a network of 800,000 agents who test new products and services — and then "buzz" about them to others, both online and off. The company has 60 full-time employees, and it raised about $14 million from local venture capital firms General Catalyst and Flybridge, as well as angel investors Shikhar Ghosh and Guli Arshad. BzzAgent will become part of Dunnhumby, a marketing data firm that Tesco owns.

One thing Dunnhumby does is operate Tesco's loyalty card programs, which involve about 200 million consumers. "We can take loyal customers and make them advocates for a product or a retailer," Balter says. "And we can explore ways to connect social media to shopper behavior," which could involve better understanding why consumers become attached to certain products, or offering in-store discounts if they're willing to try a new brand.

Dunnhumby CEO Simon Hay says in the press release announcing the deal that BzzAgent's ability to measure the return-on-investment of social media activity was also appealing to his company. Simply put, marketers want to be able to know whether all that social activity online results in purchases, Balter says: "We’re confident that connecting the dots between social and shopper marketing is going to present some tremendously powerful opportunities for marketers, and help further establish the value of social marketing spends."

Balter says that BzzAgent will stay in Boston, and that the company will become Dunnhumby's social marketing division. Balter says the terms of the acquisition don't require him to stick around for a specified period of time, but adds, "There's a big vision here that I'm really excited to put into play." (Not to mention that the acquisition jackpot, which I'm told is in the neighborhood of $60 million, only pays off in full if BzzAgent hits certain business targets.) Dunnhumby has a U.S. operation in Cincinnati, with about 400 people.

John Simon, the partner at General Catalyst who invested in BzzAgent, writes via e-mail that while the acquisition will put the BzzAgent deal "in the 'gain/win' column" for his firm, "it won't be among the highest returning investment gains we'll have or anywhere close to that, but will be a win for everyone, I think and hope."

"We've had several companies interested in acquiring BzzAgent over the years and this combination clearly makes the most strategic sense," says Jeffrey Glass, an entrepreneur-turned-VC who serves on BzzAgent's board. (Glass' current employer, Bain Capital Ventures, wasn't an investor in the company.)

BzzAgent was founded in 2001, and has worked with brands including Dunkin' Donuts, Wrigley, and Philips Sonicare.

This is the second significant social media acquisition in Boston this year, following Omnicom's $100 million purchase of Communispace back in January.

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Scott Kirsner was part of the team that launched Boston.com in 1995, and has been writing a column for the Globe since 2000. His work has also appeared in Wired, Fast Company, The New York Times, BusinessWeek, Newsweek, and Variety. Scott is also the author of the books "Fans, Friends & Followers" and "Inventing the Movies," was the editor of "The Convergence Guide: Life Sciences in New England," and was a contributor to "The Good City: Writers Explore 21st Century Boston." Scott also helps organize several local events on entrepreneurship, including the Nantucket Conference and Future Forward. Here's some background on how Scott decides what to cover, and how to pitch him a story idea.

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