I started my career with contribution to a massive CRM based
product and contributed towards it for more than 3 years. So it is safe to say
that my last stint with CRM software was way back in the past. In that sense,
this blog (about Salesforce
acquiring Demandware for $2.8 bn- both CRM related companies) was not a default
choice for me to write about but something still got me interested. Sharing some
of my reasons here-
1. I was in one of the meetings
recently that CEO of my current organization was hosting. A question came up
about his philosophy around acquisitions. He said that his guiding question is-
"What would we do to make them (the target company) better?". In
saying this, he shared this example of Salesforce and Demandware acquisition,
which got me curious to explore further.
2. Another coincidence, I was
reading this book currently- "Behind
the Cloud", which tracks the amazing story of success of
salesforce.com.
3.I was recently discussing with my
college friend on his idea of starting a podcast to study recent technology
trends. We got to discuss a bit about studying technology acquisitions as a way
to understand the direction our industry is headed.
4. Lastly, I had a good run while
doing the technology journalism for techwell.com and during
that stint, almost a year back or so. I did write a good lot about acquisitions
happening at that time.
So, let’s look at some of the
specifics here- starting with the core reason of existence of these companies.
Salesforce.com's
customer relationship management service is broken down into several broad
categories: Sales Cloud, Service Cloud, Data Cloud, Marketing Cloud, Community
Cloud, Analytics Cloud, App Cloud, and IoT with over 100,000 customers.
Salesforce.com was the first cloud-based enterprise application company.
Demandware is a software
technology company providing a cloud-based e-commerce platform and related
services for retailers and brand manufacturers around the
world. Demandware was founded to provide a hosted service that would
enable companies to develop and manage easy-to-use, customizable e-commerce
websites, rather than building a site from scratch.
Given the similarity in the delivery
models i.e. Software-as-a-Service, Demandware's acquisition allows Salesforce a
direct entry into lucrative digital commerce market- which apparently was a
missing piece in its portfolio.
So this raises a question- Why would
Salesforce really have to target digital commerce segment?
A simple answer- because its
competitors already have a presence in that segment. As this Forbes
article suggests,
SAP and Oracle have already ventured
into the e-commerce domain through their acquisitions of Hybris and Art
Technology Group, respectively, so the Demandware acquisition should help
Salesforce continue to compete with its rivals.
As this graphic from the same Forbes
article suggests, Salesforce has a steady lead over its competitors and this
acquisition should further help them augment that lead.
In all, this acquisition will help
Salesforce fill a major product gap and form a new product "Salesforce
Commerce Cloud".
So, will Demandware really gain from
this acquisition ?
On a lighter note, yes- they will
gain $2.8 billion :-). But more seriously, the answer lies in the leveraging
the success of Salesforce's Customer Success Platform. As this
news suggests-
The Salesforce Commerce Cloud will
be an integral part of Salesforce's Customer Success Platform, creating
opportunities for companies to connect with their customers in entirely new
ways. Salesforce customers will have access to the industry's leading
enterprise cloud commerce platform, and Demandware's customers will be able to
leverage Salesforce's leading sales, service, marketing, communities,
analytics, IoT and platform solutions to deliver a more comprehensive,
personalized consumer experience.
Oracle's CEO Larry Ellison who
originally mentored Salesforce.com CEO Marc Benioff. The book "Behind the
Cloud" talks about how Ellison allowed Benioff, then an Oracle Executive, a
rare privilege to start-up and work on Salesforce while being an Oracle
employee. Interestingly, Salesforce.com proved to be the case of child
exceeding father's achievements as it created a new market of online enterprise
software and became an undisputed leader. Now, Oracle is playing a catch-up
game with Salesforce. Larry Ellison was recently
quoted to be bullish about reaching the $10 billion mark, a first for cloud
based software company, even before Salesforce. Such competition makes
Salesforce's Demandware acquisition even more strategic
and necessary for retaining the future leadership of the company.
Further studying this acquisition
from Product Strategy perspective, there are 2 strategies that appear on
surface. One is that of product differentiation and other that of product
expansion. The case of Salesforce acquiring Demandware seem to be more of the
latter. This acquisition is not really a solid differentiation for Salesforce
as its competitors are already invading that space. As the book- "Product
Strategies for High Technology Companies" states-
Create and launch a continuing
series of products that open new markets and fuel rapid growth. This is the
dream of most high-technology companies. Expansion into the new markets is
sometimes necessary for survival.
The book further states the case of
approaches followed by Lotus Development Corporation and Microsoft in 80s.
While Lotus achieved immense success with its 1-2-3 spreadsheet application but
it remained vertically oriented, achieved its growth with variations around one
successful product. Microsoft's strategy, on the other hand, contrasted with
that of Lotus as it pursued a strategy of growth by expansion into related
markets (OS- client, server, Browser etc.) .
Taking a cue from this example, it
is probably in the best interests of future growth and survival of both Salesforce
and Demandware that they operate under a single direction and help each other
grow.
Please do share your comments
regarding this analysis.
Coming up next is a bit of
commentary around Microsoft's recent acquisition. And no, its not about
Microsoft-Linkedin.
Stay tuned!
