Friday, June 17, 2016

Is Salesforce's Acquisition of Demandware a mutually beneficial one?

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
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 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.'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. 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 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, 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!

No comments: