In a busy week for enterprise software acquisitions, Salesforce's decision to plunk down $2.8 billion for e-commerce platform provider Demandware arguably made the biggest splash. The move adds yet another cloud to Salesforce's burgeoning portfolio, takes a sizable independent e-commerce vendor off the table, and could prompt additional consolidation in the space.
Salesforce CEO Marc Benioff hailed the deal with his usual bombast. "Demandware is an amazing company—the global cloud leader in the multi-billion dollar digital commerce market," he said in a statement. "With Demandware, Salesforce will be well positioned to deliver the future of commerce as part of our Customer Success Platform and create yet another billion dollar cloud."
Salesforce clearly needed to check off the e-commerce box, as it was a gaping hole in its continuum of products for sales, customer service and marketing. Close rival Oracle bought Art Technology Group, then a major independent e-commerce player, all the way back in 2010.
More recently, Oracle purchased Retek, which focuses on software for retail. Demandware is known for its retail capabilities, and retail is among the verticals Salesforce wants to target in its bid for continued rapid growth. Last year, Demandware bought cloud-based retail POS (point of sale) software provider Tomax, expanding its reach even further.
Salesforce had other choices than Demandware for an e-commerce platform. Like any acquisition, the deal it ultimately chose has certain pros and cons, says Constellation Research founder and CEO R "Ray" Wang.
"Demandware is the leader in the market and with this Salesforce is expanding the definition of CRM," Wang says. There's also a solid overlap among the companies' customer bases, meaning the cross-selling opportunities are good right out of the gate, he adds. Salesforce will be better able to meet the needs of customers looking for capabilities than span from marketing campaigns to commerce, he adds.
Of course, it will take some time for the deal to close, followed by the work of integrating Demandware's capabilities more deeply into the existing Salesforce portfolio. Some degree of integration is already there, such as the ability for Salesforce Communities customers to embed "Buy" buttons into product web pages. The buttons link back to Demandware to place the order. At least one Salesforce partner also offers a data-synchronization tool for Salesforce CRM and Demandware.
As for challenges related to the deal, there are a few. For one, it seems likely that Salesforce will replatform most or all of its properties on Amazon Web Services. Demandware largely runs its own servers so this deal adds more migration work to Salesforce's plate over the long term.
Building out Demandware's analytics capabilities is another task for Salesforce, although in 2014 Demandware did buy a small company called CQuotient, which developed a platform that takes large sets of e-commerce and consumer profile data and uses predictive capabilities to deliver personalized shopping experiences.
Salesforce also could have purchased Demandware rivals Magento and Elastic Path, both of which have newer underlying architectures, Wang says. Finally, while Demandware is known for its ability to handle the workload demands of very large e-commerce sites, Salesforce will face increasing competition in midmarket deals from the likes of Episerver, he adds.
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