Experts Applaud, Decry Salesforce-Demandware Deal

I imagine many of us shared this initial reaction last week when we first heard about the Salesforce/Demandware news:

Woah Salesforce

(For me, the woah came from familiarity with Demandware, the price tag, and the bittersweet, nostalgic feeling I get when a well-regarded Boston tech company is acquired by a better-known tech behemoth from elsewhere (you listening, IBM?).)

data_general_logo(Note: the author was employed as a summer warehouse worker at Data General during his college years and also gets nostalgic about that company, Wang Computers, Digital Equipment Corporation and others that have expired. He is seeking help.)

The move made sense. Commerce was Salesforce’s blind spot, and Demandware is the de facto leader in the space. And Salesforce and Demandware are analogous to acquisitions made by SAP, Oracle, Microsoft and Adobe to blend customer data, commerce and “engagement”:

“When the transaction closes, Demandware will become an integral part of the Salesforce world-class Customer Success Platform. Demandware customers will be able to leverage the platform to deliver a more comprehensive, personalized consumer experience throughout the entire customer lifecycle, while Salesforce customers will gain access to the Demandware leading enterprise cloud commerce solution.” — Salesforce blog post announcing deal, written by Tom Ebling of Demandware

Reaction was largely positive (examples here and here). Main takeaways: Salesforce is joining the commerce party, and the ability to upsell and cross-sell is tremendous.

Then, as always in large acquisitions such as this, out came the more realistic (or pessimistic, depends on how full your glass is) takes.

First, the customer and technology integration challenges:

Salesforce’s software is more customer facing, meaning that salespeople and marketers use it to track sales and interact with their customers or prospects. Demandware, on the other hand, is more backend infrastructure that is sold to big retailers or product companies. As Salesforce chief executive Marc Benioff said earlier today, Demandware’s e-commerce technology can help all Salesforce customers “become Amazons.”

“Demandware is literally infrastructure, it takes someone’s whole ability to take stuff to market and puts it on the Internet,” (Joel) Fishbein (managing director for financial services firm BTIG) explained. “That could make things somewhat challenging.” —“Latest Salesforce Mega Deal Highlights Challenges of Tech Integration,” Fortune

11075688-bag-of-cash

And the price …

“Under even the most optimistic integration scenarios, I believe that Salesforce.com’s (CRM) proposed acquisition ofDemandware (DWRE) for $75/share, or $2.85 billion, represents an unacceptable transfer of wealth from CRM to DWRE shareholders. As noted in prior reports, Demandware is far from profitable. Salesforce is not much better. My models show that more than $2 billion of the $2.8 billion purchase is an overpayment and a direct destruction of value for CRM shareholders.”–Salesforce.com Overpays Big-Time For Demandware Acquisition, Forbes

And finally, a few balanced reactions … first, from financial analysts:

“The initial read from the Street is that this makes sense, but boy, is it expensive.”–Salesforce’s Demandware Deal Expensive, but Makes Sense, Say Bulls, Barron’s

Then, industry analysts:

“So here’s the rub for this acquisition strategy: two platforms divided cannot stand. While Salesforce and Demandware have the benefit of both betting on SaaS, they have big obstacles to overcome. Technology integration and rationalization is one, big obstacle. Possibly bigger, Salesforce’s CRM-centric horizontal roll-up strategy must subsume Demandware’s retail commerce suite, which is a vertical roll-up strategy (e.g. Tomax for POS and MainStreet for OMS). These two philosophies will not reconcile easily. And this doesn’t include Demandware’s revenue-sharing, commercial model versus Salesforce’s seat-based utility pricing, which is another, major strategic hurdle.”–Mark Grannan, Forrester Research

… and finally, the industry experts, led by this great opinion piece from ZDNet’s Paul Greenberg:

In 2013, when SAP acquired hybris, SAP changed its messaging from customer engagement to customer engagement and commerce. At the time, I howled. And not in a good way. While I still don’t love it as messaging, at least now I do get why they do it. Even though their reasoning might not be the same as mine, the combination of CRM and ecommerce can sit at the center of customer engagement – though it isn’t the heart.

The combination is why Salesforce acquired Demandware a few days ago, though as we will see, Salesforce’s messaging doesn’t reflect this — I don’t think. But regardless of Salesforce’s reasons, in my eyes, ecommerce has become the necessary transactional core of a customer engagement technology matrix – and for Salesforce to continue to compete and lead in the “Big Guys” domain – The Big 4.5 – Salesforce, Oracle, SAP, Microsoft and the rapidly emerging but not quite there yet Adobe (they are the .5 in this), Salesforce needed to have ecommerce. Ecommerce is where transaction and interaction begin to intersect if it is seen as part of an ecosystem.

Salesforce has learned some lessons around integration and messaging in the 14 acquisitions the company made in the last three years, including the $2.5B acquisition of ExactTarget just about a year ago now.

Will they apply them to Salesforce and Demandware?

That’s the $2.8B question.

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