Salesforce Gets Closer to the Customer Through Demandware Acquisition

Salesforce’s announced acquisition today of Demandware is another big step in the company’s path to get closer to the customer. The addition of ecommerce platform capabilities is a logical extension to the existing Salesforce suite and further rounds out the Salesforce platform in its view of the customer lifecycle. However, bringing the ecommerce cloud fully into the Salesforce ecosystem is still a ways off.

The $2.8B price Salesforce is paying for Demandware puts a value of just over $8 million on each of Demandware’s 349 customers (as of 3/31/16). In comparison, Salesforce’s market cap breaks down to under $400K in value per customer, a more than 20x difference. The key point here is what this says about the nature of each business in terms of what it takes to acquire and support a customer. From a sales, delivery, and account management standpoint, Demandware looks a lot like a more traditional enterprise software business. The opportunity for Salesforce is in driving Demandware to become a more transactional product with easier on-boarding and to address customers with requirements beyond the reach of Shopify, Square and others, and, as some analysts have already pointed out, to serve the B2B market, which quietly transacts at a volume that is far beyond B2C ecommerce.

A further opportunity exists for Salesforce in pushing Demandware more in the direction of a platform (PaaS). To date, Demandware is regarded as vendor and developer un-friendly, which limits its customers’ ability to leverage the breadth of innovation and best of breed solutions that continue to bubble up, and also denies Demandware another layer of glue to become even stickier with its customer base. Salesforce has written the book around leveraging its developer and partner community as a strategic asset, and the ecommerce platform space relies more than ever on a broader ecosystem of ad-tech and marketing automation, so look for Demandware to begin drinking the Kool-aid.

As evidenced by the fact that there is so little customer overlap between Salesforce and Demandware, the CRM needs of etailers tend to be very different than the typical Salesforce customer. For etailers, the hub of the customer data universe often exists between order management system and email systems, and tends to be heavily meta-data dependent. Salesforce’s marketing cloud and Exact Target acquisition will be strong leverage points for Demandware.

Lastly, by extending its customer touchpoints in this way, Salesforce strengthens its potential (pending some integration work) to deliver more strongly on the customer analytics side of things with a more complete customer lifecycle view.
Certainly some work to be done, but the Demandware acquisition can be a valuable extension of the Salesforce platform, provided they are able to scale the customer base.

Contributed by James Keller, Executive Partner


Posted on June 1, 2016 in Insights, Investment Banking, Private Equity, Software, Technology Industry