[Contributed by Doug Melsheimer, originally published on Merger Considerations | Bulger Partners]Earlier this month, I was in San Francisco for Dreamforce, Salesforce.com’s annual mega-conference. In the weeks surrounding this event, a frequent topic of conversation with VC and PE investors had been this: Are companies limiting their value creation and exit opportunities by dedicating themselves to the Salesforce ecosystem or building on the Force.com platform?The allure of partnering with Salesforce is understandable given the rock star status it has achieved. Having more than 100,000 customers and millions of end-users makes them an awfully attractive partner. This year’s Dreamforce attendance surpassed 140,000 people – hotel rooms were sold out from Napa to San Jose. There is no questioning their momentum, especially as the company continues to bring new, innovative products to market via an active acquisition effort and organically grown solutions. However, this is precisely why emerging vendors should be cautious. The impact on value creation and exit opportunities can be significant if Salesforce ultimately aligns with a competing solution.In line with this concern, several exhibiting vendors asked me what I thought of the announcement of Salesforce’s new analytics offering, Wave. The question was “how badly will other Salesforce-centric analytics platforms, like Domo and InsightSquared, be hurt?” Clearly there is a real threat that they will eventually be elbowed out – just as Marketo experienced following the acquisition of ExactTarget last year. Not surprisingly, Marketo was not invited to attend Dreamforce this year.
Was the ExactTarget / Marketo situation an anomaly, or will Salesforce’s future acquisitions inevitably doom existing competitive partners? Our preliminary analysis of other notable applications acquisitions suggests these concerns may be overblown, particularly if partners integrate with multiple competing platforms. Here are two examples:
- Jigsaw (aka Data.com): one of Salesforce’s early acquisitions intended to enrich the CRM system with an online business directory delivering key contact information for prospective customers. In this case, several of Salesforce’s partners continue to provide similar, and in many cases superior, solutions to its customers. InsideView, another contact data intelligence company integrated with Salesforce, has also partnered with Microsoft, Netsuite, Oracle, SAP and SugarCRM, as well as Marketo. InsideView has raised approximately $50 million from Emergence, Foundation and Rembrandt, among others.
- Desk.com: a 2011 acquisition that delivered customer support capabilities to Salesforce and launched the Service Cloud, extending beyond the company’s traditional sales opportunity management focus. Three years later, this category does not appear to be off limits either, with dozens of exhibitors at Dreamforce providing various flavors of customer support solutions. Gainsight, for example, received an investment from Salesforce Ventures just days ago. The company has also partnered with Microsoft, Oracle and SAP, and has raised nearly $50 million from Bain Capital Ventures, Battery, Bessemer, Lightspeed and Summit Partners, in addition to Salesforce.
While the data is not perfectly conclusive, our research suggests that Salesforce continues to be partner friendly even after completing competing acquisitions, except where the investment and feature overlap is overwhelming, or perhaps where there are otherwise frayed nerves.
What about exit potential for partners who have some level of dependency on the Salesforce ecosystem? Does Salesforce represent the only future acquirer?
To date, we cannot find any examples of partners or companies who have received investments from Salesforce later being acquired by other businesses – certainly no examples from the likes of Microsoft, Oracle or SAP, though perhaps we need a few more years to let these businesses mature.A handful of companies, such as Marketo and Veeva, have built substantial standalone businesses that have also achieved liquidity through public offerings. However, among hundreds of partners and investment beneficiaries, these appear to be the lonely examples. Meanwhile, Salesforce has been a habitual acquirer of partners that are critical to advancing their offerings, and thankfully for entrepreneurs and investors, they are rarely stingy in doing so. That said, vendors would be ill advised to build solutions specifically for this ecosystem, with an exit strategy dependent on a future acquisition by Salesforce.
May the Force Be With You
Salesforce is without question one of the most exciting and respected technology companies in the world. Their Force.com platform has enabled hundreds of businesses to bring products to market more quickly and cost efficiently, and many of those are doing quite well independently. However, aside from the technology platform, few have fully intertwined their fates with Salesforce.Our recommendation is to embrace the power of the ecosystem and platform integrations, and potentially the benefits of developing on the Force.com platform, but do so with independence in mind while building solutions that also integrate well with other CRM vendors. After all, the CRM game is far from over. Over everything else, emerging vendors should focus on building solutions that deliver unique and superior value to their customers, regardless of their CRM loyalty. If done successfully, options for independence and shareholder value will happen within or beyond Salesforce.com.
 Gartner reports that Salesforce.com retained its leading market share in 2013, but at 16.1% it is far from dominant. In fact, while not widely publicized, Microsoft’s Dynamics CRM platform is growing at 22.8% year-over-year, not far behind Salesforce’s 30.3%.