Salesforce made its largest acquisition ever yesterday, acquiring Demandware for $2.8B.
At first glance these two software vendors compliment each other well because there is so little redundancy — Demandware filling a commerce gap in the Salesforce portfolio. However, it’s more complicated than that. From the DX platform angle, Salesforce is acquiring a competitor.
On paper, calling these two competitors is an apples and oranges comparison:
Salesforce has a strong B2B, CRM heritage (although B2C client wins are increasing since the ExactTarget acquisition); whereas
Demandware is purely a B2C, full-stack, commerce suite for CPG clients who are willing to operate on a revenue sharing model.
Salesforce has no ‘experience management’ solution, with the exception of Communities and the half-released web studio component within Marketing Cloud; whereas
Demandware’s embedded web CMS capabilities are reasonably strong for the market they serve.
(I won’t speculate any further on the ‘why Demandware?' or 'why now?', but I will try to help clients of either Salesforce and/ or Demandware understand what this might mean for their digital experience technology investments.)
Looking at our research, sometimes we get it right. Forrester’s coverage of Digital Experience Platforms was comparing Demandware and Salesforce back in 2014. We understood that both companies want to be your platform to engage customers, and that is why they compete. Specifically, both solutions:
Leverage customer data to drive increasingly contextual and relevant engagement
Extend their footprint with a robust technology partner marketplace
Manage practitioner workflows to support customer engagement (e.g. campaigns)
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.
Salesforce must take a firm hand to establish a parallel Commerce Cloud, adjacent to the existing Demandware offering and client base. This model will rely on the existing Demandware solution for some technology, but more importantly it will rely on the Salesforce’s App Exchange, Lightning UI and component model, Salesforce1 platform (aka App Cloud), and the Salesforce services partner ecosystem. Demandware’s capabilities in those areas will be relegated to the Demandware stack running in parallel. I am not sure if Salesforce will continue to invest in the Demandware commerce suite beyond the short term (see my colleague Adam Silverman’s position on this).
Perhaps more importantly, Salesforce will leverage the Commerce Cloud in conjunction with Sales, Service and Marketing Clouds to go head-to-head with SAP hybris and Oracle’s CX cloud, and to a lesser extent, IBM. Platform level integration will take time, probably between 12-36 months. With that kind of roadmap in place, Salesforce’s existing commerce partners (i.e. CloudCraze) will be praying for an acquisition too, else be left in the dust. If Salesforce decides to leverage Demandware’s experience management layer across more of the portfolio — specifically Marketing and Community Clouds — then we’ll truly have a DX platform play. Until that day, Salesforce’s model will remain a CRM+ philosophy.
In the end, the acquisition makes sense from a CRM portfolio view, today (see my colleague Kate Leggett’s blog from the CRM angle). However, the DX platform synergies and customer benefits won’t be apparent until at least mid-2018, so be patient.