News Analysis: Acquisition Brings Salesforce Customers To The Commerce Party

Published on June 3, 2016 by R "Ray" Wang

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Salesforce Announces Intent To Acquire Demandware For $2.8B

@rwang0 @salesforce @demandware

On June 1st, 2016, Salesforce signed a definitive agreement to acquire Burlington, Massachusetts based Demandware for $75.00 per share or around $2.8 billion in cash.  Constellation predicts a $10.01B market for matrix commerce solutions by 2020 as new digital platforms and network economies emerge.  Constellation’s  merger analysis considers the impact on customer, market coverage, product road map, partnership programs, and the competition:

  • Customer impact should be mostly positive.  Most Demandware customers sought the product as an alternative to the legacy on-premises based solutions.  Demandware uses a revenue sharing pricing model.   Based on Constellation’s vendor selection and contract negotiations experience, most customers pay anywhere between .5% to 3.5% of monthly sales.  Customers can use Demandware to power custom websites or work with Demandware LINK partners to build their sites .

    Point of View (POV):
    The acquisition expands the natural definition of CRM and expands the relevance of Salesforce to its customers.  Demandware customers gain an end to end commerce play with Salesforce.  Conversely, Demandware provides Salesforce customers with a rich and compelling story to deliver on campaign to commerce.  From an impact to the customer perspective, Salesforce has shown a positive track record for customers with mergers and acquisitions.  Constellation sees minimal impact to the retention of top talent, additional investment in product road maps and integration, and transition assistance for partners and channels with many of the larger acquisitions.
  • Market coverage should increase.  Demandware leads the commerce cloud market and brings over 300 brands in their B2C cloud commerce platform.  Marquee customers include Adidas, Brooks Brothers, Burton, Callaway, carters’s, Columbia, Crabtree & Evelyn, crocs, ecco, Ethan Allen, Fila,  Godiva, GoPro, Hurley, kate spade, Lancome, Land’s End, M&S, NewBalance, Nine West, Panasonic, Pandora, Quicksilver, Reitmans, Rockport, Roots, S.Oliver Samsonite, Scotch & Soda, Skullcandy, Space.NK, Speedo, Stonewall Kitchen, Tory Burch, Traeger, Trina Turk, True Religion, UGG, Urban Decay, Vibram, Vineyard Vines*.

    (POV):
    Salesforce.com and Demandware have many joint customers.  As customers bring their front office transactional systems together, the value will come from the insights in the customer network.  Commerce is the outcome of good customer experience.  Keep in mind, while there may seem little customer upside in the transaction, commerce will drives the future of long term growth for Salesforce.com and increase over total addressable market (TAM) by as much as 35% because the acquisition adds to the network and platform business.  Moreover, salesforce.com global reach should pair up well with Demandware in providing global coverage for customers.
  • Expect a smarter product road map. Demandware brought a battle tested B2C commerce platform to the masses.  As the basis of the Commerce Cloud, core capabilities include a content management, merchandising, marketing, order management, interaction history/transaction management, store ops, and analytics platform. The retail data model brings orders, customers, product, inventory, and promotion together.  Both Demandware and Salesforce have built on top of Oracle databases running on their own infrastructure with extra capacity running on Amazon Web Services.

    (POV):
    Demandware started out in 2004 when the co-founder of Intershop, Stephan Schambach, left to form a cloud based ecommerce solutions for retailers.  One of they key assets Salesforce gains is the predictive analytics and machine learning investments.  When paired with the MetaMind technology, customers can expect some advances in artificial intelligence for the overall force.com platform.   Salesforce.com faces a challenge with long-term integration of multiple data models now from Demandware, ExactTarget, and any other future integrations.  With the recent Salesforce partnership on AWS, Constellation expects a mild expansion to more AWS over time for international expansion and newly acquired company platform integration such as Demandware.  Depending on the future analytics strategy, customers can expect 12 to 18 months before a replatform discussion on AWS takes hold.
  • Channel and partnership programs should expand with slight hiccups with B2C commerce players. Demandware brings a robust partner program for technology, services solutions, services affiliate, and end-to-end partners.  With over 220 LINK marketplace partners, customers gained from the overall ecosystem and appreciated the overall Demandware community as a key resource for insight

    (POV):
    Salesforce makes another acquisition into a space that partners have carved out into the ecosystem.  From Apttus to ServiceMax to Veeva, partners continue to raise concerns about cannibalization.  While Cloud Craze, one of the first B2B commerce solutions running natively on the Force.com platform, is not directly impacted as they are B2B not B2C, growing concerns continue as Salesforce.com expands TAM through M&A.  Moreover, customers saw value in the community as a resource for best practices sharing and will expect this community to move forward with the acquisition.
  • Competitors will complete campaign to commerce gap.  Large enterprise competitors IBM, Oracle, and SAP already have proven, but legacy, B2C on-premises commerce solutions available in the market.  Salesforce’s lack of any substantial commerce option pointed to an obvious gap in customer need.  Adobe and Microsoft remain among the large players without this key commerce capability.  While down market in most deals, Magento Enterprise, Elastic Path, Episerver, Sitecore, and Shopify could be acquired as a result of the Demandware acquisition by Salesforce.com.

    (POV):
    Salesforce outbid many competitors to win over Demandware.  The acquisition gives Salesforce.com ammo to fend off IBM Smarter Commerce and Hybris deals, despite Hybris mostly being on-premises based. The future of CRM includes commerce because at the end of the day, conversion rate optimization matters.  Going forward, Salesforce could include the B2B commerce space adding partners such as Avangate, Cloud Craze, and Digital River as part of the overall industry vertical strategy.  Meanwhile, expect Adobe and Microsoft to step up their efforts around B2C and B2B commerce.

*Key customers of Demandware include 2XU, adidas, American Golf, Anya Hindmarch, Avenue, Bare Escentuals, Brooks Brothers, Brooks, Browns, Burton, Callaway, carters’s, Clarins, Cole Haan, Columbia, Converse, Cortefiel, Crabtree & Evelyn, crocs, Deckers Brands, ecco, EMU Australia, Ethan Allen, Fila, Gaiam, Godiva, GoPro, Gore, HotTopic, House of Fraser, Hurley, Jack Wolfskin, Jewlery Television, JoAnn, Karstad, kate spade, Kiehl’s, L’Oreal, Labelux, Lacoste, Lancome, Land’s End, Liebeskind, Life is Good, London Drugs, Lush Fresh, M. Gemi, Marc O’Polo, M&S, Michael Hill, Micheal’s, mothercare, Mountain Hard Wear, NewBalance, Nine West, OVS, Pacsun, Panasonic, Pandora, PartyCity, Pentland, Perry Ellis, Picard, Pier1 Imports, Poppin, Puma, Quicksilver, Reitmans, Rituals, Rockport, Roots, S.Olive,r Samsonite, Scotch & Soda, Skis.com, Skullcandy, Sleepys, Solstice, Sorel, Space.NK, Speedo, Stoenwall Kitchen, Tory Burch, Traeger, Trina Turk, True Religion, UGG, Urban Decay, Vibram, Vineyard Vines, and others.

Recommendation to Customers And Prospects

Constellation makes the following suggestion to Demandware customers

  • Lock down existing contracts and renewals before close.  For those with advantageous revenue share rates, lock down larger volume discounts before the merger.  Factor in the post merger costs of adding to the overall cost per user and consider extending longer term discounts.  As a best practice, identify performance SLA’s to carry over into the Salesforce.com transition.
  • Identify feature functionality requests.  Make clear in contract renewals key functional requirements.   Have demandware provide guidance on feature delivery dates.
  • Consider integration options.  Determine how the Demandware retail data model will integrate back to the Salesforce customer model.  Identify core order capture and order management process and workflow integration points.
  • Explore the functionality of a combined salesforce.com and Demandware.  Map out the campaign to commerce journey. Identify gaps in channel, customer journeys, analytical insights, and customer profiles.  Determine a build, buy, or acquire strategy.

The Bottom Line: The Future Of CRM Is Campaign To Commerce

Digital technologies have transformed CRM. Since the early days of CRM, the core components have revolved first around sales, then service, and then marketing. The next wave focused on systems of engagement. Social CRM, mobile enablement, and the consumerization of technology led this era.  In the shift to “systems of experience,” digital transformation takes CRM to the next level. Here, the focus is not on selling products and services, but on delivering brand authenticity and outcomes, or experiences, from campaign to commerce engagements.  The ultimate result is either a conversion rate or click through.  Commerce is the outcome of good CRM and CX not vice versa.

See the video on Future Campaign to Commerce vision below:

Your POV

Are you ready for campaign to commerce? How will you build your strategy with Salesforce.com and Demandware.  Add your comments to the blog or reach me via email: R (at) ConstellationR (dot) com or R (at) SoftwareInsider (dot) org.

Please let us know if you need help with your Digital Business transformation efforts. Here’s how we can assist:

  • Developing your digital business strategy
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