News Analysis: Acquisition Brings Salesforce Customers To The Commerce Party

June 3, 2016

R-Wang-640x480

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
  • Connecting with other pioneers
  • Sharing best practices
  • Vendor selection
  • Implementation partner selection
  • Providing contract negotiations and software licensing support
  • Demystifying software licensing

Resources And Related Links

Disclosure

Although we work closely with many mega software vendors, we want you to trust us. For the full disclosure policy,stay tuned for the full client list on the Constellation Research website. * Not responsible for any factual errors or omissions.  However, happy to correct any errors upon email receipt.
Copyright © 2001 – 2016 R Wang and Insider Associates, LLC All rights reserved.
Reprints can be purchased through Constellation Research, Inc. To request official reprints in PDF format, please contact Sales .
Contact the Sales team to purchase this report on a a la carte basis or join the Constellation Executive Network

Cupertino Ray Wang Ray R Wang @harvardbiz #digital #disruptingdigital Apps Strategy Boardroom Priorities Brand Promises CDO CEO Chief Digital Officer Chief Executive Officer Chief Financial Officer Chief HR Officer Chief Information Officer Chief Marketing Officer Chief People Officer Chief Technology Officer CIO CMO CTO Data to Decisions digital artisans Digital Business Digital CXO's Digital Disruption Digital Proficiency digital strategy digital transformation DigitalBiz digitaltransformation disrupting digital Disrupting Digital Business disruptive disruptive business models Disruptive Tech Life Cycle disruptive technology enterprise applications enterprise apps Enterprise apps strategy Enterprise Software Intention Driven mass personalization Mass Personalization At Scale Monday's Musings network economy News Analysis P2P P2P Networks People to People R "Ray" Wang; rwang0 Software Insider SoftwareInsider #WEF Attention Economy CHRO Constellation Research CXO Economics Economy Global Economy Harvard Business Review Press World Economic Forum #Davos2016 #WEFTalks cfo Chief Creative Officer Chief Data Officer Chief Information Security Officer Chief Procurement Officer Chief Revenue Officer Chief Sales Officer Chief Security Officer Chief Service Officer Davos Fourth Industrial Revolution @FT artificial intelligence man vs machine Wipro event report Featured future of work finance Transformation of Finance health healthcare #ENV16 2016 Big Data blockchain blockchain technology bots business disruption business transformation chatbots Chris Capossela Cloud Cloud Platform Consumer Tech Conversations as a Platform Cortana crm; CustExp customer engagement customer experience customer relationship management digital assistants financial services Lillian Rincon machine learning Microsoft Microsoft Delve Microsoft Dynamics Microsoft Envision Microsoft Office Microsoft Office 365 Natalie McCullough Office Graph People Analytics Satya Nadella user conference user event vendor events vendor strategy Volometrix ad networks audience acquisition audience development Brand brand promise brand strategy content content management creative to commerce customer care customer service CXM data driven digital commerce Digital Marketing Digital Marketing Transformation disruptive technologies Engagement marketing marketing agencies marketing automation marketing execution Marketing Strategy Peer to Peer Programmatic ROI Chief Operating Officer COO accounting appsexchange cloud computing Enterprise Resource Planning ERP financial management FinancialForce Research Summary NetSuite PaaS platform as a service user experience ux analytics data quality data services data stewardship master data Reltio big ideas DoubleDutch event marketing live engagement marketing AI Cognitive Computing HOLMES Wipro HOLMES #IOT Chief Customer Officer CX CXP Internet of Things Big Data Business Models data 2XU acquisition acquisitions adidas Adobe Amazon Amazon Web Services American Golf Anya Hindmarch AppExchange Avangate Avenue B2B B2C B2C E-commerce Bare Escentuals Brooks Brooks Brothers Browns Burton Callaway campaign to commerce carters's Clarins Cloud Wars Cole Haan Columbia Commerce Commerce Cloud content management system Converse Corporate Social Responsibility Cortefiel Crabtree & Evelyn crocs customer relationship management (CRM) Deckers Brands Demandware Digital River e-commerce ecco Elastic Path EMU Australia Ethan Allen Fila Gaiam Godiva GoPro Gore HotTopic House of Fraser Hurley IBM IBM Smarter Commerce 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 M&S Marc O'Polo Matrix Commerce mergers mergers and acquisitions 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 r Samsonite Reitmans Rituals Rockport Roots S.Olive Scotch & Soda Shopify Skis.com Skullcandy Sleepys Solstice Sorel Space.NK Speedo Stoenwall Kitchen Tory Burch Traeger Trina Turk True Religion UGG Urban Decay Vibram Vineyard Vines