What's a good way to kick off the summer? How about going on a $2.8 billion shopping spree! Salesforce did just that in June by agreeing to terms to buy Demandware. Once you get over the twinge of jealousy for a company that can buy things that cost billions, you have to consider what this means for Salesforce moving forward. What does Demandware's cloud-based ecommerce system provide Salesforce and how might this change the cloud-based software landscape?
By acquiring Demandware, Salesforce is following in the footsteps of Oracle and SAP who each made ecommerce platform acquisitions‚ SAP with Hybris in 2013 and Oracle with ATG in 2010. But why would three companies whose core businesses have little to do with selling physical products online add ecommerce platforms to their operations? What is Salesforce doing buying up an ecommerce platform when it is primarily known for its CRM system?
Consumer Behavior is Shifting
At their core, each of these acquisitions is driven by the changing landscape of consumer behavior. When comparing ecommerce sales growth to traditional retail sales growth, the numbers are staggering‚ ecommerce sales have grown by an average of 15% each year for the past three years, and traditional retail growth has slowed to growth rates of less than 4%. Making up only about 10% of all shopping sales, ecommerce sales are expected to continue their upward growth trajectory.
Salesforce's acquisition of Demandware is an intelligent response to the growing popularity of ecommerce in the retail sector‚ they will be poised to offer customers an integrated ecommerce and CRM platform. This combination not only diversifies Salesforce's product offering for new customers, but it also provides additional service offerings to market to existing customers. Now the thousands of customers already using Salesforce for their daily customer relationship management have a viable, web-based, ecommerce system they can use to build or replace their website. As Salesforce integrates the Demandware platform with the Salesforce ecosystem it will become an ever-more compelling and competitive service offering than Salesforce was previously.
Bolstering Themselves Against the Competition
This acquisition also acts as a moat to hold off other competitors that have been challenging both companies in the increasingly competitive CRM and ecommerce platform spaces. You might recall the recent purchase of NetSuite by Oracle, which we feel was also a similarly-inspired strategic maneuver (Oracle Buys NetSuite - But Why?). Now, all else being equal, if a company is deciding between ecommerce platforms and already uses Salesforce for their CRM, Demandware (soon to be renamed Salesforce Commerce Cloud) has an immediate leg up on competitors. Similarly, Demandware now benefits from a closer connection with one of the most widely used CRM systems available in Salesforce. This is especially valuable to Salesforce since Demandware has been particularly popular with traditional retail businesses which are a highly valuable customer for Salesforce.
The bottom-line is that, while Salesforce had to spend nearly $3 billion to make it happen, the sales growth in ecommerce and the value proposition of fully integrating an ecommerce system with a world-renowned CRM system, sets Salesforce up to be in the thick of the internet revolution for years to come.