Salesforce acquires Demandware. Good? Bad? Buy!

Salesforce announced their intent to acquire ecommerce cloud platform provider Demandware. Smart move? Not so smart? That depends on what they do next.

Salesforce CEO Marc Benioff​

Salesforce CEO Marc Benioff

In 2013, when SAP acquired hybris, SAP changed its messaging from customer engagement to customer engagement and commerce. At the time, I howled. And not in a good way. While I still don't love it as messaging, at least now I do get why they do it. Even though their reasoning might not be the same as mine, the combination of CRM and ecommerce can sit at the center of customer engagement - though it isn't the heart.

The combination is why Salesforce acquired Demandware a few days ago, though as we will see, Salesforce's messaging doesn't reflect this -- I don't think. But regardless of Salesforce's reasons, in my eyes, ecommerce has become the necessary transactional core of a customer engagement technology matrix - and for Salesforce to continue to compete and lead in the "Big Guys" domain - The Big 4.5 - Salesforce, Oracle, SAP, Microsoft and the rapidly emerging but not quite there yet Adobe (they are the .5 in this), Salesforce needed to have ecommerce. Ecommerce is where transaction and interaction begin to intersect if it is seen as part of an ecosystem.

Why Ecommerce? Da Truth

If you were to speak to me three years ago (or even less than that), I was a skeptic when it came to the insertion of ecommerce into the pantheon of engagement. I am no longer that. As I've done my research for my next book "Commonwealth of Self-Interest" I've realized that ecommerce or, more specifically digital commerce in combination with physical commerce (I've heard the combination called "digical" J) is the key transactional core of customer engagement in the 21st century. While this may not be among the reasons that Oracle bought ATG (2010), SAP bought hybris (2013) and Salesforce just bought Demandware (2016), it is the real reason these acquisitions were strategically critical for all three companies.

Why is it key? Well, let's look at the easiest example. Amazon, of course. They are the paradigmatic example of ecommerce in a nearly perfect state. They have defined the customer's experience with them around the ideal of a frictionless buying journey in combination with peer reviews - an Amazon community of buyers who also have opinions on what they bought and expertise in the products and services that they acquired --transaction and interaction in a fully interrelated format.

Amazon provides them with the tools - community, ranking and reputation engines etc. that they need to socialize these opinions (Reviews) and the expertise (Amazon Q&A with potential buyers and owners) in a way that is appropriate to the people buying from them. They have a customer interaction engine that is able to make recommendations based on buying habits and analysis of transactions and web interactions.

They have devices (e.g. the Kindle, the Fire, the Dash single product wireless purchase buttons, the Echo (and the Echo Dot and Echo Tap derivatives) that not only make the transaction easy and nearly intuitive, but the interactions seamless and the ecosystem tightly interwoven.

Thus the overall experience the customer tends to have is as close to frictionless as possible especially when you throw in a consistently customer-centric supply chain, inventory management and distribution network. This of course is a highly simplified version of an ecosystem that might be as covertly complex as nature itself at times. But the beauty of Amazon, is that this is opaque to the customers.

Think about what I described in this overly simplified model. Transaction system - buying stuff from Amazon at the core but a much larger engagement hub - and an ecosystem - that keeps customers coming back over and over to Amazon because of everything else built in besides price breaks and easy buying. This is the value of ecommerce as a transactional hub, a buying core, of a much larger engagement system. Amazon is not just an ecommerce site, it's an engagement center whose best outcomes are tied to buying goods and services.

THAT'S what I'm talkin' about. Boom. The value of ecommerce as it should be seen, not the way it is being seen I don't think - at least by Salesforce in this current acquisition.

Why specifically Demandware?

Demandware

Demandware is third in the big three of ecommerce platforms - and the other two had already been acquired as I described before. It is focused in B2C and retail in particular and has the advantage over the other two of being cloud native though hybris has its own cloud version, making the playing...sky a little more level than it has been in the past.

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At this point as far as I can tell, ATG has only on premises but is interoperable and flexible within that environment. (UPDATE/CORRECTION: Oracle has rightfully pointed out to me that there is an Oracle Commerce Cloud that is a contender in the cloud based ecommerce world. Here is a link from 2015 to a Forrester discussion on the subject if you are interested. I have no excuses. This was my bad. Thanks to Oracle for pointing this out).

An advantage and a disadvantage for Salesforce is that the retail focus (and the client base that comes with it) gives them a leg up in an area where engagement is key and Salesforce has interest - retail and consumer packaged goods (CPG). The downside is that the platform is optimized for retail and not much else - at least at this point which makes it less flexible and variegated in its scope than hybris and ATG which can both handle B2C and B2B.

For the best discussion of this I highly recommend this article by Diginomica's Phil Wainewright. It is an outstanding discussion of everything you need to know about this very important acquisition.

Was it a wise move by Salesforce?

Yah. A needed move by Salesforce of what was arguably their best possible candidate, even if ATG and hybris had been still available, due to Salesforce's specific portfolio hole, the combination of the cloud native Demandware platform and Salesforce's interest in playing in the retail space. If hybris had been available and if it were cloud ready at least, that might have been the only better play. But it wasn't and it wasn't. So this was likely to literally be the best possible acquisition for Salesforce, though they weren't necessarily getting the best of the platforms.

You might say, well, that was a lot of money to pay for Demandware. Sure it is. But two things: First, Marc Benioff has a habit of paying a lot of money for his acquisitions not only to lure them into the Salesforce lair but also to price the market higher than its actual value - to make future acquisitions more expensive. At least I think he does that. Or not. Second, if Salesforce is willing to pay that to Demandware (which, I presume, means the Salesforce board of directors approved the acquisition price) and Demandware likes the terms, well, they are consenting adults, so who am I to judge? I never speculate on whether the deal was "worth it" or not, because that's something for time to show us.

But there are things...

Positioning by Salesforce? Uhhh...needs some work

There is a lot to what I'm going to be saying here. A lot. Because while I think this is an truly important acquisition by Salesforce, I think that their positioning at multiple levels needs a LOT of work. So, let's roll up our sleeves (if we have sleeves) and go to work.

Fourth Pillar

In the great aforementioned article by Phil Wainewright, he quotes Alex Dayon, the brilliant doyen of Salesforce technology, as describing digital commerce as "'one of the four pillars of CRM" alongside sales, service and marketing.'" This is in line with what SAP said when it came to their acquisition of Hybris.

Let me be clear. There.is.NO.fourth.pillar.of.CRM. Nor does there need to be to make this acquisition one of the most important and potentially one of the smartest in Salesforce's history - if they do things well right from the gate.

First and simplest, to call commerce a "fourth pillar" because it's convenient to do so post acquisition creates market confusion To explain:

CRM technology and the market around it is mature. Its primary characteristic is that it is customer facing. Throughout its entire history it has ONLY been comprised of sales, marketing and customer service - nothing else. Ultimately, the market-accepted definition for CRM involves the three customer facing disciplines. To add commerce because you acquired an ecommerce company is a self-serving convenience that also has no precedence inside of the Salesforce "body of work." If you look at the last few years, where do you find commerce in their corporate narrative? You don't.

For years, for example, I tried to will CRM to be more than technology and systems. I wanted it to be strategy, philosophy, programs etc - and to some extent, in my own defense, some of the job descriptions around it can be that. But, ultimately, those who were interested in CRM as something that applied to their business made it technology system and processes - and that's about it. They were focused on sales, marketing and customer service. That was what those in the market saw it as and thus, despite my and others entreaties, it became just that. The market settled the dispute and it wasn't in our favor. But when that happened, around late +2010-2011, there was little about CRM's definition that wasn't clear.

Adding commerce as a fourth pillar because it's now on the menu is the equivalent of calling Chilean Sea Bass "red meat" because it's on the menu at Ruth's Chris Steakhouse (or whatever steakhouse you want to put here). While it's a legitimate addition to the menu since you want to have alternatives for restaurant goers who don't want steak, that doesn't make it red meat just because you added it.

Even as the CRM market started morphing in roughly late 2011, it didn't morph beyond the customer facing departments it served. What it did do, is change its overall position as part of a much larger emerging market. It became the operational core of a larger customer engagement market that was evolving due to top of mind priorities of businesses who needed to respond to transformed customer demands - and to increasing needs around personalized response. So the value to companies was both tactical - CRM was a must have set of operational capabilities related to sales, marketing and customer support - and strategic - as an essential component to a customer engagement ecosystem that fulfilled the bigger and more dynamic needs of businesses in the 21st century - the need to foster ongoing engagement with customers with the constraints that all companies had to whatever degree.

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Adding commerce as a "fourth pillar" because you want to, exposes two problems in the story. First, it shows inconsistency. Show me where in the past, say, 24 months, Salesforce as a thought leading company has expressed anything but the three pillars of sales, marketing and customer service. Show me actually a body of thought leaders or thought leadership even from the edges that said that, besides SAP who of course owns Hybris and made that a fourth pillar post-acquisition too. I doubt it exists, though to be entirely candid, I've only done a cursory check to see if I can find this body of literature supporting the fourth pillar.

What Salesforce needs (as any company making an acquisition needs) is to explain the outcomes the acquisition provides well within the confines of the corporate narrative. That means the reason for the acquisition needs to be clear and a seamless transition in the story necessary so the company doesn't create a question mark in the minds of their customers and prospects. To do that you do NOT invent something that glibly says the industry is this because we say so now that we did this. Explain the company's evolution, don't change the industry to fit your corporate requirements.

This also is a linear way to look at the acquisition, not ecosystem friendly, but before I get into that I want to address another concern about the narrative as it is emerging, because it's related to the same linearity.

The Commerce Cloud

By acquiring Demandware, Salesforce is of course adding a Commerce Cloud to its portfolio. They don't even have to change the name of what Demandware was offering because they called it the Commerce Cloud too. While I'm still concerned about Salesforce announcing cloud after cloud after cloud, personally, I can't think of anything better to position it as, when thinking of it as an important offering that provides some kind of functional outcome - in this case, a digital transaction platform (focused, as mentioned above, on retail).

But by ONLY positioning this way, and by enveloping it with the "fourth pillar" it exposes a bit of shortsightedness that is related to something about Salesforce that I've been railing (in a nice way, since I do really like the company quite a bit - always have - and they are a client of mine - and am excited about what they do) about for a long time - a lack of ecosystem thinking.

What do I mean by all this? Well, also in the awesome Wainewright Diginomica article he quotes Salesforce President Keith Block saying the following:

"The walls between sales and service and marketing and commerce are really coming down. That's why we think this is a unique value proposition in joining the Salesforce family."

I noted this because I think it is important for two reasons:

1. It is true. What Keith Block says is on the money. While there is no fourth pillar, the walls are coming down because both CRM and ecommerce are becoming core centers for engagement ecosystems and, by evolution, are becoming both required not just nice (at least that the absolute case for CRM and at some point will be more so for ecommerce) and thus, they will be necessary integrated and interwoven.

2. It is an indicator of Salesforce starting to think in ecosystems - to go along with their eyes on the prize focus around platform that they've had their entire existence. It has to be taken in conjunction with other signs internally that indicate this change is beginning. Unfortunately, that discussion in depth is WAY beyond the scope of this post so I'm not going to have it. Take this as an indicator of that change.

So that statement can be the harbinger of a great potential thinking and maybe even thought leadership if they can make the transition.

So where does this put us when it comes to the Demandware acquisition?

In Sum

This is an important acquisition for Salesforce for market position and customer response - and one that given the platform is also a wise choice among the available ecommerce companies.

  1. Salesforce has great tactical reasons for the acquisition - play in the retail space, fill out the portfolio - which needed ecommerce.
  2. Due to the dearth of ecosystem thinking, the positioning around its tactical value is actually limiting the acquisition to less than it is - a strategic addition in the battle for business in the much wider field of customer engagement. Which in Salesforce's case ironic because they have the perfect positioning around their platform as a "Customer Success Platform" and the perfect visionary thinking around the "Connected Customer" which is their engagement message among other things.
  3. This led to positioning the acquisition in a bit of a self-serving fashion around a "fourth pillar" of CRM which it decidedly is not. CRM is what it is - sales, service and marketing - and in that vein, adding ecommerce as a CRM piece just muddies the CRM market waters. It needs to be treated as the transactional part of the larger engagement ecosystem and/or technology matrix.

Look, I have no vested interest in keeping CRM "pure." I never have had that - despite my nickname. As most of you who know me know, I have continually worked at understanding the changes in the world and in the markets and then what that meant for CRM going forward.

The fourth edition of CRM at the Speed of Light was a brand new book (at the time) that focused on Social CRM because I saw the morphing of CRM into something other than what it had been.

In 2015, I wrote a long piece on the transformation of CRM from an independent customer facing technology and system to its move to be the operational core of a much larger engagement matrix/ecosystem - though it still had value per se.

My next book isn't on CRM because of that transformation. I see customer engagement as the strategic imperative for the next decade or whatever and now I'm trying to get on top of that.

I'm no more wedded to CRM than I am wedded as a child of the 60s to only Jimi Hendrix, The Beatles, and Cream. I love Imagine Dragons, The Lumineers, and Justin Timberlake. The world changes. So, this is not by any means an old guy's turf defense. Just to be clear. It's just that reality intrudes its beautiful head a lot and we all have to make changes and adjustments to it - or we pay the price.

I get that Salesforce, out of sheer exigency, has to tell the tactical story around the Commerce Cloud. But what they have to craft now, with the perspective of ecosystems and platforms in mind, is a corporate narrative in line with their Connected customer message that incorporates ecommerce into an ecosystem that their Customer Success Platform serves. Without that, this is a potentially good acquisition. With that, it is a potentially great one.

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