What Salesforce’s Acquisition of Demandware Means for Commerce

On June 1, Salesforce announced its $2.8B acquisition of Demandware, the market leader in cloud-based eCommerce. In doing so, Salesforce launches Commerce Cloud, part of Salesforce’s cloud ecosystem and jumps headfirst into the world of digital commerce. The deal is expected to close on July 31, 2016.

The platform commerce space has seen a number of acquisitions and consolidations over the last several years.

Commerce Timeline

These acquisitions have had a profound impact on the commerce platform marketplace, affecting customers and service providers alike. The downstream results of past acquisitions can provide insight into what’s next for Demandware and Salesforce.

How will the two platforms integrate?

While Salesforce could rearchitect Demandware to run on the Force.com platform, the underlying architecture of the two are completely different, and such development work would prove to be time consuming and costly. A more realistic approach would be through tightly coupled integration of Demandware and Salesforce’s other cloud offerings. This is not uncommon for commerce platforms acquired by larger tech companies. Oracle integrated ATG into Oracle Commerce without significant architectural changes, and SAP is in the process of integrating hybris into its ecosystem by building an integration between SAP ECC and hybris. In fact, hybris’ attempt to move iCongo over to a more favorable architecture was unsuccessful, marked by poor adoption of the new order management technology, and the legacy iCongo platform was ultimately sunset.

The two Salesforce cloud platforms that make most sense to integrate with Demandware first are Marketing Cloud and Service Cloud. If built natively into SiteGenesis, Demandware would have an advantage over competing commerce platforms, further strengthening Demandware’s value proposition of faster time to value than any other commerce platform. Migrating customer service activities to an integrated Service Cloud would allow consolidation of those tools directly into the commerce platform – something that has not been previously possible without significant customization.

A natural fit – with some exceptions

Demandware naturally fits within the Salesforce suite of products in a lot of areas. Demandware is cloud-based (unique among the industry leaders in digital commerce) and also has a robust app marketplace. There are, however, some ways in which Demandware is inconsistent with the Salesforce suite. Demandware’s revenue sharing model is new to the Salesforce ecosystem. Salesforce could maintain the status quo and keep the revenue sharing model, in which case we wouldn’t expect significant changes to the customer base. However, if Salesforce decides to change the pricing structure, that could intrinsically change the total cost of ownership, and alter the target customer base.

As Salesforce looks to fully develop the new Commerce Cloud, an area of growth potential is in the B2B market for commerce platforms. While Demandware claims B2B functionality, that area is a deficiency noted by Gartner in their latest Magic Quadrant for Digital Commerce (2016). Given the importance of B2B technology to Salesforce as an organization, they have a couple of options to bring B2B commerce into the Commerce Cloud:

  • Extend the existing B2B capabilities of the Demandware platform. To date, Demandware has not had to directly compete with platforms like hybris, ATG and IBM Websphere Commerce, especially for B2B customers. With Salesforce at the helm, however, R&D effort could be refocused from B2C, the historical core of Demandware’s business, to B2B functionality and could include Sales Cloud for CRM integration.
  • Acquire another commerce platform with strong B2B capabilities. CloudCraze is currently the only B2B Commerce platform built natively on Salesforce.
  • Partner with existing B2B commerce platforms to bring the technology to their clients

 

“If Salesforce decides to change Demandware’s pricing structure, that could intrinsically change the total cost of ownership, and alter the target customer base.”

 

In this acquisition, the customer wins

One aspect that makes this acquisition exciting is how Salesforce and Demandware will now be able to expose each other’s customer bases to their respective products. With Demandware (and its current customers), Salesforce is now able to penetrate the SMB and direct-to-consumer markets using a brand familiar to those industries. This opens up the Salesforce ecosystem to businesses to whom Salesforce was not originally in the picture.

Additionally the acquisition shows that Salesforce is ready to make a significant investment into digital commerce and compete with tech giants like SAP and Oracle on yet another front. This increased competition in the digital commerce market could spur and accelerate feature development of the platform to compete with the other leaders in the market.

The Demandware acquisition is just the latest change in the fast-paced and ever-changing Digital Commerce Industry, however it could prove to be one of the most significant changes in recent memory.

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