Salesforce is finally stepping into eCommerce through the launch of a new platform called 'Salesforce Commerce Cloud', following the news that the CRM giant is buying eCommerce vendor, Demandware, for $2.8 billion.

The acquisition is expected to be completed by 31 July 2016, with Salesforce purchasing the outstanding shares of Demandware in cash, at a premium of $75 per share – 56% more than the $48 share price recorded the day before the announcement.

Marc Benioff, chairman and CEO of Salesforce, said: "Demandware is an amazing company – the global cloud leader in the multi-billion dollar digital commerce market. With Demandware, Salesforce will be well positioned to deliver the future of commerce as part of our Customer Success Platform and create yet another billion dollar cloud."

Cloud-based CRM

Salesforce.com entered the market in the late '90s and became one of the first successful software-as-a-service (SaaS) players, but its acquisition of Boston-based Demandware will allow the CRM specialist to offer complementary eCommerce services.

Salesforce said its new 'Commerce Cloud' product will be an integral part of its existing 'Customer Success' CRM platform, allowing its clients to "connect with their customers in entirely new ways", while Demandware's retail clients – including L'Oreal, Hotel Chocolat, Mothercare and Marks & Spencer – will be able to leverage Salesforce's sales, services, marketing, analytics and IoT solutions.

Essential Retail spoke to Demandware's chief operating officer, Jeff Barnett only last month and he described how Salesforce shook up the market with its cloud-based technology.

"Suddenly there was this little start-up with an interesting idea called Salesforce, and they [incumbent vendors] didn't take it seriously at first – 'That's the little guys, it's not for the big companies', they said. But little by little, as the story unfolded, Salesforce started stealing really big customers from them and eventually really ate their lunch, what was their dismissal of Salesforce, ultimately became a hatred and became their undoing."

eCommerce in the cloud

Founded entirely in the cloud in 2004, Demandware began trading on the New York Stock Exchange in 2012, raising $88 million from the IPO and valuing the company at the time at $448 million.

Commenting on the Salesforce announcement, Demandware's CEO, Tom Ebling added: "Demandware and Salesforce share the same passionate focus on customer success. Becoming part of Salesforce will accelerate our vision to empower the world's leading brands with the most innovative digital commerce solutions that enable them to connect 1:1 with customers across any channel."

Andy Hoar, principal analyst in B2B eCommerce at Forrester, told Essential Retail the hurdle for Demandware has been its revenue share model, which sees retail clients pay the eCommerce provider more money as they generate more from online. He said this pay-as-you-go model was appropriate for immature e-tailers because of the zero start-up costs. "But when you're more mature, many clients have learned that the cheque they pay Demandware is equivalent to what was to buy a whole system over and over again."

Hoar said this has meant Demandware has struggled to penetrate the B2B space, but with Salesforce dominating this market, this will provide it with opportunities to expand its eCommerce reach.

Bridging the CRM and eCommerce gap

Hoar described how the purchase of Demandware gives Saleforce "just-add-water" eCommerce.

When ERP specialist, SAP, bought Hybris for its eCommerce platform in 2013, Hoar said: "The burning question has since been – where is Salesforce's commerce cloud?"

Adam Silverman, principal analyst in eBusiness at Forrester, agreed Salesforce had a major hole in its cloud offering without an eCommerce platform. But the purchase of Demandware means Salesforce can now directly compete with the likes of IBM, Oracle and SAP, as well as the eCommerce specialists like Magento and Netsuite.

But this competitive advantage came at a premium price. "It is 12x the annual revenue and represents a significant premium to the stock price," noted Silverman. "And Demandware is not profitable. In comparison this is roughly double of what SAP paid for Hybris. Salesforce had a major hole that needed to be filled, so paying a premium for a well established B2C commerce suite will add long term value to salesforce customers, and will also allow salesforce to be a bigger player in the B2C market."

Brian Kilcourse, managing partner at RSR Research, agreed the price was "pretty generous", if not "crazy".

"Salesforce got into the retail sector by focusing on what retailers called 'the little black book', so it is not a big leap from that into digital commerce. And Demandware seems like a perfect match, which puts them directly in the sights of SAP with its Hybris solution, and of course IBM and Oracle," he said. "Salesforce is not just nibbling around the edges now – its thrown itself right into it."

But Kilcourse wondered what will happen to Demandware's acquisition of the point of sale (POS) vendor, Tomax, which occurred at the beginning of this year.

"Tomax is a merchandise managing system with online capabilities. How do these things integrate? Does Salesforce even care? Who knows?"

Silverman concluded the combination of CRM, marketing and eCommerce now makes Salesforce a force to be reckoned with.

"Commerce technology consolidation continues, even as existing vendors continue to create new cloud solutions to augment their on premise applications. This acquisition puts Salesforce in direct competition with IBM, Oracle, and SAP, and will represent a unique solution for clients who are interested in integrating to a true cloud platform that has the customer at its core."

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