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Demandware e-commerce technology puts arrow in Salesforce quiver

With the purchase of Demandware, Salesforce is taking aim at Oracle and SAP, which have already integrated e-commerce capabilities.

The recent Salesforce acquisition of Demandware is but one in a spate of buyouts this year. According to data from financial services firm UBS, the first half of 2016 has witnessed a frenzy of software acquisitions, with 22 in total, and there are no signs of a slowdown.

With the Demandware e-commerce technology purchase, Salesforce has positioned itself to do battle with other enterprise rivals, such as Oracle, SAP and IBM, all of which have filled out their offerings with e-commerce technologies. Technologies like Demandware are designed to unify the customer experience -- regardless of the communication channel in which consumers initiate a transaction -- and interact with other customer data repositories such as customer account information, marketing data and so on.

Some have called e-commerce technologies the "necessary transactional core" of a customer engagement strategy a system that enables customers to make data-driven, intelligent purchases and have a system learn from this customer behavior. E-commerce enables transaction, interaction and customer intelligence to join forces.

While better engaging prospects and customers is essential in today's competitive marketplace, sales and marketing automation tools alone can't satisfy customers' escalating expectations. It is equally important to enable customers to acquire products and services wherever and whenever they like. This has given rise to the omnichannel e-commerce idea, where companies offer online, on-demand and physical purchasing methods, along with the necessary fulfillment capabilities to ensure timely delivery of the acquired items. This is the new world of end-to-end customer engagement.

Some have measured the significance of Salesforce's move by the extraordinary premium the company is paying to buy Demandware ($2.8 billion). However, the ultimate value of the acquisition is likely to go beyond the dollar value and to the heart of omnichannel customer service and customer engagement strategies; without a more fully functional set of e-commerce tools, Salesforce had a void to fill.

New e-commerce technology

Until recently, Salesforce's major acquisitions have focused on front-end customer engagement applications, such as marketing automation and analytics tools. The most important of these acquisitions was ExactTarget, which became the centerpiece of Salesforce's Marketing Cloud.

E-commerce enables transaction, interaction and customer intelligence to join forces.

Although Salesforce has built an online app store with its AppExchange, it has not offered broader e-commerce capabilities. This has created a gap in Salesforce's arsenal that Oracle, with its purchase of ATG, and SAP Hybris have been able to attack. The Demandware acquisition is clearly aimed at filling a void and staying on par with the competition.

In addition, just like the ExactTarget acquisition gave Salesforce an important foothold in the Midwest in the rapidly growing Indianapolis area, the Demandware purchase does the same thing in the Northeast, where GE is also planning to move its headquarters.

This acquisition also comes on the heels of Salesforce's December 2015 acquisition of SteelBrick, which added a set of configure, price, quote and subscription billing applications to Salesforce's Cloud portfolio, making it easier for salespeople to draw up proposals and contracts with accurate pricing. The SteelBrick acquisition also gave Salesforce a quote-to-cash capability to support an essential administrative business process.

The Demandware and SteelBrick acquisitions may have an even greater strategic implication as Salesforce moves into new back-office functions such as financial management, fulfillment, supply chain, and so on.

Salesforce will have to maximize the market value of these potential benefits to justify the premium it has paid for Demandware. It will be difficult to gain an adequate ROI on the 10-times-revenue multiple that Salesforce has offered based on Demandware's own current e-commerce business alone. Instead, Salesforce has to create new synergies across its portfolio of Cloud platforms and solutions.

Although Salesforce has a track record of success, it has made some notable mistakes. The most prominent example is Buddy Media, which was supposed to make Salesforce a major player in the social networking world. Still, moving into e-commerce doesn't appear to be as much of a stretch.

Ironically, the Demandware deal comes just after Salesforce agreed to take advantage of Amazon Web Services (AWS) to support its rapidly expanding cloud service delivery requirements. On the face of things, it seems that moving into the e-commerce technology arena would create a competitive conflict with AWS's parent company. However, we live in a world of "co-opetition," and it is unlikely that Amazon will see the Demandware acquisition as a threat.

The bottom line is that, as the cloud changes the rules of customer engagement, the competitive landscape also continues to shift.

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