In what could well be its first significant deal following a prolonged respite from M&A, Salesforce has returned to the market with the acquisition of CloudCraze, a B2B complement to its $2.8bn Demandware buy. The move extends that asset into B2B commerce – a promising market niche that's poised to expand as B2B vendors up their investments in customer experience.

Acquirer: Salesforce

Target: CloudCraze

Subsector: Digital commerce software

Deal value: Undisclosed

Date announced: March 12, 2018

Closing date: Undisclosed

The 451 Take
The need to provide customers with quality digital experiences isn't limited to consumer-facing firms. Whether a B2C, B2B or both, digital commerce is a major part of the customer experience that requires a complex and evolving ecosystem, as well as functionality such as transactional distributed order management, content management and personalization technologies with more modern cloud architectures for improved customer experiences. By reaching for CloudCraze, Salesforce extends its commerce platform into B2B and does so with an asset that's built on its own platform.

Deal details
A slow 2017 followed a record amount of M&A for Salesforce in the previous year – a year that saw it pay $4bn across 11 transactions, according to 451 Research's M&A KnowledgeBase. The company inked two purchases in 2017 and one earlier this year, although nothing on the scale of its past activity. Salesforce's most recent annual report shows that it put just $25m of its cash into M&A in the last fiscal year.

Although terms of the CloudCraze acquisition weren't disclosed, all signs point to a more significant deal compared with its recent tuck-ins. The target has nearly 100 employees and has raised at least $20m in funding, largely from Insight Venture Partners in a January 2017 round that also included Salesforce Ventures. We estimate that its annual revenue is about $20-25m.

Deal rationale
Digital commerce platforms are becoming a staple of the customer experience. That shift led Salesforce to buy Demandware, a B2C-focused platform for online selling that became the company's Commerce Cloud. Businesses are rising to the challenge by investing in new technologies to remain relevant to their customers' digital transformation. Many companies provide inconsistent, disconnected experiences, leading to disjointed and negative impressions that create friction and, over time, erode relationships.

In a demonstration of the demand for those tools, 27% of respondents in 451 Research's Voice of the Connected User Landscape (VoCUL), Corporate Mobility and Digital Transformation survey last year told us that they planned to deploy or upgrade digital commerce platforms in the next 12 months, coming in at the top of the pack. Highlighting how the ground has shifted for commerce, point-of-sale systems drew the fewest respondents.
Because customers demand more context, convenience and control in all commerce interactions, businesses are reevaluating how they serve their clients across the customer journey. The VoCUL survey also showed that these challenges aren't limited to B2C activities. Quite the opposite. In manufacturing, for example, 34% of respondents stated that digital commerce was the most important technology to deploy over the next 12 months, making that vertical the most prominent spender for that application.

Acquiring CloudCraze should enable Salesforce to target this cohort with its Commerce Cloud, while obtaining a technology that plays well with other parts of its B2B stack, including, of course, its legacy CRM product, as well as the more recently purchased configure-price-quote specialist SteelBrick.

Target profile
Founded in 2009 and based in Chicago, CloudCraze offers a B2B commerce platform whose capabilities include order, subscription and catalog management, alongside pricing and promotional capabilities. The vendor's customers include well-known brands – not just midsized organizations – such as Coca-Cola, L'Oreal and Kellogg's. Verticals that CloudCraze targets also represent potential for deepening existing industries or strengthening existing clouds such as software, healthcare, consumer packaged goods and manufacturing.

Acquirer profile
As we noted in a recent report, Salesforce's return to larger deals was inevitable given its ambitious goal to boost its annual revenue to $20bn by 2022. The CRM specialist, which has spent the past few years expanding into related customer experience segments of marketing, commerce and service software, recently surpassed $10bn in annual revenue.

Salesforce has rapidly positioned itself as a platform provider to meet the needs of all customer-facing processes. The company is now either significantly overlaying or replacing many legacy CRM deployments, such as Siebel. Salesforce's competition broadens each year as it expands its portfolio. Additionally, all major business application vendors are embracing aspects of machine-learning and artificial intelligence technologies. Besides Salesforce with Einstein, there are Oracle with Adaptive Intelligent Apps, IBM with Watson, Microsoft with Cortana, SugarCRM with Candace and OpenText with Magellan, to name just a few.

Salesforce's main competition comes from Oracle, SAP and Microsoft. It also vies with SMB specialists and smaller CRM players such as Pegasystems, bpm'online, SugarCRM HubSpot, Sage Software, Zoho CRM and NetSuite (which is in the process of being acquired by Oracle).

On the commerce side, rivals include SAP, Oracle, Digital River, Magento and IBM at the high end of the e-commerce platform sector. There are also cloud-native B2C services from Shopify, Elastic Path and Digital River. B2B e-commerce provider Apttus has developed offerings that are similar to CloudCraze, also employing Salesforce's platform. Finally, Commerce Cloud embeds personalization tools that would compete with Evergage, Reflektion, Adobe, Certona and RichRelevance.
Scott Denne

Scott Denne is an Analyst with 451 Research, where he helps direct the firm's coverage of technology mergers and acquisitions. He also contributes to 451 Research's Customer Experience & Commerce Channel with coverage of the advertising technology industry.

Sheryl Kingstone
Research Director

Sheryl Kingstone leads 451 Research’s coverage for Customer Experience & Commerce, which covers the many aspects of how customer experience is a catalyst for digital transformation. She oversees the company’s coverage of a variety of customer experience software markets spanning ad tech, marketing, sales, commerce and service.

Keith Dawson
Principal Analyst

Keith Dawson is a principal analyst in 451 Research's Customer Experience & Commerce practice, primarily covering marketing technology. Keith has been covering the intersection of communications and enterprise software for 25 years, mainly looking at how to influence and optimize the customer experience.

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