Buying and building at salesforce.com

Contact: Brenon Daly

At the rate Marc Benioff is going, we have to wonder how long it will be until he renames the company he founded. Or at the very least, shouldn’t Benioff, who founded salesforce.com in 1999 and continues to serve as the company’s CEO, be thinking about swapping the company’s current ticker (CRM) for something that captures the broad, all-encompassing vision for the ‘social enterprise’ that he laid out at last week’s Dreamforce?

After all, the company’s core sales force automation (SFA) product barely merited a mention at the conference. Instead, most of the attention was directed toward upgrades and expansions to the Chatter and Radian6 offerings, as well as moves to broaden its two main platform plays, Heroku and Force.com. As such, Dreamforce dramatically underscored just how much of salesforce.com’s future has been staked on its M&A program.

Of course, virtually all tech vendors use acquisitions to change the trajectory of their business, whether it’s a slight nudge in some new direction through a tactical purchase (Informatica comes to mind) or roll-the-dice-and-bet-the-company transformational transactions (Dell and, more painfully right now, Hewlett-Packard.) But hardly any other tech company (with the possible exception of VMware) has used M&A so consistently to expand beyond its original offering while still managing to preserve an acrophobia-inducing valuation.

Just consider the role that acquired companies played in announcements around salesforce.com’s conference:

  • Chatter has been bolstered by the purchase of two firms (GroupSwim and Dimdim), as has Service Cloud (InStranet and Activa Live). Service Cloud is salesforce.com’s largest non-SFA product.
  • The Data.com product, which was launched at the show, goes back to the purchase of Jigsaw Data in April 2010. It was further bolstered last week through a partnership with company records provided by Dun & Bradstreet.
  • Heroku was acquired last December, and salesforce.com noted at the conference that the platform currently has triple the number of customer applications built on it than it did a year ago.
  • The social media monitoring capabilities that salesforce.com obtained with its acquisition of Radian6, which was announced in late March, are only starting to make their way into the products but are a key part of the ‘social enterprise’ that the company has described.

Altogether, salesforce.com noted that non-SFA offerings – in other words, products and technology that got significant boosts through acquired IP or engineers – accounted for a full 20% of second-quarter revenue. (That was the first time the company has broken out revenue for its new products.) Given that salesforce.com booked nearly $550m in Q2 revenue, that would imply non-SFA sales of about $110m. To be clear, very little of that amount has come directly from the acquired companies, all of which were still in their early days. Instead, it’s the net result of the ‘buy and build’ approach at salesforce.com.

ECM: And then there was one…

Contact: Brenon Daly

With the US government having blessed on Friday the pending marriage between Open Text and Vignette, the only remaining obstacle in the $310m pairing is a vote by Vignette shareholders next month. And we expect pretty quick approval of the offer from Vignette’s long-suffering shareholders, who had seen their shares lose half their value in the half-decade preceding Open Text’s move. Over that same period, Open Text stock had gained about 16%, handily outperforming the 15% loss posted by the broader Nasdaq Index. (Share price is important in this transaction because Open Text is paying roughly one-third of the bill for Vignette in equity. Open Text stock is up nearly 10% since the deal announcement.)

If, as expected, Vignette shareholders sign off on the sale in their July 21 vote, the deal would mark the second major enterprise content management (ECM) vendor taken off the board in 2009. In January, Autonomy Corp announced a somewhat unexpected move into ECM by shelling out $775m in cash for Interwoven. That transaction closed in mid-March. The recent pairings continue a trend of major consolidation in the ECM market that started back in 2003, with EMC buying Documentum for $1.8bn. IBM, Oracle and Hewlett-Packard have also announced ECM deals of their own, pushing the announced value of acquisitions in the sector to $9.4bn since January 2002. For those of you keeping score at home, the one notable enterprise software company that hasn’t made an ECM move of its own is SAP. Of course, SAP just happens to be the largest partner for Open Text. So if the German giant does look to make a buy, we have a pretty good idea of who it might call.