Tag: CRM

Salesforce.com’s service play

Brenon Daly

Contact: Brenon Daly

Heading into Thursday‘s luncheon hosted by Salesforce.com, there was a fair amount of speculation that the software-as-a-service (SaaS) stalwart would be using the event to announce a new acquisition. The company employed the same setup to disclose its purchase of tiny content management startup Koral in April 2007. The rumors turned out to be off the mark a bit, as the luncheon instead focused on Salesforce.com’s rollout of a new customer service offering. There is a link to M&A, however. The offering unveiled, Service Cloud, got a substantial boost when the company picked up privately held InStranet last August.

InStranet stands as Salesforce.com’s largest acquisition in its 10-year history, but one insider told us the deal almost didn’t happen. Salesforce.com paid $31.5m for InStranet, which we understand was about twice the amount of sales the French company booked in the year leading up to the transaction. But Salesforce.com wasn’t the first bidder for InStranet, according to one source. SAP had moved pretty far along during M&A discussions with InStranet before Salesforce.com entered the picture. Marc Benioff’s buyers buttoned up the purchase in just three months, the source added.

And then there were five: Salesforce.com’s acquisition history

Announced Target Deal value Target description
August 2008 InStranet $31.5m Customer service automation
October 2007 CrispyNews Not disclosed Community news, website development
April 2007 Koral $7m* Web content management
August 2006 Kieden Not disclosed Search engine marketing management
April 2006 Sendia $15m Wireless application developer

Source: The 451 M&A KnowledgeBase *451 Group estimate

Salesforce.com for sale?

Brenon Daly2 Comments

Ever since Barack Obama won the US presidential election two weeks ago, Silicon Valley has started its own little parlor game about the incoming administration. (And make no mistake, the Valley is one of the most insular places on the planet, which makes these guessing games fun for those in certain zip codes.)

The specific gossip? Who will fill the cabinet-level position of CTO that Obama promised to create while campaigning. Early conjecture centered on Google’s Eric Schmidt, who recently replied, ‘Not it.’ Over the weekend, The Wall Street Journal reported that Oracle’s top lieutenant Chuck Phillips may be in the mix. (Phillips already did a stint of public service in the US Marines before diving into the public markets.)

We cite the rumor-mongering about Oracle’s president because we want to add our own bit of wild speculation: If Phillips leaves Oracle, a deal for Salesforce.com will move closer. We understand from a number of sources that Phillips has effectively vetoed a purchase of the on-demand CRM vendor, even though CEO Larry Ellison has indicated several times that he’d like to pick up the company, if just to jump-start Oracle’s own software-as-a-service (SaaS) offering. (An acquisition would also help Oracle widen the gap with rival SAP, which has stumbled with its own SaaS offering for midmarket companies, which it calls Business ByDesign.)

Of course, we still like Google as a buyer for Salesforce.com. That’s even more the case since the company has seen its stock price cut in half over the past year. (It sports a current market capitalization of $3.1bn, compared to projected sales in the current fiscal year of $1bn.) Wall Street will get an update of Salesforce.com’s business on Thursday, when it reports fiscal third-quarter results. Sales for the quarter are expected to come in at about $275m.

Big, happy family or favorite child?

Brenon Daly

For an executive who learned the ropes from Larry Ellison, Marc Benioff has adopted a very ‘un-Oracle-like’ approach to M&A. Since the company he founded, Salesforce.com, went public in mid-2004, Benioff has inked just five deals. The total shopping bill: less than $100m. Oracle, on the other hand, hardly touches a deal worth less than $100m. In the same four-year period that Salesforce.com has been public, Oracle has closed 45 deals with an announced value of more than $30bn.

Of course, the two companies are in very different stages of their lives, which goes a long way toward shaping their M&A activity. While Ellison and Oracle look to consolidate huge blocks of the software landscape, Benioff and Salesforce.com target tiny technology purchases that allow them to extend their on-demand offering to new markets. We saw that with Salesforce.com’s purchase last year of content management startup Koral, which had just nine employees. And on Wednesday, Salesforce.com announced its largest deal so far, spending $31m on call center software vendor InStranet.

But we would add another – perhaps less obvious – reason for the rather shallow deal flow at Salesforce.com. In many ways, the company is caught between shopping and partnering. In an effort to get a richer valuation, Salesforce.com has pushed Force.com and AppExchange as a way to be viewed as a platform company, rather than merely an applications vendor. (That effort got a big boost this week from Dell, which said it will be developing applications on the Force.com platform over the next three years.)

However, the very success of these efforts helps to explain why Salesforce.com has to keep its checkbook in its pocket when shopping. It can either focus on building out its platform or it can focus on deal-making – it can’t do both. By design, platforms are broad, open and inclusive, while M&A necessarily involves selecting one above all others. Benioff can’t pick a favorite child and expect to have a big, happy family.

To illustrate the dilemma, consider the situation concerning sales compensation, a line of business that’s a logical extension of Salesforce.com’s core CRM product and one the company could easily buy its way into. Indeed, there are already more than a half-dozen companies offering their sales compensation products on AppExchange. But imagine if Salesforce.com decided to buy one of the vendors, say Xactly Corp. Obviously, that purchase would alienate AppExchange rivals like Centive and Callidus Software, which would probably pull their offerings from AppExchange the day the deal was announced. Salesforce.com may well make up that immediate loss of revenue down the line. But as indicated by Wall Street’s brutal reaction Thursday to the company’s second-quarter report, it’s best not to tamper with the top line.

Salesforce.com: an unwilling buyer

Announced Target Deal value Target description
Aug. 2008 InStranet $31.5m Customer service automation
Oct. 2007 CrispyNews Not disclosed Community news, website development
April 2007 Koral $7m* Web content management
Aug. 2006 Kieden Not disclosed Search engine marketing management
April 2006 Sendia $15m Wireless application developer

*451 Group estimate, Source: The 451 M&A KnowledgeBase

An Oak accord

Brenon Daly

Oak Investment Partners has finally helped broker a marriage for portfolio company Talisma – a full half-decade after the startup stumbled on its way down the aisle. In both cases, however, it isn’t exactly clear whether the investment firm should be sitting on the bride’s side or the groom’s side at the wedding. In fact, Oak would have a seat on both sides of the aisle.

In this go-round for Talisma, Oak’s late-March investment of $50m in nGenera helped the SaaS rollup add Talisma to its portfolio. If the strategy sounds familiar, it’s because Oak, which owns a majority of Talisma, had a nearly identical plan for the CRM vendor in late 2003. In that case, Oak wanted to stitch together Talisma with fellow portfolio company Pivotal Corp, in a deal that valued publicly traded Pivotal at $48m. Just as that deal was heading toward a vote, however, two other companies outbid Oak for Pivotal. (First, it was Onyx Software, then it was CDC Software. Of course, those companies would go at it again three years later when CDC tried to spoil the purchase of Onyx by Consona, which was then known as M2M Holdings.)

What exactly Oak plans to do with its newly enlarged portfolio company, nGenera, is anyone’s guess. However, it could do a lot worse than follow the strategy of Consona, which was taken private by Battery Ventures. Since the LBO, we understand Battery has pulled out something like six times its money from the CRM rollup, which is still rolling along. Maybe nGenera will serve as Oak’s enterprise SaaS rollup. The company has already done six deals – and counting. 

nGenera’s (fka BSG Alliance) acquisitive history

Announced Target Deal value Target description
May 21, 2008 Talisma Not disclosed SaaS customer service automation
March 5, 2008 Iconixx Not disclosed On-demand talent management HR software
Oct. 3, 2007 Industrial Science Not disclosed Business simulation software
Nov. 29, 2007 New Paradigm Not disclosed Research company
Sept. 13, 2007 Kalivo Not disclosed On-demand collaboration provider
May 7, 2007 The Concours Group Not disclosed Research and executive education firm