Salesforce.com just announced a proposed private placement of $1 billion in senior convertible debt, with an option for an additional $150 million and a hedging transaction to offset dilution.
Well, I don’t know. And they won’t say. Generally, people borrow cash so they can buy something with it. And if you’re going to buy $1 billion of it, you don’t pre-announce you plans and drive up the price.
But here’s my take.
Just under two weeks ago, Marc Benioff led a session in New York announcing Salesforce’s direction as the Customer Company. The customer revolution, he said, will connect companies to their customers in radically new ways – he had nothing short of nine factors driving this revolution: Social, Touch, Local, Big Data, Identity, Community, Ecosystem, Cloud, and Trust. This revolution, he said, would lead to much more connected customers, partners, employees and products.
While we’ve seen ‘customers, partners, and employees’ in similar presentations since the late 1990s, adding products is new. Benioff talked about the ‘Internet of Things,’ where your camera, your fridge, your car all provide data that connect you back to the vendor.
He envisioned (in a positive light) a Minority Report like experience of walking into a Canon store and having the salesperson walk up and ask, “How’s that DSLR you bought in January working out for you?”
The presentation laid out a big vision. To build that vision, Salesforce is going to need more product. More product means more acquisitions. And apparently that means about a billion more in cash.
Like most good long-range vision statements, Benioff’s presentation packed a mix of new innovation and competitive positioning. On the innovation side, it’s brilliant to parley Salesforce’s cloud-based CRM data into the central platform for all mobile apps, social communities, and interconnected products. It essentially says, ‘when you get serious about any of these initiatives, come talk to us first.’
This leverages a natural strength of the platform into a powerful vendor lock-in. What customer wants to build a platform for dealing with very high scale product analytics from scratch, then integrate it into their Salesforce system, if they can just start with the Salesforce platform?
It’s also great positioning against a very serious Oracle threat. Oracle has put together an extremely powerful platform of customer-centric SaaS products. RightNow for customer service (a weak spot for Salesforce), Eloqua for marketing automation (another weak spot for Salesforce), Vitrue for social (probably the better buy at a much better price than Salesforce’s BuddyMedia buy), and ATG for eCommerce (a hole in the Salesforce platform).
Now it’s time for a bit of disclosure. I worked in product strategy at Adobe, where we rolled out a fairly similar vision to the Customer Experience vision of Oracle (they call it CX, launched in NYC last June, we called it Customer Experience Management). And the ‘Customer Company’ vision is an interesting twist on the same trend. Oh, and I also worked at Oracle after the PeopleSoft acquisition (well before Larry’s SaaS buying spree, though). And a ton of my colleagues at PeopleSoft are now at Salesforce (but I haven’t talked to any of them about this article). So I may be biased toward seeing the predictions we made about Customer Experience Management come true. </disclosure>
Unlike Salesforce, however, Oracle doesn’t have a central platform on which to build new apps. In fact, even getting all of the above solutions to use a single customer database to do their current jobs is a real stretch. So the Customer Company vision puts the focus on Salesforce’s strength and Oracle’s weakness.
So, what are they going to do with the $1 billion? Here are some ideas:
Expand the platform with big data, mobile app, and Internet-of-Things technologies. There are too many possibilities here to catalog, since these would probably be technology acquisitions, ahead of customer demand, rather than expanding the customer base. But if you wanted to do a handful of these, plus a medium-sized buy or two, you might want a billion to do it.
Expand the digital marketing offering and attack Oracle-Eloqua. If Salesforce’s mission is to connect companies with customers, they need a leading solution in the communication applications of email and multi-channel marketing. Marketo was the most obvious candidate, but they are heading to an IPO. Responsys (NASDAQ:MKTG) is another; it may be more affordable. ExactTarget is another possibility. And there’s a plethora of smaller multi-channel campaign management possibilities, from Neolane, to Silverpop, to many others.
Attack Oracle-RightNow with a next-gen customer service offering. Much of the connected product applications will connect to the customer support apps, not the sales apps. Salesforce might think that they can’t leave RightNow uncontested. ZenDesk is a possibility. So is RingCentral.
Attack Oracle-RightNow with a social communities offering. One possibility that overlaps both customer service and connected-to-customer is social support communities. While Jive (NASDAQ:JIVE) does this, they also do a lot of other things and weren’t built on SaaS first. Lithium is the likely target here. (yet more disclosures, Rob Tarkoff, Lithium’s CEO, is a former boss and mentor; and we didn’t talk about this article).
What’s not on this list? I don’t think that Salesforce needs to buttress its core Sales Cloud offering. There’s a ton of innovation in new tools for helping salespeople sell. And, thanks to the growing number of app stores (iOS, Android, Chrome, etc.), these startups can now sell direct to the salesperson.
Why doesn’t Salesforce need to move in this area? Because all of these start-ups have, or will, integrate with Salesforce (which is easy) and not Oracle (which is very hard, given the number of products) or SAP (which requires on-site software installed by IT in most cases).
So that leaves companies like Yesware, Clearslide, Crushpath, and Selligy to build great tools for salespeople – putting Salesforce even more into the lead as the customer platform. Linda Crawford’s SalesCloud presentation had a ton of content about the Customer-Connected Sales team, but left plenty of room for the Salesforce ecosystem.
(Final disclosure! My current job is at Selligy, where we’re doing just that: building a great application on top of Salesforce to help salespeople sell.)
Given Oracle’s massive buying campaign, Salesforce needs to outflank its new rival, not re-trench into its core. These are my guesses as the probable moves.
Then again, what couldn’t you do with a billion?
Chris van Löben Sels