Salesforce buys Demandware for $2.8B, taking a big step into e-commerce

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Salesforce made its name originally with cloud-based software to help salespeople manage their leads and close deals; and today the company took a big step into the business of sales itself. Today the company announced that it would spend $2.8 billion to acquire Demandware, a cloud-based provider of e-commerce services to businesses big and small. The deal also will spearhead a new business division: the Salesforce Commerce Cloud.

Demandware went public in 2012, and Salesforce says that it will commence a tender offer for all outstanding shares of Demandware for $75.00 per share, in cash. This is a big premium on the company’s current valuation — which was $1.87 billion at close of trade yesterday. The transaction is expected to close in Salesforce’s Q2 2017, which ends July 31, 2016.

“Demandware is an amazing company—the global cloud leader in the multi-billion dollar digital commerce market,” said Marc Benioff, chairman and CEO, Salesforce, in a statement. “With Demandware, Salesforce will be well positioned to deliver the future of commerce as part of our Customer Success Platform and create yet another billion dollar cloud.”

Something else “amazing” about Demandware: how it has grown. The company had raised a mere $54 million when it was still a startup, mostly from only three investors, by the looks of it. Its revenues in the last quarter, however, are more modest: according to its most recent quarterly earnings, reported at the end of April, revenues were only $67 million, with net loss just under $12 million, but the former is growing while the latter continues to shrink.

“Demandware and Salesforce share the same passionate focus on customer success,” said Tom Ebling, CEO, Demandware, also in a statement. “Becoming part of Salesforce will accelerate our vision to empower the world’s leading brands with the most innovative digital commerce solutions that enable them to connect 1:1 with customers across any channel.”

This is a massive deal for Salesforce for a few reasons, and not just because of the price.

First, the acquisition grows the “funnel” for the company: it extends the types of contracts that Salesforce can forge with existing customers (longtime Marketing Cloud or CRM customers now can be upsold on larger deals that include commerce services).

It also gives Salesforce a new group of customers to upsell for the other services that it already offered, from marketing and online analytics through to back-office software for sales and other IT functions. Demandware customers include Design Within Reach, Lands’ End, L’Oreal and Marks & Spencer, the company said.

More interestingly, it also opens up Salesforce to competition with the likes of Shopify, Amazon, eBay and its former service Magento. This group not only provides third parties with commerce software, but some (specifically Amazon and eBay) also want to be the go-to platforms for transactions.

E-commerce is a huge area that was one of the first big businesses to gain traction online when people first started going on the web, and it continues to grow as the idea of spending money virtually, and giving users an ‘omnicommerce’ experience, both become ever more commonplace.

Gartner estimates that worldwide spending on digital commerce platforms is expected to grow at over 14 percent annually, reaching $8.544 billion by 2020, according to figures provided by Salesforce.

Salesforce says its new Commerce Cloud “will be an integral part of Salesforce’s Customer Success Platform, creating opportunities for companies to connect with their customers in entirely new ways. Salesforce customers will have access to the industry’s leading enterprise cloud commerce platform, and Demandware’s customers will be able to leverage Salesforce’s leading sales, service, marketing, communities, analytics, IoT and platform solutions to deliver a more comprehensive, personalized consumer experience.”