What Channel Challenges Does Salesforce Face In Turning Demandware Into Commerce Cloud?

When it completes its acquisition of Demandware later this year, Salesforce will become an overnight e-commerce powerhouse. But as the CRM giant transforms the platform it purchased in an expensive bidding war into its new Commerce Cloud, it will need to perform a delicate dance with technology and implementation partners in both ecosystems.

With its winning bid of $2.8 billion -- a more than 50 percent premium from Demandware's market capitalization before Tuesday’s deal -- Salesforce plunged into a red-hot e-commerce market that's seen a trend of consolidation in recent years driven by its customer relationship management competitors.

Demandware positions Salesforce to battle on a new front with traditional enterprise rivals like Oracle, SAP and IBM, all of which launched or expanded e-commerce offerings through acquisitions of their own. But success will hinge on the San Francisco-based cloud pioneer's ability to meld two expansive ecosystems that present natural synergies, but also the potential to clash, partners told CRN.

[Related: Partners Cheer Salesforce Acquisition Of Demandware As Key For Tapping Into Booming Digital Commerce Market]

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For systems integrators like Perficient, a St. Louis-based partner of both Salesforce and Demandware, the union of the two vendors abounds with synergistic opportunities.

Ganesh Rangarajan, vice president of Perficient's Salesforce business group, described the deal through which Salesforce enters the multibillion-dollar e-commerce market as "strategic and well-timed."

Commerce Cloud, once integrated with Sales, Service and Marketing clouds, will offer Perficient's customers a unified platform for "executing on their digital transformation agenda," Rangarajan told CRN.

Demandware immediately delivers more than 300 brand-name retail and direct consumer goods companies into the Salesforce ecosystem, Rangarajan said, and "larger retailers should also start to view Salesforce as a viable end-to-end platform for delivering personalized customer experiences and enabling commerce."

Over the long term, Rangarajan said, he believes Salesforce will extend Commerce Cloud beyond Demandware's traditional retail focus into other verticals like the B2B market.

But if Salesforce does invest in a transformation into a business-facing commerce solution, it will need to tread lightly to not step on the toes of some of its most successful existing partners.

CloudCraze, a software developer based in Chicago, built the first e-commerce solution on Force.com -- one that six years later remains the only native e-commerce technology that runs on the Salesforce platform. As a Platinum partner, CloudCraze is tightly integrated into the accounts of some of the largest Salesforce customers, such as Coca-Cola.

Chris Dalton, CloudCraze's CEO, told CRN he welcomes the introduction of Demandware's technology into the Salesforce portfolio, which will create more of an emphasis on commerce in the ecosystem. He said he doesn't expect the platform to ever compete in the B2B commerce market his company has carved out for Salesforce.

Demandware's customers are mostly traditional retailers, Dalton said, and Demandware "is a good vehicle" for Salesforce to extend into that sector. Customers understand the nuanced differences between consumer and business solutions.

"Evolving into a B2B platform involves some fairly significant architectural changes," he said. "It would be more logical to integrate CloudCraze than to transform Demandware into a B2B solution."

If Salesforce sticks to Demandware's current retail focus, "that translates to more customers exploring Salesforce as a commerce option," Dalton said. "Demandware will benefit, CloudCraze will benefit."

Another partner, one of Salesforce’s largest and oldest implementers, might also have to navigate some tricky waters if Commerce Cloud evolves into a business-facing platform.

A couple of months ago, Bluewolf, the New York-based systems integrator that scaled to a global powerhouse through its relationship with Salesforce, was acquired by IBM, which offers its own commerce solutions heavily focused on the B2B market.

Eric Berridge, CEO of Bluewolf, praised this week's deal to CRN.

"Demandware brings Salesforce that much closer to owning the full customer lifecycle, seamlessly leading to purchase, a huge value-add for organizations trying to reach their business objectives," Berridge said via email.

But Berridge also told CRN that "IBM is second-to-none in the commerce experience."

Asked how Bluewolf might reconcile overlap between the forthcoming Commerce Cloud and IBM's products in that space, Berridge responded that his company’s top goal is to help clients by offering solutions that best fit their business objectives.

"We're excited to see what develops with Demandware," Berridge said, and to "see future developments and alignment from this acquisition."

As it integrates the platforms, Salesforce will also have to pay mind to Demandware's extensive partner ecosystem.

Rich Lyons, CEO of Chicago-based Lyons Consulting Group, one of Demandware's most-experienced and largest implementation partners, told CRN, "Any acquisition is going to worry us because of our relationship."

But Salesforce's winning the bidding war was probably a lucky break for Demandware partners, he said.

"From my perspective in terms of the suitors, considering who it could have been -- Oracle, SAP, Adobe or IBM, a lot of people who might have looked at Demandware -- I think Salesforce is the best from our perspective as a Demandware partner," Lyons told CRN.

Unlike some of those other vendors, Salesforce doesn't have a division that does its own implementations, and the company operates a strong partner program, Lyons said.

Commerce Cloud should create opportunities for Demandware partners by exposing them to a large base of CRM customers who might be motivated to consider the Demandware technology, he said.

"How many e-commerce customers currently don't have a CRM? That's a great opportunity for us," Lyons said. "With Marketing Cloud, there absolutely can be a lot of additional opportunities."

The acquisition could "create a lot of excitement from bigger brands Salesforce is working with on marketing and CRM, and vice versa with those Demandware is working with," Lyons said. "I actually think there are some great synergies."

But Lyons, whose firm specializes in deploying e-commerce solutions, said there's a strong trend of "consumerization of B2B" that raises the likelihood that Salesforce will ultimately expand Commerce Cloud beyond Demandware's consumer-focused model.

Currently, Demandware’s "revenue sharing" approach to billing, which takes a cut for all items sold on the platform, would be a major obstacle to scaling into a business market that typically involves much larger deals, he said. But Salesforce could change the pricing model.

There is somewhat of a precedent for how Salesforce will orchestrate the product and channel integrations.

In 2013, Salesforce spent $2.5 billion on ExactTarget, a digital marketing platform that became the Salesforce Marketing Cloud.

"When they have taken over other companies, like ExactTarget, I think they did a good job," Lyons told CRN. ExactTarget's partners "kept doing what they were doing, and some even received financial support from Salesforce to help grow that market."

Other CRM vendors grabbing assets in the e-commerce arena have grappled with some of the same issues, he said.

Hybris was a popular e-commerce vendor based in Germany that had more of a retail focus, but shifted into the B2B space after its acquisition in 2013 by SAP to cater to the German software giant's large base of enterprise manufacturing clients.

SAP Hybris will be one competitor Salesforce partners selling Commerce Cloud come up against. So will Oracle, which in 2010 purchased Art Technology Group, a consumer-focused e-commerce solution, for roughly $1 billion.

And IBM’s WebSphere Commerce platform, which boosted its capabilities by acquiring Sterling Commerce from AT&T in 2010 for $1.4 billion, will also be a competitor, especially if Salesforce pivots into the business-focused market.

Dalton, of CloudCraze, told CRN those acquisitions represent a realignment of e-commerce platforms, which years ago were far more closely tied to enterprise resource planning systems than CRMs.

The shift was driven by customers that were looking for highly personalized online shopping experiences -- easier to deliver by integrating with CRMs than business management systems, said Dalton, who previously worked with a consultancy that implemented Demandware and SAP e-commerce solutions.

CloudCraze "is aggressively working to keep SAP and Oracle out of the accounts that we are in," Dalton told CRN.