How Salesforce acquisition strategy is paying off?

Salesforce acquisition strategy

In this blog, we shall discuss about Salesforce acquisition strategy whose revenues from acquisitions are growing at a faster rate than its core business.
When Salesforce announced its last financial results, it reported a better than expected earnings which had prompted it to raise its guidance for the current fiscal year.
One of the biggest reasons for Salesforce recent success in earnings has been its acquisition strategy which included purchasing software companies like Tableau and Mulesoft.

Salesforce Acquisition strategy

• In August this year, Salesforce acquired Tableau for mammoth $15 billion.This acquisition would add annual revenues between $550 million and $600 million in the current financial year.
• Tableau acquisition is not the only one that is contributing to annual revenues of Salesforce.Salesforce is traditionally known to be an acquisitive company but recently its acquisition strategy has taken a new avtar.

Salesforce acquisition strategy evolved from Cloud

• Salesforce differentiated itself at the beginning against other vendors with its SaaS based cloud offering.This attracted enterprises because cloud based offerings does not required onsite software installations.No CAPEX is needed and all that is required is a web browser to get started and running.
• As cloud based models are becoming attractive and popular, more vendors started to provide Cloud based services.Hence Salesforce has been lately acquiring many of these cloud based vendors which are threatening Salesforce’s position and market share.
• Its recent acquisition of Tableau is a company that is popular in aggregating data from multiple sources and then presenting important metrics in the form of interactive charts that can be used by leadership team to make quick decisions. However Tableau runs as an on premise software installations rather than cloud.
• In case of Mulesoft acquisition that Salesforce acquired for $6.5 billion, Mulesoft is known for connecting data from different types of sources including inhouse servers.This is a very useful utility for businesses that want to connect their applications. As in the case of Tableau, Mulesoft services go beyond cloud.
• These acquisitions has helped Salesforce to move beyond its Cloud only model for businesses as it recognizes that more businesses have their own rationale to keep their data on-premise rather than moving to cloud.

Why Salesforce shifted its acquisition strategy?

• Salesforce which believes in Cloud first business model as its original charter has changed its corporate strategy to move to include on-premise business too.
• The reason for this change can be summed in one way – Reality check.Salesforce have realized that enterprises want to continue with their legacy data which includes information on customer profiles that can be used for marketing campaigns in future.
• Some other companies are laggards and late adopters of cloud technology. Their customer data are still stored in onsite servers and they need assistance in aggregating this data to provide a single moment of truth.This is where Salesforce acquisition of Mulesoft comes to play as it helps in integrating data from different sources.From this data extracted from different systems, Tableau draws insights to help leaders make informed decisions.
• Hence acquisitions of Tableau and Mulesoft has helped Salesforce provide holistic solutions for marketing services. Salesforce is not only a leading player in CRM but also in business analytics.This makes Salesforce – One stop shop for all activities related to Sales and Marketing.

Other Notable Salesforce Acquisitions

Salesforce has been a serial acquirer and have acquired companies before their mammoth acquisitions of Tableau and Mulesoft.
Some of them are:

1. Dataroma – Acquisition for $766 million to access a single platform for all marketing analytics.
2. Demandware – Cloud based ecommerce solution bought for $2.8 billion
3. ExactTarget – An email marketing solution bought by Salesforce for $2.5 billion.
4. Krux – An adtech company bought for $742 million
5. Radian6 – A social media monitoring platform bought for $337 million.

All these deals were bolt-on acquisitions which were rolled up into Salesforce’s Marketing Cloud and Commerce cloud divisions.
Sales from these divisions are reported together and contributed $1.9 billion or 15% of total sales.
Revenues from Sales cloud which is the company flagship offering reported revenues of $1.13 billion.
This implies that revenues from acquisitions have contributed more than the core offering.

Conclusion

• Salesforce acquisition strategy is paying off in the longer term by contributing to growth and at the same time returning money to shareholders.
• Salesforce is trading at 50X forward earnings that can appear to be overvalued at this point of time.
• At a longer timeframe, with its agressive acquisition strategy contributing value to shareholders, Salesforce growth will continue to be high.