Its All About Customer Relationship Management
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Marc Bernioff / Wikimedia Commons
First Here is The Deal
Salesforce.com agreed on Tuesday to buy ExactTarget, a provider of marketing software services, for about US$2.5 billion, further bolstering its social marketing offerings.
Under the terms of the deal, Salesforce.com will pay US$33.75 a share, nearly 53 percent above ExactTarget’s closing price on Monday. The takeover is the latest by Salesforce.com, which has made a number of acquisitions to bolster its marketing offerings. Last year, it bought Buddy Media, a social media manager, for US$689 million. And two years ago, it bought Radian6 for that company’s ability to help customers track their effectiveness on Facebook and Twitter.
Under Marc Benioff, Salesforce’s founder, Chairman and CEO, the company’s fast revenue growth, both organically and by acquisition, has made it a favourite with investors eager to own part of the growing trend among businesses to outsource their information technology needs – from servers to software, a phenomenon known as cloud computing.
Buying ExactTarget will give Salesforce.com a portfolio of digital marketing services that allow their customers to more effectively manage their marketing by specific targeting of e-mail, social networks and mobile devices. Salesforce.com pointed to surveys showing an increase in marketing spending on digital offerings, with Garner estimating that consumer technology companies planning to switch one-third of their advertising dollars to online efforts within two years.
“The addition of ExactTarget makes Salesforce the starting place for every company and puts salesforce.com in the pole position to capture this opportunity, ” Mr. Benioff said in a statement.
Who Are Salesforce.com ?
Salesforce.com Inc. is a global enterprise software company headquartered in San Francisco, California that was founded by Marc Benioff in 1999 after spending 13 years at Oracle, now one of his competitors. Prior to working at Oracle he had worked for Steve Jobs at Apple Inc. and was subsequently mentored by him on more than one occasion, according to Mr. Benioff.
Though best known for its CRM (customer relationship management) products, Salesforce.com has also expanded into the “social enterprise arena” through acquisitions. It is currently ranked the most innovative company in America by Forbes Magazine, as well as number 27 in Fortune’s Magazine’s 100 Best Companies to Work For in 2012.
The company is listed on the New York Stock Exchange and is a constituent of the S&P 500 index. After the announcement of the acquisition Salesforce.com’s shares fell by nearly 8 percent to US$38, down 35% from the one year high. Short term share price fluctuations notwithstanding, Marc Benioff went on his favorite TV show, CNBC’s “Mad Money and defended the deal, calling Indianapolis-based ExactTarget a “perfect fit” with Salesforce.com that, he argues, completes its cloud-based marketing software business.
One other thing he said is that Salesforce looked at “every company” in the marketing software space, and Salesforce.com has certainly been known to be shopping around for some time following competitor Oracle’s US$871 million acquisition of Eloqua last year. He has also said Salesforce.com would be focused on ExactTarget for the next year to eighteen months and that Salesforce.com would probably be “taking a vacation from M&A” during that period.
Salesforce.com has also at times been criticized for over-paying for its acquisitions. The US$212 million it paid for Heroku at a time when it was basically a pre-revenue startup being one example. In 2011 it paid US$326 million for Canada’s Radian6, the first big piece of what ultimately became the “marketing cloud, ” and then Buddy Media came along and was, at US$745 million, Salesforce.com’s biggest acquisition prior to today.
The acquisition may have come come as a welcome distraction for the company as just eleven days earlier Salesforce.com had issued its quarterly results for its first quarter ending April 30th (it has an end-January fiscal year-end). These had disappointed investors as costs rose following its earlier spree of acquisitions, and rections ot the news began the precipitous decline its its shares from its one year high of US$47.80 earlier in May of this year before the results were announced.
During the quarter ending in April, Salesforce’s subscription and support costs rose faster than its revenue, pushing its bottom line further into the red. Salesforce.com had a first-quarter net loss of $67.7 million or 12 cents a share, compared to a net loss of $19.5 million, or 4 cents a share, in the same quarter last year.
It appears that Salesforce.com has had trouble making money consistently. However, even though its stock has underperformed the S&P 500 in 2013 year to date, it still trades at 85 times expected earnings, compared to an average of 17 for its peers and, over the longer term has still far out-performing both the general index and its peers, rising by more than ten times in the last four years alone.
So Why All the Fuss ?
So what is it all about? It used to be that a company had customers, took care of them if it was smart and spent lots of money on advertising and marketing to lure them to buy its products. Now with the internet it is said that finally, and after lots of false starts, the way that products are purchased is being disrupted, and this is forcing a company’s marketing to catch up.
Buyers are said to now be in control of the buying process (heaven forbid!) and their behaviours are growing increasingly unpredictable (even worse!). As such, marketers are told they must strive to be everywhere buyers are, both business and consumer, and become, basically and not putting too fine a point on it, snoops in order to do so.
Marketers are starting to use data-driven automation to reach and address the needs of prospects wherever they may be in the buying process, and on whatever device they may be using, in the office, in the car, on the train, in the living room or… anywhere… Your eyeballs, your purchasing history, your intentions- even your thoughts may be tapped into as this all unfolds in the months and years ahead; it is simply NOW.
It is thought this is going to drive tens of billions of dollars of investment and innovation to the bottom lines of thousands of companies around the world. The top marketing technology players- including Salesforce.com, IBM, Oracle, SAP, Microsoft, Google HP and lots more- are all getting involved, and the war to own the marketing technology market has begun to play out. Battle lines are being drawn, and they center on systems that help companies manage their customers. They call it Customer Relationship Management systems, or CRM for short if you love acronyms as much as the world of technology and marketing seem to.
Just this week, the Wall Street Journal is now reporting that IBM is also doing a $2 billion deal to acquire privately-held SoftLayer Technologies Inc., one that will help them create a new cloud services division. SoftLayer is not directly thought to be a competitor to Salesforce.com or its new acquisition ExactTarget, but will instead help IBM to take on such rivals as Amazon and Google which are running the massive server operations in data centers everywhere that house “the cloud”. With cloud computing, companies rent computing power and use technologies that are often housed in giant server warehouses, which are reachable by ultra fast private internet connections. Salesforce.com, with ExactTarget, will use the cloud to offer their services to customers looking to expand their marketing reach. IBM and SoftLayer will run the infrastructure that allows that to happen.
CRM as System of Choice (what does that mean?)
Salesforce.com has been spending much of the last decade building its own CRM system. Since more than 75 percent of the companies that use Salesforce.com are B2B (short for business-tobusiness if you didn’t know or thought it means “bed and breakfast”), the company’s CRM platform is arguably already, or can become, the system of choice for the B2B marketer. This might help Salesforce.com, as the fastest-growing scaled vendor in the space, to be in the driver’s seat to become the platform where marketers keep all their hoards of prospect and customer information and how they have related together to date. Oracle, NetSuite, IBM, Google, SAP, and arguably even Facebook, LinkedIn and Twitter, don’t want to see Salesforce.com have a lock on such valuable data. To fend off a Salesforce.com threat therefore, these companies are developing their own audience data collection strategies, ranging from M&A deals of their own to building cookie data exchanges, or even building their own social networks from scratch. As they completely understand, the vendor that controls audience data “wins” because all marketing decisions are keyed off of this information; at least that is the premise behind it.
So What’s Holding it All Up ?
Privacy, in a nut shell, that old fashioned notion that many seem to think is completely out of date. The argument goes: if consumers don’t know what you’re using this information for, you shouldn’t be using it. This is a fair and reasonable argument, and in the CRM world where customer and prospect information is tied to personally identifiable information, it is going to be important that consumers opt in to the information being collected by the marketer.
The United States is much less committed to individual privacy rights however than, say, the European Union, so in the US expect to see these trends accelerate.
Who is Marc Benioff ?
Marc Benioff (born on September 25th, 1964) is the founder, Chairman and CEO of Salesforce.com, a cloud computing company.
He started Salesforce.com in March 1999 in a rented San Francisco apartment. He is the creator of the term “platform as a service” and extended Salesforce.com’s reach by allowing customers to build their own applications on the company’s architecture, or in the Salesforce.com “cloud.” This is something he was advised to do by Steve Jobs of Apple Inc. In an interview Bernioff had the following to say about Jobs: “He [Steve Jobs] has probably given me more help and more advice than just about anybody. When I get in trouble, and when I get lost in my own vision, I’ve been fortunate to go and see him and he’s been able to show me the future a couple times when I got lost in the forest for the trees.”
Benioff then recounted that Steve Jobs encouraged him to build an ecosystem around the company’s enterprise applications. Salesforce designed a technology and infrastructure called the “app store” that gave the ability to buy the apps and run them in Salesforce. When he heard Steve Jobs announce App Store at his famous iPhone keynote, however, Benioff remembered how much Steve Jobs had helped him, and promptly handed over the trademark and domain to the App Store as a gift with no strings attached!
Marc Bernioff is the author of three books, including the national best seller Behind the Cloud. He was raised in a Jewish family in the San Francisco metropolitan area, where he was educated and received a Bachelor of Science in Business Administration from the University of Southern California.
Prior to founding salesforce.com, Benioff was at Oracle Corporation for 13 years in a variety of executive positions in sales, marketing, and product development. Before joining Oracle, Benioff worked as an assembly language programmer at the Macintosh Division of Apple Computer, where he was inspired by the company and its co-founder, Steve Jobs.
Benioff pioneered the 1/1/1 Integrated Philanthropic model, by which companies contribute 1 percent of profits, 1 percent of equity, and 1 percent of employee hours back to the communities it serves. Parts of this 1/1/1 model have been adopted by many other companies, including Google. In 2005, the members of theWorld Economic Forum named him as one of its Young Global Leaders. In 2007 the Committee Encouraging Corporate Philanthropy presented Benioff with the Excellence in Corporate Philanthropy Award and in 2008 invited him to become a director of the board.
In June 2010, Marc Benioff and his wife Lynne Krilich announced a $100 Million Gift to UCSF Children’s Hospital with the goal of not only seeing the new hospital built but significantly advancing children’s health worldwide. In 2010, Benioff and his wife were named one of the Top 25 Most Effective Philanthropists by Barron’s.