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Salesforce – It ain’t just CRM anymore.

May 5, 2016

Salesforce – It ain’t just CRM anymore.

Enterprise Data, Startup , 0 Comments

Salesforce is the 4th most valuable software company in the world, and by far the youngest of the top four. It got to this vaunted position in part because of its superior service. We’ve been loyal users of Salesforce to help power our marketing efforts at M&A for more than 10 years. But also, much as Apple has encouraged others to develop apps for its iPhone and iPad, Salesforce has grown by encouraging other firms to leverage its presence and capabilities to build value added software on top of the Salesforce platform.  This is the Salesforce Ecosystem. It isn’t just about CRM any longer.

In a growing number of instances, Salesforce is really no longer seen simply a SaaS CRM software provider. Rather it is seen as a provider of infrastructure (think AWS or Microsoft Azure) and database technology (think Oracle or Microsoft SQL) for firms to deliver their own SaaS software to clients. And come they will. According to Salesforce, the ecosystem currently generates 2.8 times the revenues of Salesforce itself and is expected to grow to 3.7 times as large as Salesforce and by 2018, Salesforce and its ecosystem will create 1 million jobs and generate $272 billion in GDP impact worldwide.

SF trading comps

Source: Marlin & Associates

In many cases, the users of products built on the Salesforce platform don’t see the Salesforce platform at all.

My colleague Stephen Shankman wrote about Veeva recently – a great example of leveraging the Salesforce platform in the Life Sciences sector ($3.5 billion market cap trading north of 7x revenue). For companies without the size and scale of Veeva, Salesforce provides, in addition to infrastructure, a highly credible brand and significant amount of sales and marketing support.

Check out this piece Forbes published on the ecosystem.

Some other examples of smaller but really interesting companies leveraging Salesforce include: Conga (provides a suite of cloud-based document generation and reporting applications for Salesforce, and has received significant attention for their recent growth and having raised $70 million from Insight Venture Partners); Tier1Crm (fast growing provider of enterprise class CRM to some of the biggest names in investment banking and investment management); and nCino (targeting commercial banking with CRM, loan origination, workflow, enterprise content management, and instant reporting capabilities – nCino integrates with the bank core and transactional systems) has raised close to $50 million in capital.

There will be questions regarding the reliance of these companies on Salesforce. How does this impact long term gross margins and profitability of these businesses? What happens if Salesforce decides to compete directly? In some cases the concern is valid. Salesforce has displayed a voracious appetite to acquire complementary businesses and develop new capabilities. But there are far too many opportunities for Salesforce to try to dominate them all. As with Apple and its app developers, this is a symbiotic relationship for most.

Salesforce has consistently trumpeted that the ecosystem is a core part of its strategy for continued growth. And Salesforce has a strong incentive to help because it makes money by selling underlying seat licenses and taking a piece of the fees charged to the end client by the partner. Salesforce is a powerful lead generator for these enterprises – and vice versa. The ecosystem is transforming Salesforce from a CRM provider to an enterprise class platform where at some point every single employee in an organization requires a Salesforce license. It is easy to envision Salesforce moving up from the #4 spot as it creates a vast array of other highly valuable businesses on its way to $270 billion+ in GDP impact.

It’s fun to watch an entire ecosystem emerge and grow. In all likelihood we’ve just seen the tip of the iceberg. We can’t wait to see how it evolves and would be happy to hear your thoughts.


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