Description

Salesforce.com (CRM)

Summary / Idea Overview

CRM is one of the more interesting long-term compounding stories out there. It’s easy to hate the company, given management is fairly proportional and corporatespeak-ish and they do mega M&A deals all the time for outsized valuations. But, when you step back, CRM has been an innovator and pioneer in cloud computing since before that term has been used, with largely the same management - as well as some notable and talented additions - and an unbelievable track record in growing - both organically and inorganically - in a highly profitable manner. 

The more nuanced view of CRM is that of a company trying to break a decades-old culture in enterprise IT generally of settling for second-rate copycat products of innovative solutions because they are branded with a “trusted” vendor - stodgy as they may be - and because managing best-of-breed apps is too complicated. CRM’s approach of simplifying the ability to integrate applications and data, as well as enabling organizations to do what they please with a single source of company data truth, unified across all applications, is ultimately fairly groundbreaking and the anti-bundle bundle strategy. More importantly, the way they have gone about building this strategy over the years has been both incredibly profitable and very “smartest guys in the room”-ish, with an incredible business model that has allowed them to grow into a behemoth and repeatedly trojan horse the next big thing in enterprise software, exemplified by their excellent acquisition history and incredible VC portfolio. 

Ultimately, I view CRM as the cloud generation’s ORCL, but better and with far greater potential. It’s not easy to find companies with $25B in rev, $5B in FCF and >20% top-line growth. While their valuation isn’t cheap in the classical sense, from a long-term compounding perspective, CRM represents an excellent quality company, perfect for sizing up in volatile markets such as these. 

Company background

CRM is one of the largest companies in the world and perhaps the most dominant enterprise software vendor today. While “SaaS” is a commonplace term today, CRM was one of the first cloud-hosted and delivered software companies ever and an early innovator in the field. CRM was founded in 1999 by a foursome of Marc Benioff, Parker Harris, Dave Moellenhoff, and Frank Dominguez. Benioff was a prodigy and rising star at ORCL (named a VP at 26 - youngest in company history), leaving as a young but very-high-up exec to start CRM. Harris, Moellenhoff, and Dominguez were co-founders at Left Coast Software, which was an early pioneer in sales force automation and represented the engineering talent. Like the iPod, CRM was technically not the "first" of its kind, but the one that put the concept on the map and into prime time.

The original plan was to build an enterprise software "platform" business around the then-new concept of cloud-hosted and delivered applications. A succinct, if not oversimplified, version of the vision was that cloud-delivered software would be a monumental technology shift that would open the opportunity for a new player to overtake the software titans of the time and become a software titan of their own under this new paradigm. Benioff and Co. targeted customer relationship management (CRM) as the beachhead from which to build this platform for a variety of reasons: it’s a broad field that touches many functional business areas (technically CRM refers to any system that houses/manages customer information and run automated tasks with that data); CRM data is arguably a company's most valuable data (more so than ERP data); and, at the time, CRM was a field ripe for disruption, given the pre-cloud/pre-mobile world was decidedly un-mobile, which hamstrung the ability to properly populate and utilize CRM data (CRM is populated and used by disparate areas of a business, particularly sales and marketing personnel, who are more mobile and geographically distributed, as opposed to the more centralized nature of ERP data input and usage), thus putting CRM behind ERP on a company’s information system priority ladder. 

The original platform vision had 2 aspects: 1) an application platform, with numerous software modules and solutions, all leveraging and contributing to a single customer database and sharing a common interface and back-end infrastructure; and 2) a development platform, i.e., a suite of software development tools and resources for users/customers to inject their own development and needs into anything the company releases. 

The development platform was always highly strategic to CRM’s vision for two reasons: 1) premise-based enterprise software would typically be highly-customized to the needs and wants of the customer (i.e., it wasn't "off-the-shelf" and was sort-of built-to-spec). The benefits of cloud-hosted software comes with a uniformity trade-off - hosted solutions need a degree of uniformity to be relevant to everyone from a single, core code-base, which makes customization a necessary sacrifice. Enter development capabilities - CRM wanted to nip this issue in the bud by giving organizations the keys to customize their solutions on their own by providing granular development tools that integrate with the core software; in addition 2) arguably the greatest pain point in any enterprise technology environment is integration and interoperability. By providing integration both at the application level (“platform” of modules and solutions, app store, etc.) and at the back-end development level (data integration, etc.), organizations would be able to achieve a level of interoperability previously highly complicated and costly, if not outright impossible, across applications and data types. 

From a practical perspective, CRM's common phrase is that they "deliver a single source of truth" in reference to the customer. This all comes down to customer data, where many different parts of an organization touch customers in different ways and thus have their own sets of customer data. Separate software solutions for these different areas create disparate groupings of customer data that is (at best) tedious to integrate. CRM's vision is that any and all information pertaining to a given customer should sit in the same place and be naturally integrated across all enterprise functions and applications. 

Key Thesis Points

1) CRM is creating a compelling (superior?) MSFT alternative - a best-of-breed enterprise applications suite

MSFT built an empire by being better at the business side of software than the tech side - creating an enterprise platform around its most widely-distributed products, which would increasingly push organizations deeper into the MSFT rabbit hole. Whether the consumer side, with Windows and the Office Suite, or the back-end side with user-friendly Windows Server (pre-Linux) and Exchange, once a CIO brought in some aspect of the MSFT stack, supporting that part of the stack would be tied to using other MSFT products (SQL server, Active Directory, Dynamics CRM, Sharepoint, etc.). While MSFT totally whiffed on mobile, they were saved by jumping on cloud computing, with Azure now taking its place as the all-powerful glue that sticks to everything in the ecosystem.

Of course, the problem with with this approach - not novel in enterprise technology, though MSFT is one of its best practitioners - is that users ultimately get stuck in an ecosystem that is a jack-of-all-trades but master-of-none, inhibiting the ability to get ahead by dynamically utilizing new and revolutionary technologies/solutions. More to the point, this gets annoying for employees, business managers, and CIOs alike, who ultimately are boxed-in to a certain degree and can’t simply use the apps they want for the tasks they need to accomplish.

The lazy way to look at CRM’s highly-acquisitive strategy is to take the financial approach - CRM has built a large following with their core applications, which they’ve supplemented with other acquisitions that they can flush through their scaled sales and distribution infrastructure. Indeed, this is an advantage (to be noted further below), but CRM is doing something far more strategic - building an alternative “bundle” that isn’t specifically reliant on allegiance to a core platform “hook”, but rather goes where the users go. Instead of building cheap “good enough” replicas of best-of-breed apps to keep users in the ecosystem, CRM is pulling together the best applications and tools in given categories. This creates a highly-compelling alternative to the choices of old - instead of choosing between a cohesive bundle of mostly second-rate copycat apps from one vendor and an integration and IT vendor management nightmare of great solutions but from multiple different vendors, CRM is providing enterprises with the ability to have their cake and eat it too. 

CRM is accomplishing this with a 3-pronged approach: 

1) Own the data and integration layer - as noted above, CRM is built around customer data. CRM’s core bet has been that an organization's data is its lifeblood and the ability to build around a single, unified data source is what ultimately carries the most sustainable value to an organization, more so than any single application or function. CRM owns the applications that collect/populate core customer data, the tools to develop and integrate applications to share, further populate, and utilize that data, and tools to analyze that data. This provides CRM with an ability to provide customers with a degree of flexibility that others don’t or cannot. This is somewhat of a modern version of what made ORCL so successful decades ago - ORCL started out by owning the database layer (the original ORCL business) and they expanded on that by acquiring and developing the middleware layer (application development), so by the time they got to front-end applications, there was a tremendous value in keeping everything in the family from the back-end data, to the in-house development, to the front-end applications. Of course, different than ORCL, CRM has been doing this in the cloud world, and has thus been more focused on being open and enabling interoperability than creating a closed system around its core functions. 

2) Acquire the leading apps in the most important areas - armed with core data and integration tools, CRM has built around that by acquiring the best apps out there that have achieved a certain status as integral to the standard enterprise. Again, this is somewhat analogous to what ORCL did way back when, except CRM is doing it far more surgically and is far more fluid/flexible and open with their approach. Instead of acquiring major all-in-one vendors, CRM is buying the best individual applications out there in a given category. As new applications come into play and make themselves core pieces of the enterprise workflow, CRM buys the leader instead of knocking it off and shoving the cheap replica down the throats of its user base. While some may view this as unsustainable, it’s probably far more economical and - frankly - smarter, given CRM can make these acquisitions highly accretive (see below), doesn’t waste time and resources trying to reinvent the wheel, and jumps to the head of the line in a fast-moving world.

3) Enable and simplify the discovery and integration for any app not absolutely worth owning - not every application is worth owning; more importantly, it can be hard to tell which applications are the ones getting the greatest usage from enterprises and are thus the greatest long-term risks to not being owned. CRM closes the loop by building a robust interoperability ecosystem, which includes both its development and integration tools, but also its app store and app integrations. Again, by owning the data and the integration tools, the more integrations, the greater the platform’s import becomes. Moreover, it provides CRM with an early look at where M&A dollars and/or internal development resources should be focused, thus enabling a sustained strategic acquisition program. In other words, if CRM doesn’t feel a need to own something, they make sure it can be integrated with what they do own, and easily discoverable via their app store, which simultaneously makes CRM more valuable as a core enterprise software platform (customers have limited or no limitations on what they can use) while also giving them early insight into where they need to be as the world continues to evolve (they can see what apps and functions get the most attention from their customers from an integration perspective).

As a result, of the above, CRM is much more than just a rollup and certainly more than just a big enterprise software vendor. What CRM is going after is the value attributed to software (and the market caps their vendors) that is purchased more so due to vendor lock-in than true standalone value. 

2) CRM benefits from the proliferation of best-of-breed applications, even outside of its own portfolio

This point is obviously related to the above, but deserves its own air time. As noted above, historically - and even through to today - a significant amount of software purchases are due to the compelling value of the one-stop-shop bundle. By acquiring best-of-breed applications within key software categories, CRM is creating a best-of-breed alternative to other in-house bundles from MSFT, ORCL, SAP, IBM, etc. that provides the benefits of best-of-breed solutions without sacrificing back-end interoperability and data integration, given CRM’s combination of salesforce automation dominance and a plethora of development and application integration tools that unify company data streams.

An implicit challenge to CRM’s goal is the reliance on legacy technology vendors, whether due to brand (you don’t get fired for buying IBM, etc.) or bundled solutions. What helps CRM generally is the proliferation of best-of-breed applications in the enterprise, which break the culture of fear that often governs IT decision-making. Generally speaking, the trends are with CRM - among the benefits of cloud computing has been the ease of developing software today vs. decades ago. This in turn has caused an explosion of technology that seems to yield new killer apps all the time. Further, the consumerization of IT - the push to make enterprise technology tools more akin to consumer apps the everyman is used to - further pushes this trend. That is, the greater comfort that is established with venturing outside of the “traditional” enterprise IT sphere of influence, the more that CRM benefits, as organizations eschew using inferior bundled applications “just because” and move towards best-of-breed models that CRM is looking to empower. Put another way, CRM’s competition - as noted - are the largest conglomerate software vendors, but the nature of that competition isn’t about product quality, but more about CIO influence. The degree to which that influence is broken is beneficial to CRM, regardless of where it comes from. 

Slack is an illustration of this point. Slack is - fundamentally - a threat to MSFT, given its potential to break the enterprise’s standardization on email as the communication medium of choice, which in turn damages MSFT’s dominance in enterprise communications (via Outlook and Exchange), which in turn takes out one of MSFT’s legs that help enable its outsized enterprise influence. There were numerous reasons why CRM’s acquisition of Slack made a lot of sense, from Slack’s own integration strategy that could potentially overtake CRM’s, to being a missing piece of CRM’s portfolio, and other reasons. However, the most basic among those is that Slack’s success more or less comes at the direct expense of MSFT and anything that helps degrade MSFT’s influence is a positive for CRM. It’s also likely why the acquisition was a fit for management on both sides - they both shared the same goal of breaking the influence of legacy tech, namely Microsoft, and thus have highly aligned strategic interests. 

3) Phenomenally cash-generative business platform and accretive M&A machine

The cheap part of the thesis, but one that nonetheless matters. The enterprise cross-sale is a tail as old as time, but few do it better than CRM. Anything CRM purchases has the tremendous in-built advantage of being able to be flushed through CRM’s existing salesforce and distribution infrastructure, which eliminates the single largest cost of any enterprise technology company. While CRM is highly-acquisitive, most acquisitions are not all that additive to revenue on their own, while being low-margin, if not outright unprofitable, at the time of acquisition. Yet, CRM continues to grow at healthy rates (consensus has growth over the next few years decelerating into the high-teens from the mid-20s, which is still fairly amazing for a company with nearly $25B in revenue), with FCF margin >20%.

For example. Tableau was the largest acquired revenue of any acquisition CRM has done, and that was only $1.2B (~10% addition to rev) and had FCF margin of ~10%. No matter which way you slice it, CRM has done a tremendous job of integrating, growing, and meaningfully expanding profits of its many acquisitions.

Ultimately, CRM is in a small group of companies who have little-to-no capital constraints on what they want to do. They generate >$5B in annual FCF (and growing) with barely any net debt and a sizable degree of equity currency with which to make things happen.

Quick comment on numbers

I view CRM as a high-quality compounder that has the ability to continue growing at 20%-ish rates for the foreseeable future, while continuing to run 20%+ FCF margins. Ultimately, they are not going to stop acquiring companies and they have the ability to continue to do so quite accretively and profitably. More importantly, they don’t roll up companies in a pure roll-up sense and actually meaningfully grow what they acquire, operating the company strategically, not financially. New acquisitions of higher growth entities should continue to keep the mix of growth averaging out to high-teens to low-20s levels, while the distribution advantages add to acquired growth and meaningfully improve margins. 

All this is to say I view CRM as possessing the ability to compound their earnings at >20% annually for the foreseeable future as trends in enterprise technology move towards them and they continue to execute their strategy. 

Appendix I - Business overview

CRM’s business breaks down into 5 functional areas:

1) Sales Cloud (24% of FY22 rev) - the original use case; essentially the modern manifestation of salesforce automation software, aimed at automating common aspects of the sales process, from developing leads, to managing customers, to orchestrating billing. Common uses include: monitoring lead progress, forecasting, relationship intelligence (e.g., "do I know someone who knows this guy"), and delivering quotes/contracts/invoices

2) Service Cloud (26% of FY22 rev) - using the same customer database, but for customer support services; e.g., something call center employees might be using. There are software companies that specialize in "customer engagement" - this is a portion of that field (as is CRM's Marketing Cloud, noted below). CRM’s solutions Include individualized solutions for field service agents and omnichannel communication capabilities (e.g., chatbots). For example, if a field service agent leaves one job early, the system can take that info, send the next customer a text asking if the agent can come early and when he'll be there

3) Marketing & Commerce (16% of FY22 rev) - includes Marketing Cloud, which is marketing software, including email marketing, social media, etc. For example, if you're a small business, you might use Constant Contact or MailChimp for your email marketing, or SPT for social media, etc., but a bigger operation and use Salesforce for salesforce automation, you might use Salesforce for those functions as well. Email and social are just basic examples; the list goes on - CRM offers several modules and solutions under the "marketing" rubric. As noted, once again, the value-add is the integration with the Sales and Service products (or the data contained thereof) for maximum targeting and personalization (as well as ease of integration). As an aside, SAP buying Qualtrics was about heading off CRM, given that the Marketing Cloud + Service Cloud businesses are becoming behemoths in the customer experience sub-field. 

The other piece is here Commerce Cloud, which is essentially CRM's version of SHOP - online store site builder. There are lots of different flavors, with pre-fabbed options for B2B and B2C and several industry/vertical-specific solutions. It also includes other related tools, such as an order management system. Instead of a monthly subscription fee, pay a take rate / commission on sales/GMV (typically 2-4%)

There’s also the Experience Cloud, which is essentially site-builder tools to create "engagement destinations" for customers. This used to be called Salesforce Communities and was essentially a "pre-fab" forums-style website that you could customize for your specific purpose (e.g., customer self-help forums). This advanced over time to now include tools to build customer web portals (e.g., update account information, etc.), full-blown websites, mobile apps, etc. If Commerce Cloud is SHOP, Experience Cloud is WIX - tools for making specific sites or specific types of pages, usually within customers' existing web domain.

4) Platform & Other (18% of FY22 rev) - Platform refers to CRM's collection of tools / solutions focused on application development. In the pre-cloud days, the term for software that helps you create software was "middleware"; in the cloud world, its often referred to as a platform. Thus, "platform" in the context of application development refers to a product or product suite that developers use for their physical coding and application testing. Pre-cloud, developers would code, test, and deploy software on separate infrastructure, so as not to accidentally blow up anything important on a company's primary systems; like a digital lab. Likewise, "platform as a service" is the cloud equivalent of the software and hardware/infrastructure required for building, testing, and deploying software. 

Like any good PaaS offering, CRM provides several services - obviously, the underlying hardware infrastructure (I believe it runs on AWS), core code compiling, testing, and execution, and a plethora of other tools and resources to juice the development experience. Some examples of what sits in this piece include Heroku, which was an early PaaS pioneer (founded in 2007; acquired by CRM in 2010; see below), supporting multiple languages and providing numerous services that simplify the development process; Salesforce Lightning, which is a "low-code" drag-and-drop development platform, for "noobs" to create apps with minimal/no coding; other tools, such as mobile app development tools, AI and analytics capabilities, identity/access management tools, and security. There’s also Trailhead, which is CRM's learning platform for all things CRM (i.e., to learn how to use all that CRM has to offer) - sort of like a gamified online school for CRM features

This segment also includes the all-important Salesforce AppExchange, which is CRM's app store. There's the obvious aspect - other major software vendors who have integrations with CRM's array of products - but there's also the developer side, wherein anyone who builds something interesting utilizing / running on top of CRM's products/data can share it with the rest of the CRM community. As referenced above, there is tremendous strategic rationale here, given that applications for businesses typically utilize business data and business data usually revolves around customers, so by being the building ground for applications, you keep everyone inside your ecosystem - e.g., PaaS, not IaaS, is the real key to AWS's supremacy. This also makes CRM's SaaS tools incredibly powerful, because there is so much capability to customize and integrate all within CRM's ecosystem. This ultimately feeds on itself - the more you develop apps for CRM's ecosystem, the more you use and rely upon the ecosystem, the more you use it and develop more apps for it.

Finally, Slack is also operating within this revenue grouping.

5) Data (15% of FY22 rev) - Includes the former Analytics grouping, which was largely comprised of Tableau (acquired in 2019; see the acquisition section for more on this). Though there was an analytics business prior to acquiring Tableau, it was tucked under "Platform" and was more of an add-on than a standalone product. Tableau is enterprise analytics software that provides a drag-and-drop front-end for allows users to run queries and analyses on raw business data (e.g., ripping some report out of a CRM or ERP system). The basic idea is that if you wanted to run some correlation analysis on a huge data pool, you generally need some level of programming knowledge in order to develop and run the query. Tableau was one of the early pioneers of a "noob-friendly" front-end analytics software, so regular business employees could run analyses without calling in statistics experts or engineering personnel.

The other piece of the new Data grouping is the former Integration grouping, which was largely comprised of MuleSoft (acquired in 2018; see the acquisition section for more on this). MuleSoft is a middleware provider specializing in tools for integrating data sets from disparate applications. Typically, integrating one application with another requires custom code that connects the guts of one system to the guts of the other. This becomes tedious and a mess when connecting multiple applications and their data together into an "application network" (i.e., multiple connected apps with interconnected/feeding data). Application networks are increasingly common as everyone attempts to harvest and cross-pollinate data from different systems or applications. MuleSoft's major innovation was creating a "platform" (there's that word again) that became an abstraction layer to plug disparate applications into for common and more automated integration

M&A and VC investments have been - and continue to be - an essential aspect of the business / strategy

CRM is very explicit about using its positioning and capital to build the company beyond organic development. This extends to both M&A of more mature operations (i.e., not necessarily "mature companies" that are fully scaled, but mature in the sense of mature operations), as well as early-stage/VC investments. In fact, CRM's VC portfolio has provided significant financial value over time, with some very notable holdings in that portfolio. VC holdings that CRM held through US IPO include: ZM, DOMO, PLAN, LYFT, TWLO, DBX, MDB, MNTV, DOCU, SNOW, NCNO (only SNOW and NCNO are still currently in the portfolio). There are MANY more examples that are either public outside the US or have been since sold or divested - https://www.salesforce.com/company/ventures/portfolio/ - the list is insane. Certainly, the M&A list is long as well (see M&A section below). The core point being that CRM explicitly uses its resources to bring more companies and solutions into its sphere of influence, the idea being 3-fold: 1) CRM's SaaS business is set up as a family of apps all utilizing or contributing to the same underlying pool of customer data and intelligence, so more apps/offerings increases the platform's strength; 2) Even if not an owned-and-operated integrated app, the more companies that integrate with CRM's offerings - both PaaS and SaaS - the stronger the company's sphere of influence generally; and 3) It's a useful hedge against competition - CRM will buy anyone who is, or would potentially be, a threat; Slack was already big and public, but provides a good example of CRM snuffing out potential threats

Basic financial data / notes / commentary

Revs gave been growing mid-20s or better every year for the last decade+; trying to get to a real organic growth number is kind-of a fool's errand, because they buy so much every year, so what's to say what's "core" and what's "acquired". Obviously, they just closed WORK, which will add another ~5% to revenue, growing ~50%. At this point, the different "Clouds" are fairly well balanced in terms of contribution, though Platform is the biggest grower. 

GM% is strong, as it should be, 75%-ish normally, though sub revs run at closer to 80% GM%, with the pro services business (run at cost) bringing down the headline GM%. "Real" margins are a bit funky to figure out, since they keep buying subscale companies, so its hard to know what real margins look like. G&A has come down (which makes a lot of sense) and is now <10% of rev. Conversely, R&D has skyrocketed, from 9% in FY07 to 18% in FY22; between FY12 and FY19, R&D  was in a pretty tight range of 13-15%. The question is to what degree the R&D line can be scaled much better than low/mid-teens with the way CRM has been doing things. 

S&M, unfortunately, remains incredibly high and was never really not high. Fairly tight range of 44-46% last 5 years; prior to that, was usually >50%. S&M margin in enterprise tech can almost be used as a proxy for how dominant you really are - MSFT, ORCL, CSCO, DELL are all sub-30 on S&M. Obviously, such a binary view is a bit glib, but the point is that if you're mousetrap is really so obviously dominant/compelling in your field, S&M shouldn't be half your spend. On the other hand, CRM is an FCF monster regardless, with FCF now above $5B annually; there's a lot you can do with $5B in fresh cash annually. That FCF margin currently represents right around ~20% margin. Adj. EBITDA% runs at ~30% currently, adding back amortization of capitalized sales commissions and stock-based comp. Absent those adjustments, EBITDA% closer to 15% currently.

Appendix II - M&A history (not exhaustive, but hallmark deals)

• 2010

• Jigsaw Data (Data.com)

• Cost - $163M

• Financial size/margins/contribution - rumored to be running at ~$30M annual revenue at the time of acquisition; more of a technical acquisition than a monetary one

• What they do - cloud-based business data service, with a YELP-like crowdsourcing model for uploading and sharing business information (contact information, employees, business description, etc.)

• Why they bought it and where it fits - 2 reasons:

• Business intelligence data fit right into the relationship intelligence aspect of the Sales Cloud

• Jigsaw had a good technical mousetrap on automating the process of acquiring, completing, cleaning, and updating business information

• 2011

• Heroku

• Cost - $217M

• Financial size/margins/contribution - rumored to be in the ~$50M range; more of a technical acquisition

• What they do - PaaS company cloud-based coding suite, supporting multiple languages, and offering ease-of-use services for developers around managing the collateral work (e.g., managing server instances) related to app development

• Why they bought it and where it fits

• Heroku was one of the early pioneers of PaaS and was very popular in the early days of cloud-based development

• At the time of its founding in 2007, Heroku was a revolutionary service, where developers could code, test, and execute programs with cloud-based availability/accessibility on dedicated infrastructure

• Prior to the mid-2000s, developers were still coding on dedicated devices and infrastructure (e.g., if you left your laptop at home, you were screwed, or if you needed more server/storage space, it had to be provisioned)

• Moreover, those using cloud infrastructure to code still had to manage that infrastructure like they would if it was physically local; Heroku offered a service that "cut to the chase" and made it easy to simply code/test/execute

• Heroku was originally only for the Ruby programming language, but added more languages over time

• CRM beat out VMW in a bidding war for Heroku only 3 years after it was founded

• Arguably became the core for the more expanded Platform offering CRM has built out over the last 20 years

• Good historical perspective - https://www.infoworld.com/article/3614210/the-decline-of-heroku.html

• Radian6

• Cost - $341M

• Financial size/margins/contribution - added ~$40-50M in rev to CRM

• What they do - social media monitoring, comparable to SPT's "Listening" module that can monitor social media for certain trends/phrases/activity

• Why they bought it and where it fits

• Part of building out both the Service Cloud and Marketing Cloud

• Allows companies to analyze and pull data from hundreds of millions of social media posts / conversations

• Fits right into the social media marketing offering, while also adding to customer service - can see what people are saying about your product/service

• 2012

• Buddy Media

• Cost - $745M

• Financial size/margins/contribution - was rumored to be run-rating $100M at the time of acq, projected to go to $180M in 2013

• What they do - social media marketing platform (think SPT)

• Why they bought it and where it fits

• Idea was to combine Buddy with Radian6 in rolling out a major league social media marketing product

• Before SPT and Hootsuite, Buddy Media was the original and who everyone got compared to; they are the "enterprise grade" provider in this space

• The price was not only warranted financially (i.e., 8x rev for a company growing 80%), but strategically necessary, given how fast social media was replacing email as THE marketing channel

• It also was right around the same time that ORCL announced the acquisition of Vitrue, which was an early pioneer in social media publishing software (again, stuff that SPT has tried to improve upon and bring down to the SMB space)

• 2013

• ExactTarget

• Cost - $2.6B

• Financial size/margins/contribution - did ~$300M in 2012 , growing ~50%; GM% was in mid/high 60s, with high S&M expense levels

• What they do - digital marketing automation; originally known for email marketing, though they had expanded from that over time

• Why they bought it and where it fits

• First public company acquisition and largest acq to-date

• ExactTarget was one of the hot up-and-comers in digital marketing automation; largely known for email marketing (top competitors were MailChimp, Constant Contact, and Responsys)

• Arguably, the leader in email marketing, but the company had been expanding into other areas (social, SMS/mobile push marketing, among other areas)

• There's an Acquired Podcast dedicated to this deal

• As CRM commonly did and continued to do, they sought out the market leader in an area that was strategically important for them to enter and bought their way in

• Between Radian6, Buddy Media, and ExactTarget, CRM vaulted to the top of the marketing SaaS food chain in 2-3 years

• Again, marketing software is a natural extension of CRM for obvious reasons, so this entire strategy had a lot of logic behind it

• 2014

• RelateIQ

• Cost - $392M

• Financial size/margins/contribution - supposedly, only single-digit millions in revenue, but the tech was compelling and potential long-term threat to CRM's core Sales Cloud offering

• What they do - CRM software (sales org-focused) utilizing machine learning algos to automate CRM data entry and provide insights/analysis based on said data

• Why they bought it and where it fits

• RelateIQ's platform would rip data from email, calendars, and phone calls to fill out core CRM data and deliver analytics-based suggestions (e.g., who to pursue for a sale, etc.)

• Idea was to shortcut the process of actually going through emails, contacts, etc. for sales personnel - which can be significant - to just do it for them so they can spend more time actually pursuing sales

• Often referred to as a sort-of Siri / Cortana / Google Assistant for sales personnel

• This was heading off a threat to CRM's core Sales Cloud offering

• RelateIQ wasn't much of a business at the time, but the tech was quite compelling and seen as a threat to CRM were they to try ignore it

• This became another "build vs. buy - what's faster?" situation that resulted in a nice chunk of change for effectively IP and R&D heads

• https://www.fastcompany.com/3051088/relateiq-salesforces-390-million-siri-for-business-grows-up

• 2016

• SteelBrick Holdings

• Cost - $360M

• Financial size/margins/contribution - <$25M in rev

• What they do - configure-price-quote (CPQ) software, which ingests customer data and outputs how to price a product/service differently for each customer

• Why they bought it and where it fits

• CPQ functionality is within the Sales Cloud

• It's the kind of thing that was done by partners and CRM decided to bring in-house, buying someone that was already a partner, in the CRM AppExchange, and built using CRM's PaaS, and therefore easier to integrate

• Good CPQ software makes it easy to come up with customized pricing and quoting to different customers; bad CPQ software is an annoyance and ignored by the salesperson, who just employs the same old guesstimate process

• It’s also somethingthat hits back at ERP vendors, who would claim that they have better data for determining customer pricing (i.e., transaction data) than CRM vendors

• https://www.forbes.com/sites/greatspeculations/2015/12/30/heres-the-reason-behind-salesforce-coms-acquisition-of-steelbrick/?sh=56b03ef25dea

• Demandware

• Cost - $3B

• Financial size/margins/contribution - did $237M in 2015, including $201M of SaaS rev at 75% GM% and growing >30% (rest of rev is pro services)

• What they do - enterprise commerce software; think SHOP, but whereas SHOP is aimed at individual sellers and SMBS, DWRE was aimed at large brands/enterprises (e.g., L'Oreal, Lands End, Marks & Spencer)

• Why they bought it and where it fits

• This was CRM's more pronounced entry into their now-named Commerce Cloud; new area and added a new "Cloud" vertical for CRM

• Basic idea is to offer both the tools to acquire customers (Sales, Marketing) as well as to actually conduct the transaction (Commerce)

• In fact, arguably CRM covered the before (Sales, Marketing) and the after (Customer Service), but not the actual transaction; thus DWRE completed that circle

• Quip

• Cost - $750M

• Financial size/margins/contribution - reportedly was run-rating ~$30M at the time of acquisition

• What they do - cloud-based office productivity and collaboration suite (Google Docs/G-Suite or MSFT Office)

• Why they bought it and where it fits

• As the theme goes, features that customers use heavily in conjunction with CRM's apps, but via an integrated partner are consistently targets for CRM in-sourcing

• In this case, intra-company collaboration re: customer data would always be accompanied by a spreadsheet or word document and a chat function

• CRM was effectively dependent on integrations with GOOG, MSFT, and WORK for all those functions

• Quip was a collaboration-optimized cloud-based productivity suite (described by one as "the love child of Google Docs and Slack")

• Quip functionality was rolled into both Sales Cloud and Service Cloud as intra-app tabs to easily analyze, annotate, and discuss data with colleagues

• BeyondCore

• Cost - $107M

• Financial size/margins/contribution - estimated around $8M at time of acquisition

• What they do - business intelligence / analytics software

• Why they bought it and where it fits

• Prior to buying DATA in 2019, BeyondCore formed the basis for CRM's analytics tools

• While not as big or sophisticated as DATA, BeyondCore's core functionality carried a lot of overlap

• That is, offered the basics of AI-powered automated analytics

• As BeyondCore's CEO explained it: "think of it as drawing a million graphs. It’s statistically evaluating every graph to figure out how well is the overall behavior explained by this graph. Then it would turn it into a PowerPoint deck or a Word document where we’ll talk you through it saying, 'Your revenue is doing well in the US, but not in Germany. The reason it’s doing badly in Germany is that this product is selling badly in Germany'.”

• Was re-named Einstein AI and put within CRM's "Platform and Other" bucket as opposed to being layered in to one of the other clouds

• As with other acqs, while there was no shortage of analytics apps to acquire, BeyondCore was already integrated with CRM's various apps

• Krux Digital

• Cost - $768M

• Financial size/margins/contribution - estimated to be ~$50M at time of acq

• What they do - data management platform (DMP); a common product in the adtech space (often integrated with a DSP)

• Why they bought it and where it fits

• In adtech, at a basic level, a DMP is software that organizes, integrates, and maintains all the disparate chunks of data a company has

• As noted above, one of the value-adds of the CRM vision is companies with numerous apps have disparate chunks of data, often revolving around the same subject (e.g., customers) that aren't integrated

• DMPs are meant to be a centralized location to dump all of your data, integrate it, and make sense of it for the purposes of targeting in marketing/advertising, etc.

• Another acquisition aimed at further bolstering the Marketing Cloud

• This acq is more directly aimed at ad tech (vs. marketing)

• 2018

• MuleSoft

• Cost - $6.8B

• Financial size/margins/contribution - $238M in 2017 SaaS rev (another $59M in pro services), growing ~50%; SaaS GM% >90%

• What they do - "integration platform"; middleware service where MULE would act as an abstraction layer for integrating data from different applications in a uniform way

• 2 illustrative examples

• If you want to provide APIs to customers that accesses data housed in your ERP system, custom APIs would need to be rebuilt if you change your ERP provider; with MULE, if change ERP system, MULE abstraction keeps APIs the same

• If you integrate 2 apps, build custom links to each other; if its 3 apps, need to build links to/from each; the more apps, the more this gets out of control; MULE simplifies this as an abstraction layer

• Pro services was a bigger part of MULE than other SaaS providers because MULE would do a lot of the back-end leg work of integrating apps with their abstraction platform

• Why they bought it and where it fits

• Added to the "Platform & Other" bucket, but fits with the PaaS business, generally speaking

• Idea is to provide more resources for enterprises to more easily integrate applications and share data across applications (or build new applications utilizing said data)

• Datorama

• Cost - $758M

• Financial size/margins/contribution - ~$75M at time of acq

• What they do - marketing analytics software

• Why they bought it and where it fits

• Adds yet another asset to the Marketing Cloud, as well as CRMs analytics offering

• Almost like Tableau specifically for marketing data, where Datorama ingests lots of different data streams and outputs targeting strategies and areas of focus

• 2019

• MapAnything

• Cost - $225M

• Financial size/margins/contribution - estimated around $15M annual rev at time of acq

• What they do - provides developers with the ability to build location-based workflows or intelligence into applications

• Basically, shows location data that's normally housed in tables on maps so as to visualize location-based customer data

• Also integrates with GPS or other location-based services for use in determining optimal routes, inventory strategies, etc.

• Why they bought it and where it fits

• Yet another application that was built on top of CRM's PaaS and was a natural integration acquisition as a result

• Layered into both Sales Cloud and Service Cloud, as well as a part of the analytics offerings

• Tableau

• Cost - $17.4B

• Financial size/margins/contribution - ~$1B in rev, most of which was premise-based licenses, running at >90% GM%, growing double-digits

• What they do - market-leader in enterprise analytics software - software that ingests mountains of structured data and executes data queries (and visualizations thereof in charts/graphs, etc.) based on said data

• I always find the easy-to-understand example is that if you ran a bunch of "IF" functions in a big excel spreadsheet, Excel would slow down and ultimately crash if it got too big

• Tableau is designed to not only run those functions, but even more compute-intensive functions that are far more sophisticated on far larger datasets

• Its also designed for people that aren't necessarily super Excel or VBA users to be able to design and execute queries on datasets to figure things out

• Why they bought it and where it fits

• CRM had been inching increasingly into analytics software and finally just went full-throttle

• Became its own category ("Analytics") and is the main tool, with which the other analytics acquisitions are being integrated

• Analytics - generally speaking - is a natural extension of everything CRM is doing

• If you are going to build a mousetrap for housing a unified dataset across multiple apps, might as well provide functionality to analyze and derive insights from said data

• ClickSoftware

• Cost - $1.4B

• Financial size/margins/contribution - estimated at ~$200M

• What they do - field service management software (scheduling and optimizing service scheduling for field service agents; e.g., VZ managing field techs installing FIOS)

• Why they bought it and where it fits

• Layered on to Service Cloud

• CRM already had solutions here that were largely licensed on the back of ClickSoftware's IP

• In other words, there was a relationship here already and it resulted, ultimately, in an acquisition

• For discussion why it happened in 2019 instead of 2016 - https://diginomica.com/salesforce-buys-clicksoftware-why-now

• 2020

• Evergage

• Cost - $100M

• Financial size/margins/contribution - estimated at ~$15M

• What they do -  customer data platform, which is a fancy way of saying they have an engine that keeps meticulous, detailed profiles on a company's customers

• Those meticulous data profiles are then utilized for personalization, primarily in marketing/targeting and experience to a granular degree

• E.g., to the extent that a web or mobile landing page, email, social media page, or call-center call routing is all based on specifics from the customers profile

• Why they bought it and where it fits

• Largely a Marketing Cloud acquisition

• Somewhat of a me-too acquisition opposite ADBE and ORCL

• Vlocity

• Cost - $1.2B

• Financial size/margins/contribution - roughly $100M

• What they do - verticalized, industry-specific CRM systems

• Why they bought it and where it fits

• CRM has been looking towards verticalization as part of its growth strategy

• This was another "we could figure it out over time, or just buy someone who has already gone through the work of customizing CRM systems for specific industry verticals"

• Vlocity had 6 industry-specific CRM products (communications, media & entertainment, insurance, financial services, healthcare, energy/utilities, and government/non-profit)

• Vlocity's CRMs were actually built on top of CRM (so it was a piggy-backed set of products)

• It was essentially a CRM-specific R&D project that happened to have been done independently, that CRM bought to bring in-house

• 2021

• Acumen Solutions

• Cost - $433M

• Financial size/margins/contribution - roughly $150M, presumably at 30-35%GM% (usually that's what IT consulting firms run GM% at)

• What they do - professional services consultancy (as you might expect, they were a top-10 Salesforce partner/reseller)

• Why they bought it and where it fits

• Roundabout way of attacking the same industry-verticalization growth avenue

• Basically, industry-specific solutions often come by way of IT consultants with industry-specific practices

• As a result, CRM wanted to boost its in-house consultancy effort that would push its products for specific industry use-cases (i.e., could assist in showing a specific industry how CRM's apps can be tailored to their needs)

• Slack

• Cost - $29B

• Financial size/margins/contribution - $900M in subscription rev, growing 50%, at >80% GM%

• What they do - communication platform; instant-messaging on steroids, with a plethora of app integrations, thereby taking "communication share" away from email and serving as a collaboration undercurrent across all types of apps

• Why they bought it and where it fits

• "Small idea" reason is that WORK approached CRM about buying Quip (see above), which makes a lot of sense with WORK, but those discussions reversed and became CRM buying WORK

• "Big idea" reason is that WORK represented a long-term threat to CRM's long-term vision of being a (The?) platform upon which all business applications are delivered and run

• CRM's big vision is that enterprises never need to leave the CRM ecosystem, between CRM's apps, PaaS to build other apps, and partner integrations; thus CRM becomes THE platform, with everything running on top of it

• CRM's core value prop is its ownership of key business data that everything is built around

• WORK's long-term vision is similar, but instead of business data as its "glue", WORK was building around communication and collaboration, which is arguably more ubiquitous

• This extends to the PaaS strategy - WORK is doing something similar, complete with a low-code app development product and app store

• Certainly, the Quip acq (which seemed a bit strange/half-baked at the time - everyone is integrated with Office, G Suite, and Slack anyway) now has real legs behind the strategy

• Being run independently, but provides a meaningful hedge against being unseated as the center of the enterprise app universe, upon which everyone else gets layered

• Even more specifically, could argue this really comes down to MSFT

• MSFT is the center of the enterprise software universe - they own much of both the core infrastructure and the information worker's day-to-day (Windows, Azure, Office, Outlook, etc.)

• ORCL tried to get there, but couldn't do it (their infrastructure gambit with Sun 15 years ago was a flop; their IaaS business never really got off the ground, etc.)

• CRM is trying to get there now, but they don't have a compelling productivity or collaboration angle

• Thus CRM buying WORK is really about taking the fight more directly to MSFT in CRM's bid to overtake them as the center of the enterprise software universe

Catalyst

1) Continued compounding of FCF

2) New acquisitions and/or accretive allocation of $5B+ in annual FCF

3) Monetization of VC portfolio