At first glance, Salesforce's $1.35 billion acquisition of ClickSoftware seems just like any other. Through the deal, the CRM giant gets to expand its reach in the fast-growing field service management (FSM) market with new technology and customers. But in this case, it's not quite as straightforward as that — this is a deal that might have been done as early as 2016. What made Salesforce decide the time is finally right now?
The extent of its longstanding relationship with ClickSoftware is something Salesforce likes to keep under wraps. When the CRM giant first entered the FSM market back in 2016 with the launch of Field Service Lightning, this wasn't a homegrown product of its own. To speed time to market, Salesforce licensed large chunks of the IP from ClickSoftware, whose developers effectively wrote the software.
For obvious reasons, Salesforce didn't highlight this contribution. It was useful to be able to say that some of the more specialized functions, such as scheduling and optimization, had been developed by people with experience in the space, but Salesforce downplayed the extent to which ClickSoftware had contributed. Meanwhile ClickSoftware, under the terms of the agreement, was not allowed to make play of the relationship in its marketing. So nobody spoke much of it at all.
Why wasn't this deal done in 2016?
Why didn't Salesforce save itself all of this trouble and just buy ClickSoftware there and then? The previous year had seen Microsoft acquire FieldOne, and a year earlier Oracle had bought TOA Technologies. It wouldn't have looked that out of place, although Salesforce-native FSM player ServiceMax would have felt snubbed.
Despite its coyness about such deals, Salesforce actually quite likes this model of using third-party developers for specialist software. Another example is its Financial Services Cloud (FSC) for Retail Banking, which incorporates elements of the Bank Operating System developed by Salesforce-native partner nCino. It's a useful way of building a credible presence in a market without having to do everything from scratch, or make an outright acquisition.
In the case of ClickSoftware, another factor was the intervention of private equity investors Francisco Partners, who bought out the Nasdaq listed company in July 2015. Then there was its history. Originally founded in 1997 in Israel, where the bulk of its staff are still based, it was largely an on-premise vendor, and had only just launched a fully multi-tenant, AWS-hosted version of its flagship product in January 2016. With all of that investment in its new product yet to show fruit, it was a better prospect for private equity than it would have been for Salesforce at the time.
There was also still room for differentiation between the two company's offerings. Field Service Lightning was primarily going to be bought as an extension to Salesforce Service Cloud. Although it offered a decent set of functionality, it started out as an entry-level offering. In contrast, ClickSoftware was more focused on companies that had more specialized needs, as then CEO Tom Heiser told me at the time:
I think that the original intent was that we [Click] would be working on the more complex environments that probably required more customization and more services. I think that Salesforce is really, really good at rapid deployments and implementing what's available [out of the box]. So I think that there is a natural bifurcation along those lines in terms of simple, rapid, perhaps a little bit more down market, versus larger, more complex, heavier service requirements.
So what's changed now?
Several things have changed in the three years since that interview took place. Crucially, the price is now right — although it seems there's been a bit of back-and-forth on that. Reuters reported back in January that a $1.5 billion deal was in the air. Clearly Francisco Partners felt it was time to realize the fruits of their investments, but perhaps Salesforce wasn't happy with the price tag first time around. Nevertheless, it would not have been keen to see the author of its FSM product end up in the hands of a rival.
During the intervening three years, ClickSoftware has made good progress in shifting customers towards its cloud platform. At the same time, Salesforce has increased its use of AWS as an infrastructure partner and has become more adept at attaching other platforms after its acquisition of MuleSoft. The technology planets are therefore more aligned.
The other significant change has been the growing strategic importance of field service management for Salesforce. The company is keen to increase its penetration in the manufacturing sector, where field service plays an important role but is typically a more complex process than in the consumer marketplace. ClickSoftware's additional heft in more specialized FSM requirements across both B2B and B2C markets will be helpful to that push.
There's also the Internet of Things angle — instrumenting devices and environments in the field is becoming an increasingly important part of a modern FSM offering. Salesforce has already introduced some early IoT functionality to Field Service Lightning and will want to progress further along these lines. From its earliest days, ClickSoftware has always made use of machine learning and may have some useful IP to offer in this field.
One final factor to bear in mind. With the annual Dreamforce conference set for November this year, closing this deal now gives just about enough time to line up some strong product announcements coming out of the acquisition. Expect new FSM offerings to feature at the show.
Definitely a case of, to adapt the catchphrase from Victor Kiam's 1970s Remington shaver ads, "I liked the product so much, I bought the company."
[Updated August 20th in fifth paragraph to make clear nCino runs natively on the Salesforce Platform]