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Salesforce to pivot with Steelbrick acquisition?

Den Howlett Profile picture for user gonzodaddy December 29, 2015
Summary:
Salesforce acquisition of Steelbrick raises many competitive questions for the As-a-Service providers and those operating on the Salesforce platform.

Businessman on ladder planning network design in cloud © Tom Wang - Fotolia.com
(© Tom Wang - Adobe Stock)
Salesforce acquisition of Steelbrick should serve as a warning call to industry competitors and platform devotees alike. It is a change of direction that captures part of what we see as a general shift to business solutions rather than functional solutions. It also raises questions about building on other people's platforms.

Phil Wainewright has done a masterful job of outlining the problems that Salesforce partners and now competitors will face once Salesforce gets its act together in positioning the acquired configure-price-quote (CPQ) functionality within Salesforce's various clouds. The question left hanging in the air - what next? Your clues start here with this:

In the beginning, it was only in highly specialized contexts that all these various activities were complex enough to justify investment in software. But as automation spread and became more cost-effective thanks to cloud delivery, they have become more prevalent. That, in turn, has led to more demand, because if your competitors are using tools like these to provide a better, faster service to your customers, then it’s only a matter of time before you end up taking them on too.

[My emphasis added]

At a more fundamental level, this acquisition starts to answer the question, often raised by competitors, that Salesforce (and its many clouds) is only an add-on to core ERP.

To be fair, competitors often used that throwaway line as a way of masking their ineffectiveness. That can no longer be ignored. In my view, this acquisition, if correctly executed against, repositions Salesforce into an as yet to be defined category. That category can loosely be described as a true business solution that meets the strategic objectives of business going forward. If that sounds rather grand, then let's pause and think what this means.

A brief history of time

The period 1990-2005 was largely dominated by vendors who automate the back office accounting and HR admin functions. Some added CRM and supply chain capability, but the reality is those same vendors largely sold accounting and HR. CRM may have been an important part of the portfolio, but business leaders were mostly focused on squeezing out the cost of running routine processes. That era has come to an end, although we see plenty of wiggle room for robotization and automation that will keep ERP developers busy for some time to come. We also see plenty of scope for switching to cloud-based operations as companies question the cost efficiencies of operating in-house systems. This last piece also has some way to play out. Regardless, the direction is clear. It's cloud all the way.

Once Salesforce started adding more to its back office CRM, things changed because Salesforce could credibly argue that it was morphing into a cloud vendor of choice for adjacencies that make sense in a CRM oriented world. But up until this acquisition, we would still tend to see the company as offering a collection of functional systems, albeit operated in a common cloud infrastructure, rather than a coherent solution set.

The Steelbrick acquisition changes that perception. Now, we have the tantalizing promise of a vendor that solves for some of the pressing needs of tomorrow and, specifically about managing top line revenue. In that sense, Salesforce is the first vendor to credibly answer the question of getting from interest (marketing) to quote (Steelbrick) to buy (sales) to billing (Steelbrick again.)

That's a good start, but it doesn't answer all questions. Not by a long way. So for example, while there is plenty to like about subscription billing capability for the As-a-Service economy, there are massive holes to fill for the supply of goods. And then there are the all important accounting requirements. Like it or not, ERP may be 'old skool', but no-one gets to run a business without accounting.

Today and as Phil notes, the Steelbrick acquisition allows Salesforce to get back to providing value to its core SMB customers,  something that has been lacking as the company chose to concentrate on developing larger enterprise markets and capabilities. To steal Wainewright's expression; it's only a matter of time. In my view, this acquisition puts enterprise level competitors on notice that it will be coming after them. More to the point, competitors will have to think up an entirely new playbook if they are to be perceived as credible alternatives, even if they have superior functionality today.

The platform problem

To my point about platforms. I have consistently argued that the time when the suite alone wins is over. There is plenty of evidence for that in the defensive plays we see among competitors. Today it is the platform enabled suite that wins. The platform is where Salesforce has benefited from the many add-ons developed on its platform and from those that became acquisition targets. Like Steelbrick.

The current situation poses a tricky question to which Salesforce partners have yet to find an answer. What functionality do we build that represents a defensible moat against Salesforce while complementing Salesforce solution set? My take on those Wainewright mentions:

  • Apptus - must be deeply worried. As I said above - it's only a matter of time.
  • Kenandy - should be OK provided that it accelerates development and sales. It plays in the manufacturing space that has so much diversity that a pure play to particular markets would be a distraction for Salesforce.
  • Zuora - must be worried. While Zuora has done a first class job of meeting subscription billing requirements, at the end of the day it is a feature, not an application. Its only real hope is that Salesforce will look at the many complexities involved in this play and put development on the back burner. But if Zuora takes that position then it will quickly become a defensive player. Paradoxically, I believe that Zuora as a non-native ISV is a disadvantage unless it can align successfully with Salesforce competitors. Let's see how it plays out.
  • The others - will be fine where they have deep vertical market expertise around which Salesforce cannot compete in the medium term.

More broadly, I have to wonder whether FinancialForce can remain a stand-alone cloud accounting vendor within the Salesforce orbit. While it has done remarkably well in the upper SMB space and continues to do well in PSA, adding the debits and credits to an enlarged Salesforce offering makes sense in the context of quote-configure-order-cash-service.

Outside the tent?

Competitors like SAP, Oracle, Infor and Microsoft will likely look at this and, to a certain extent, shrug their shoulders. They're all moving to cloud deployments that they often see as little more than a deployment method rather than one that provides a competitive advantage but which requires a drains up technical rethink. That will change but slowly.

More likely, they will look at their portfolios and view their offerings as good enough to compete. That's a mistake. Good enough might have been OK in years past but it is of no good when pitched against a company like Salesforce that consistently wows its customers with a combination of pizza-azz and world class marketing.

My take

Like Wainewright, I look forward to seeing how the Steelbrick acquisition plays out. There is considerable potential for Salesforce to pivot away from functional clouds to business solutions provider. If it takes that cue then we will see a very different Salesforce to the one we view today. It will reinforce the customer experience needs of the modern buyer while enabling both a much needed degree of automation and transparency in the quote-to-cash process.

Disclosure: FinancialForce.com, Salesforce, SAP, Oracle and Infor are all premier partners at time of writing

Image credit: Businessman on ladder planning network design in cloud © Tom Wang - Fotolia.com

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