Most estimates put e-commerce penetration in the U.S. somewhere around 10 percent right now. If you’re one of those people who’s already moved most of their shopping online, that number may seem astonishingly low. Most people expect it to more than double in the not-too-distant future.
So it’s understandable why Demandware ($DWRE) CEO Tom Ebling thinks he can continue to build a bigger and bigger business selling picks and shovels in this gold rush, with the help of Salesforce ($CRM). The San Francisco-based CRM giant is acquiring his company, which has projected revenue up to $308 million for 2016.
Investor Larry Bohn at General Catalyst said Demandware’s $2.8 billion buyout is GC’s biggest outcome yet. The fund through which GC backed DWRE distributed returns to investors last year, but some of the partners still held stock individually.
It was not something people understood or found it easy to sell.
Still, from Bohn and other investors the outcome brought out a mixed response. “It didn’t reach full potential as an independent company,” Bohn said.
Like Bohn, venture investor Michael Skok was there at the beginning, leading North Bridge’s share of Demandware’s seed round. John Pearce, Skok’s partner alongside C.A. Webb in founding their new firm, Assemble, was chief executive before Ebling.
Skok, who is speaking at BostInno’s State of Innovation event next week, said the stubbornness of leaders like Pearce, Ebling and Demandware founder Stephan Schambach has paid off.
“John, Jeff, many of the others who created the original business model with Stephan made the business model a customer first business model,” Skok said. “It was a revenue share. It was not something people understood or found it easy to sell. There were many doubters, many dark days along the way.”
Bohn acknowledged as much in an interview with the Boston Globe. “We probably said no to him about 100 times,” he told the Globe’s Curt Woodward. “We kept saying, ‘Well, maybe we would do it if you could find a customer.'” Demandware’s first customer, according to that report, was Zabar’s, the famed New York deli. The next was Gardener’s Supply Co., a Vermont catalog company.
Schambach is off using his stubborn streak where applicable a new company, NewStore, founded in 2015 and focused on mobile e-commerce. Ebling, for his part, plans to stay at Salesforce after the acquisition closes in 2017.
He compared the Demandware acquisition to Salesforce’s “Marketing Cloud,” built on the $2.5 billion acquisition of Indianapolis-based ExactTarget in 2013. “Indianapolis employees have tripled. Revenue has tripled,” he said. “The aspiration for us is very similar. That’s our goal.”
As Olivia Vanni pointed out in Wednesday’s BostInno Beat newsletter, sometimes it’s easier to buy into new markets. Salesforce’s accounting cloud, FinancialForce, launched in 2009 but has yet to beat competitors in enterprise resource planning (ERP) the way Demandware has dominated e-commerce software.
Salesforce already has 300 employees at a Boston office, compared to Demandware’s 430 here, according to the Boston Business Journal. Its chief operating officer, Keith Block, lives here. “There’s an enormous opportunity in talent there,” he told the BBJ’s Sara Castellanos.
Ebling talked about a blurring of the line between marketing and sales. Much as that line has blurred in business-to-business sales, marketers’ and retailers’ desire to see a complete picture of customer interaction has brought them to that point in e-commerce.
In slide 62 of her Internet Trends report, published Wednesday, Kleiner Perkins investor Mary Meeker addressed some retailers’ motivation for capturing that data in what she calls retail’s “new normal”: “Drive transaction volume -> Collect/use data -> Launch new products/private labels.”
I mentioned that to Ebling: “It’s one of the key reasons that retailers even those that do sell in markets like Amazon they want to have a very engaging experience with their customers,” he said, “so they can get exactly the kind of information you’re talking about.”