- 2020 was a turbulent year for Salesforce, with significant executive upheaval and its largest acquisition ever when it bought Slack for $27.7 billion.
- Insider asked analysts and partners what’s ahead for the company in 2021 and they said that Salesforce will have to focus on integrating Slack to prove that the acquisition was worth the cost.
- They’re expecting the company to double down on its industry specific clouds, especially for the public sector, as competition continues to mount from Microsoft, Oracle, and even smaller players.
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2020 was a turbulent year for Salesforce.
On top of shifting its business to adapt to the ongoing coronavirus pandemic, it saw significant executive upheaval: Former co-CEO Keith Block left the company in February and, in December, chief financial officer Mark Hawkins announced his upcoming retirement, with 16 other executive departures in between.
It also bought Slack for $27.7 billion in December — its largest acquisition ever — and announced a new growth target: $50 billion in revenue by 2025, which is more than double its projected revenue for its current fiscal year, which ends January 31.
Insider asked five analysts and partners how Salesforce would absorb all those changes over the course of 2021 and what other challenges may lay ahead. In short, they’re expecting the company to focus on integrating Slack once the deal closes to try to prove that the acquisition was worth the cost while doubling down on its industry-specific clouds. They’re also watching how Salesforce’s leadership evolves, as new execs come to the forefront, and how competition will continue mounting this year from Microsoft, Oracle and even smaller players.
Salesforce’s stock could be in the ‘penalty box’ following the Slack deal, one analyst said
Salesforce’s acquisition of Slack was met with mixed feedback. Although many analysts saw the strategic reasoning behind the deal, some questioned the high price tag.
“Benioff and Salesforce are outstanding acquirers: I think this is a company that has largely added value through its acquisitions, but this is one that I think people are going to want to see,” Baird analyst Rob Oliver said.
Until Salesforce proves the worth and fit of the Slack deal, its stock is likely to be in the “penalty box,” he said.
Credit Suisse analyst Brad Zelnick agreed: “I think the street is trying to wrap their heads around the strategic fit,” he said. Another large deal so soon after the over $15 billion acquisition of Tableau in June 2019 has some investors concerned, he added.
Still, the deal “has potential to be a very strong combination,” Zelnick said. Given that the transaction won’t close until mid-2021, he doesn’t expect it to be a significant contributor to Salesforce’s financial performance this year, but will be watching for early signs of integration.
With Salesforce projecting that Slack will bring in $4 billion of its $50 billion in revenue by 2025, it has a lot of work to do to grow the messaging app: Slack posted $630.4 million in revenue in 2019 and projected between $870 million and $876 million in revenue for 2020, prior to the acquisition.
To increase Slack’s revenue by more than $3 billion in five years, Salesforce will have to quickly expand its reach within large companies, analysts said, integrating the product so deeply with its own that it becomes the default way customers interact with Salesforce’s products.
The firm may increasingly focus on industry clouds, particularly for the public sector
Experts also expect Salesforce to double down on selling specialized tools to specific industries like healthcare, financial services, government, and manufacturing. Former co-CEO Keith Block first developed this industry cloud strategy, which was reinforced by Salesforce’s acquisition of Vlocity for $1.3 billion last February. Vlocity builds technology for specific industries on top of Salesforce’s platform, and adds more capability to what Salesforce had built in-house.
“Expect to see a much bigger push around talking about digital transformation by industry and the industry expertise that Salesforce provides,” Valoir analyst Rebecca Wettemann said.
The expansion of industry clouds could be a mixture of organic growth and acquisition, said Ian Gotts, CEO of Elements.Cloud, a Salesforce partner. While another large, Slack-like acquisition is probably not in the cards for a while, a smaller acquisition to give Salesforce some more industry expertise wouldn’t be surprising, he said.
“Slack hits the core platform, but an industry acquisition is essentially configuration on top of the platform,” Gotts said. “So it’s a very different sort of acquisition.”
In particular, Salesforce could continue to tackle the public sector, which it has previously described as a “significant opportunity,” Credit Suisse’s Zelnick said. To that end, it recently acquired Acumen Solutions, a Virginia-based consulting firm that counts the US Army, State Department, and Department of Homeland Security as its customers.
Additionally, one of Salesforce’s close partners in government — Rhode Island Governor Gina Raimondo — is President-elect Biden’s pick for commerce secretary and her appointment would give Salesforce credibility at the highest levels of government. Raimondo inspired the creation of Salesforce’s Work.com tool for contact tracing and vaccine management when she approached the company to help with her state’s pandemic response last April, and her experience using software to solve problems could be good news for Salesforce’s future business in government, analysts said.
New leadership will need to come to the forefront
Salesforce’s leadership changes are also top of mind for analysts, who will be watching how new execs adjust. Beyond 2020’s departures, CFO Mark Hawkins is retiring at the end of January, with former chief legal Amy Weaver officer taking over, and Stephanie Buscemi stepped down as chief marketing officer at the beginning of January, with exec Sarah Franklin taking over.
Franklin has been at Salesforce for 13 years, most recently as the head of its ecosystem of developers and partners, Platform, and its online learning platform, Trailhead.
“Sarah’s been instrumental in building both the product and the story around Trailhead, which has been tremendously successful,” Valoir’s Wettemann said. Trailhead currently has over 2 million users.
Franklin’s experience in building an online community will be critical as Salesforce continues to try to reach its customers and partners digitally, like with online events instead of in-person.
“[The community] needs events — it wants to meet people,” Elements.Cloud’s Gotts said. “Understanding how to respond to that is, I think, one of Salesforce’s marketing challenges for the year.”
2021 will also mark the first full fiscal year Gavin Patterson holds the chief revenue officer role, which he took over in August, Zelnick points out, so he’ll be watching how Patterson leads the sales teams. He’ll also be watching to see how Weaver leads the finance organization Hawkins will leave behind.
Experts also expect to see the influence of COO Bret Taylor to continue to grow within the company. Taylor masterminded the Slack deal, signifying his importance to Salesforce’s overall vision, and will be critical to its integration.
Analysts expect increased competition with Microsoft and Oracle, especially for customer data platforms
Analysts are also anticipating increased competition from Microsoft, Oracle, and even smaller players like Informatica. Several smaller companies and startups, like Pipedrive, Freshworks, and Hubspot, are challenging Salesforce’s core CRM business.
Another specific area of competition that stands out as the most important, according to Valoir’s Wettemann, is for customer data platform software.
These platforms store the customer data that software companies use to connect all their applications and make sure customer information flows seamlessly through them. Salesforce’s approach is called Customer 360, and it focuses on collecting data in its customer-focused software and then connecting it to other applications. Microsoft and Oracle, on the other hand, are creating independent central data storage systems that can connects to various applications, Wettemann said.
As more customers start using this technology, it will become more clear which approach is most effective, Wettemann said: “It’s such a rapidly evolving space that there’s no clear leader at this point.”