10 Million Steps

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10 June 2019

Salesforce acquires Tableau; some strategic considerations

by Wojciech Gryc

Salesforce announced today that it is acquiring Tableau, valuing the company at $15.7B – about 35% higher than the company’s valuation at market close last week.

This is a fascinating decision on Salesforce’s part. It comes 15 months after its Mulesoft acquisition. It’s worth considering what it means for Salesforce and the broader CRM market.

Putting Tableau in context

With the acquisition of ExactTarget and Demandware, Salesforce shifted its customer base from B2B companies to include B2C players as well. It focused on becoming the center of all revenue for companies, be they account executives writing proposals or email marketers working for retailers.

More recently, Salesforce is betting the future of its revenue growth on digital transformation. In Marc Benioff’s own words:

We really pivoted our entire company into something that we call Customer 360. It’s a pretty hard pivot for our company, and we’re so excited about this opportunity, and a lot of it is because of tremendous momentum that we’ve seen over the last year with MuleSoft. And this idea that what our customers want us to do is to be able to take everything they’re doing in regards to their customers.

So that is their sales, their service, their marketing, and their journeys, their commerce and their customer engagement systems, apps they’re building, APIs that they’re building for developers to integrate with those customers. All the analytics, custom applications by industry, the communities, the learning and reskilling systems that I mentioned, and the employee experience as well.

The Salesforce and Tableau user bases are vastly different

With Tableau, the vision above begins to include finance professionals, analysts, and other internal staff members who report around the business but do not necessarily interact with customers.

This is a big expansion: Tableau caters to business analysts or managers who need to analyze data, while Salesforce is focused on B2B salespeople and B2C marketers. There’s a minimal overlap between their core user bases.

The users themselves also pay vastly different amounts for each piece of software. Tableau has approximately 1 million users, while Salesforce has 1.4 million (i.e., Trailblazers). For the most recent quarter, this means Salesforce’s quarterly revenue per user was about $2,500, while Tableau had a quarterly revenue per user of $280.

Tableau mentioned it only had 16 customers paying over $1M for the software, licenses, and services. Salesforce likely has many more, given its pricing structure and list of major customers. For example, the largest Commerce and Marketing Cloud customers pay well over $1M per year, and if you have several hundred account executives, you’re likely paying over $1M for Salesforce CRM as well.

Tableau as a business unit will be small and represents a divergence from Salesforce’s cloud-oriented approach

As a business unit, Tableau will be a smaller and slower-growing one than any other Salesforce unit. Salesforce has four major business units it reports revenue for: Sales Cloud, Service Cloud, Platform, and Marketing & Commerce Cloud. As a new business unit, Tableau would be half the size of Salesforce’s smallest business unit. Worse still, it will be one of the slowest-growing ones as well (15% per year based on the last quarter, versus 11% for Sales Cloud; all other units are growing 20% or more per year).

Notwithstanding the fact that it focuses on analysts, the actual product philosophy of Tableau conflicts with that of Salesforce. Over 58% of Tableau’s revenue is labelled as “Maintenance and Services”, which includes professional services fees, and ongoing support for on-premise versions of its software. Saleforce typically outsources professional services to channel partners and has taken a strong stand against on-premise options. This was a risky move that has worked well for Salesforce as more companies have become comfortable with using cloud-based services over the past decade.

It’ll be interesting to see how Tableau evolves as a result of this. As per Salesforce:

Following the acquisition close, Tableau will operate independently under the Tableau brand, driving forward a continued focus on its mission, customers and community. … Tableau will remain headquartered in Seattle, Wash. and will continue to be led by CEO Adam Selipsky and the current leadership team.

I expect that in the long run, on-premise options will be removed or made obsolete, with integration services being covered by external partners and/or off-the-self solutions like Mulesoft.

If I’m right, this means the revenue benefit of the Tableau acquisition is even smaller – as much as half the size of Tableau’s current revenue numbers.

So why acquire Tableau?

Salesforce is obtaining a relatively small revenue bump from the deal – one that is growing more slowly than most of Salesforce’s own business units. Furthermore, Tableau users pay significantly less for the BI tool than the average Salesforce user pays for Salesforce. This acquisition enables Salesforces to move into a new part of the org chart within businesses with some credibility. Analysts, finance professionals, and other backoffice employees will be exposed to – and cross-sold – Salesforce products.

There’s been some early criticism that Salesforce is overpaying for Tableau, but this is not about revenue. Salesforce is paying a hefty multiple of revenue for Tableau to give itself the credibility to sell to analysts and analytical business professionals, not just to those roles that deal directly with customers. That’s a big shift.