Editor’s note: Salesforce will bridge customers’ disparate data sets with MuleSoft deal, says Kelsey Mason, senior analyst with Technology Business Research.
HAMPTON, N.H. – Over the last few years, Salesforce (NYSE: CRM) has evolved its portfolio and go-to-market strategy to be a trusted partner in customers’ digital transformations. Data is the driving force behind digital transformations and Salesforce plans to take the next step in helping customers harness their vast amounts of data through the acquisition of MuleSoft.
The deal, valued at $6.5 billion, will add an Integration Platform as a Service (iPaaS), which is used to connect disparate software systems, cloud-based or on premises, using application programming interfaces (APIs), to Salesforce’s arsenal. These APIs provide the means for Salesforce’s clients to more easily connect their disparate sources of data, while also surfacing their non-Salesforce data within Salesforce applications.
While the front-office aspect of digital transformation is important, true enterprise-wide digital transformation cannot occur without access to back-office systems, which Salesforce lacks within its own portfolio, along with the insights that come from those systems and solutions. Though Salesforce could acquire its way into the ERP market, legacy giants SAP (NYSE: SAP) and Oracle (NYSE: ORCL), as well as custom-built ERP systems, will continue to occupy the majority of large enterprises’ back office IT environments.
Internet of Things role
MuleSoft’s AnyPoint Platform for API creation and management gives Salesforce and its customers the ability to create connections between Salesforce applications and the variety of other cloud and legacy systems residing in customers’ landscapes to provide a more comprehensive view of the enterprise. This is critically important to Salesforce’s ambitions around artificial intelligence (AI), Internet of Things (IoT) and verticals.
AI and IoT are tightly intertwined as the massive amount of data gained from IoT is leveraged through AI. MuleSoft’s integration platform will enable the disparate IoT data sources to be connected to Salesforce’s applications, and the insights from that combined data set can be created, surfaced and acted upon through Salesforce Einstein. On the vertical front, many of Salesforce’s key industries including healthcare and financial services often have self-built, monolithic systems that contain mission-critical data on premises.
While these systems are critical to understanding the customer journey, it can often be difficult to extract the full scope of data from these systems. Salesforce now has a compelling value proposition for digital transformation that allows customers in these industries to gain new value from existing on-premises systems.
No more ‘No Software’
MuleSoft provides a small advancement toward Salesforce’s $20 billion revenue goal, bringing in nearly $300 million in revenue in 2017. Prior to the acquisition, MuleSoft expected growth of more than 40% for 2018 and Salesforce seemingly expects this trajectory to continue as it raised is FY22 guidance by $1 billion; Salesforce’s distribution and sales channels will likely boost MuleSoft’s projected growth and long-term revenue trajectory. However, MuleSoft’s AnyPoint Platform can be deployed on premises or on the cloud, meaning term licenses are now a part of Salesforce’s financial profile. While term licenses are recognized the same as subscriptions on the income statement and MuleSoft will ultimately be less than 5% of Salesforce’s overall revenue at the time of acquisition close, the inclusion of on-premises software is a departure from Salesforce’s age-old “No Software” mantra. This is ultimately a small sacrifice for Salesforce to make to ensure its place in customers’ digital transformations.
(C) TBR
