This post originally appeared over at Why is this interesting? in June, 2019.
Noah here. On Monday Salesforce bought Tableau for $15 billion. That’s a lot of money for two companies you may not know much about, particularly if you don’t work in sales/marketing, technology, or live in San Francisco. Salesforce is the leading customer relationship management (CRM) platform and Tableau one of the biggest business intelligence (BI) vendors in the world. The former helps you keep track of all your customers and prospects in a centralized way and the latter makes it easier to connect and visualize data.
Why is this interesting?
The fight over the software that operates businesses feels like its entering a new phase. Just last week Google spent over $2 billion buying a different BI company. Microsoft has been snapping up big business-focused assets like LinkedIn and Github, and Adobe may be amongst the least talked about $135 billion market cap companies that exist. They’ve done that by at once moving all their Photoshop and Illustrator customers to cloud subscriptions while also building up the most dominant tech stack in marketing anchored by their content management system (CMS) Adobe Experience Manager and their purchase of the marketing automation vendor Marketo for $4.75 billion last fall.
All of these companies are capitalizing on something colloquially referred to in the business world as digital transformation: an attempt to shift the way work gets done by heavily layering in technology. The challenge, as McKinsey recently pointed out, is that it’s not really working:
Years of research on transformations has shown that the success rate for these efforts is consistently low: less than 30 percent succeed. This year’s results suggest that digital transformations are even more difficult. Only 16 percent of respondents say their organizations’ digital transformations have successfully improved performance and also equipped them to sustain changes in the long term. An additional 7 percent say that performance improved but that those improvements were not sustained.
Even digitally savvy industries, such as high tech, media, and telecom, are struggling. Among these industries, the success rate does not exceed 26 percent. But in more traditional industries, such as oil and gas, automotive, infrastructure, and pharmaceuticals, digital transformations are even more challenging: success rates fall between 4 and 11 percent.
The irony, as the report points out, is that despite the success rate, those that deploy the most technology seem to be the most successful. “This might seem counterintuitive, given that a broader suite of technologies could result in more complex execution of transformation initiatives and, therefore, more opportunities to fail,” the report explains. “But the organizations with successful transformations are likelier than others to use more sophisticated technologies, such as artificial intelligence, the Internet of Things, and advanced neural machine-learning techniques.”
While I raise a skeptical eyebrow to all those buzzwords (and recognize the grains of salt that have to accompany any research like this), this roughly matches what I’ve seen working with big companies and technology. Mainly, the bigger the investment, the more internal motivation there is to ensure it doesn’t fail. That doesn’t mean it’s the right way to do things (and often those kind of top down organizational mandates prove wholly ineffective), but at least someone is putting their money where their mouth is. In the end, this search for tech to operate your business is inevitable and companies will keep buying software until they find the thing that works. Which, in a way, both supports and refutes the crazy valuations the software market is seeing. (Supports because there’s a big market, refutes because, as the research shows, it’s frequently not sticking.)
Back to Salesforce and Tableau, the purchase sits squarely in the center of this digital transformation trend, but also signals an attempt by the company to break out of its sales-focused place in the org chart. Bloomberg tech columnist Shira Ovide hit the nail on the head: “Salesforce wants to become a sprawling supermarket like Microsoft or Oracle Corp. that offers more types of technologies that companies need. The Tableau acquisition — along with Salesforce’s purchase last year of software-integration firm MuleSoft and its failed acquisition of LinkedIn a few years ago — show that Benioff and his company aren’t afraid to splurge to reach into more corners of business technology.” (NRB)