CPQ’s Time to Shine

Last month, Salesforce Ventures, Salesforce's corporate investment group, swung into action. They led a Series B round of funding that garnered US$41 million for Apttus, a high-flying CPQ vendor. Salesforce Ventures also participated in SteelBrick raising a series B round of $18 million. That's two CPQ vendors that Salesforce has taken an interest in. The question is, why?

Configure, price, quote software was once a barely thought about branch of CRM, falling under the heading of sales enablement. But lately, it’s been getting a lot of attention from a familiar source,

The question is, why?

You can easily argue that many forms of business don’t require CPQ, so that’s a possible reason it’s been in the background forever. For instance, if you sell a service, chances are reasonable that you need to develop a customized statement of work with calculated estimates of time, materials and labor — and few of those things come out of a catalog. Services sales has its own version of CPQ, but it’s different and a story for another day.

CPQ’s sweet spot focuses on line items, quantity, extended prices, add-ons and discounts — but why Salesforce’s sudden interest in CPQ? I can think of some reasons. Some, if not most, CPQ systems like Apttus also manage contracts, and you can’t really have a valid contract about a deal unless there’s an itemized list of materials, promises and all the rest. The same can be said on a services statement of work but that’s, again, another story.

Expectations and Requirements

In today’s marketplace many deals are consummated almost without human contact. Two people might get together to specify a need, the salesperson will develop a quote, and the haggling is conducted electronically, if at all. But the pace of business is so torrid these days that the turnaround time needed to develop a quote, get it approved by your boss, and into the hands of the customer is shrinking. If you can’t deliver quickly, your competition can, which would place you at a serious disadvantage. Subscriptions add a new wrinkle, since those deals can be consummated with zero direct human contact. Customers have come to expect contracts as quickly as they can make selections.

In thermonuclear terms you could say that there’s an arms race ongoing in many markets to ensure that each sales team is adequately supplied with the tools that enable rapid and accurate quoting. Understandably, vendors like Salesforce want to ensure they can offer their customers a choice of quality solutions and they need to be able to do this at the enterprise level, which often requires that the emerging vendors staff up.

Salesforce Funding CPQ Vendors

Last month, Salesforce Ventures, Salesforce’s corporate investment group, swung into action. It led a Series B round of funding that garnered US$41 million for Apttus, a high-flying CPQ vendor. Apttus’ claims to fame are multiple and include being built on the Salesforce1 Platform (very important to Salesforce) and offering some innovative technology that enables the user to access and use Microsoft Office products like Word and Excel to build quotations. No more wrestling with product catalogs and handwriting the first draft for your department admin to decipher. It’s a productivity tool, for certain.

Not to be outdone, SteelBrick made a similar announcement a few days later, raising $18 million in a series B round led by Shasta Ventures, with participation from existing investor Emergence Capital and new investor, (tada!), Salesforce Ventures.

That’s two CPQ vendors running on the Salesforce1 Platform that Salesforce has taken an interest in.

It’s not strange to see a big dog like Salesforce stuff multiple arrows into its quiver — and it’s a big market — so I am sure the CPQ players will be able to differentiate well enough for the time being.

What’s Ahead?

It’s just me, but I don’t think CPQ by itself is enough to build a story around that you can take to the public markets. In an era of universal platforms, CPQ is a good thing to have, but at the end of the day, it’s a feature. It will never be a platform outright — we are too far down that road. All that, plus larger vendors’ thirst for end-to-end product and business process coverage, suggests either a merger or acquisition, or both — the order of events is not clear.

You could imagine such a scenario for almost every category in the Salesforce AppExchange, yet that won’t happen because Salesforce needs a well functioning ecosystem capable of generating billions in annual revenue if it is to reach its goal of becoming one of the biggest software companies in the universe.

But CPQ is different, in many ways it is core to selling and CRM, and for that reason I could envision a scenario where one or both of these companies gets acquired by Salesforce, as many other core competency companies have already. By investing early, Salesforce might be seeking to identify the right time and price.

Denis Pombriant

Denis Pombriant is the managing principal of the Beagle Research Group, a CRM market research firm and consultancy. Pombriant's research concentrates on evolving product ideas and emerging companies in the sales, marketing and call center disciplines. His research is freely distributed through a blog and website. He is the author of Hello, Ladies! Dispatches from the Social CRM Frontier and can be reached at [email protected]. You can also connect with him on Google+.

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