Sometimes the best acquisitions are those that don't make headlines. For all the pomp and circumstance that Oracle buying Hyperion or Google buying DoubleClick received, I believe one of the most potentially significant acquisitions of the last few weeks got far less fanfare. Last week, Salesforce.com announced the acquisition of privately-held Koral. While terms weren't disclosed, I've heard unconfirmed chatter that total considerations were between $10mm and $20mm. Even at the low end, that's a nice return for founder Marc Suster and his angel investors; who reportedly put a little more than $1mm into the three-year old, 9-person firm. Koral's products have been rebranded ContentExchange, and Suster has joined Salesforce as product group VP.
This deal garnered very little attention from the investment community, which wouldn't be surprising were it not for the attention last year's Kieden deal garnered. While the Kieden deal was worthy of attention, I believe Koral's technology represents a much larger expansion of Salesforce's market opportunity in the long run.
What is Koral?
I had the chance to see Koral firsthand at Ismael's Office 2.0 Conference last year. In a sea of "me too" companies, Koral was one of a select few that stood out as having a differentiated approach toward solving a real business problem. Credit that to Suster and his team for having been through the startup game before. They obviously realize that cool technology isn't enough. Workers don't need a new spreadsheet app when Excel works just fine. But they DO need more efficient ways to search for unstructured content, manage files, share collaborative workspaces and handle versioning. Think of Koral as a Web 2.0 collaboration suite [yes, its "competition" would be Microsoft Sharepoint Services, Adobe Connect Professional and WebEx Connect].
Koral addresses each of these pain points in a way that's intuitive.
- Creation and sharing – Koral provides a private workspace that eschews a hierarchical file structure. Hierarchies are an absolute must for structured content, but they are arguably the biggest barrier toward fast and fail-safe retrieval of unstructured content within a corporate network. With Koral Share, you can create a document and drag and drop it into the workspace. From there, you can add contextual tags [or accept Koral's recommend tags] and manage/monitor who can read, edit and retrieve the document.
- Subscription and versioning – The Koral workspace is driven by a subscription mechanism. Users can choose to subscribe to individual documents, or authors, or metatagged groups. For example, a field sales rep can subscribe to any content that is tagged "sales." When you're subscribed to a document, there's never a worry that you're about to access an out-of-date version. The days of a sales rep launching an outdated version of a product demo or marketing presentation are over thanks to Koral.
- Search – How many times have you tried to dig up an old presentation or document, and struggled to remember either the file name or the folder location? Koral's centralized workspace and tagging make real language search and retrieval an easier process. The combination of tagging, full-text indexing and a frequency-of-use algorithm [how often is the document accessed? How many times does the search term appear? Is it in the title or only deep down in the document?] produce effective search results. Another interesting feature is the ability to preview any type of content before downloading it; helpful for today's mobile workers [although maybe not as helpful now that laptops come with 80- to 160 Gig hard drives :) ]
A lot of you are probably thinking, "OK, this sounds great, but traditional enterprise content management [ECM] solutions do all of this and then some." True, but what sets Koral apart from other collaboration tools I've come across is EASE OF USE. The cardinal rule of K.I.S.S. reigns supreme for a lot of today's workforce; particularly field sales representatives who are the natural low-hanging fruit here given Salesforce.com's position in SFA. The reason SfDC enjoyed such tremendous uptake in SFA isn't because it's got a richer feature set or is less expensive than traditional CRM. The reason it's been deployed is because it's EASY TO CONFIGURE and INTUITIVE. Sales reps don't want 20 tabs to manage their contacts and deal pipeline. They want the minimum amount of functionality that serves their purpose, and they want it to work with little training or configuration. Koral does for unstructured content management what Salesforce has done for traditional SFA process management.
When I saw the Koral demo at O2O, my first reaction was, "it's the ANTI wiki." Don't get me wrong, I love wikis and think they're powerful tools for certain kinds of knowledge management. But they're not optimal for all users; including field sales reps who have neither the time nor the interest in feeling their way around the wiki landscape. Over the last few months, I asked at least half dozen buddies who are in software sales to take a look at Koral. Universally the responses were positive, with the general reaction being, "why don't we have a tool like this?"
For many of them, now they do. Tying Koral's functionality into the core SFA functionality of Salesforce is a no-brainer. As Phil Wainewright says,
Further confirmation of the strategic importance of collaboration was to come within the ensuing few days. Microsoft's CEO Steve Ballmer called Sharepoint "the definitive OS or platform for the middle tier," followed by Cisco's acquisition of WebEx, which led Tim O'Reilly to describe collaboration suites as "the next generation of must-have enterprise software." Behind the scenes, Salesforce.com was already ahead of the game, because as we now know, it had already completed the Koral acquisition.
That's game-changing for Salesforce.com because collaboration is becoming the largest and fastest-growing segment of the SaaS sector — faster even than Salesforce.com's own CRM segment — and with a much larger potential reach, because it touches every employee in an organization rather than being restricted to specific departmental roles. Becoming a content management player adds a completely new and much larger opportunity than Salesforce.com's existing CRM market, brings it into direct competition with some heavyweight players (TechCrunch lists them) and, suggests Ismael Ghalimi, opens out an intriguing roadmap into Office 2.0 territory.
Remaining questions and observations:
- Validation of AppExchange as an outsourced R&D platform – Last year, when the Kieden deal was announced, I posited that Salesforce was effectively leveraging AppExchange as outsourced R&D; and the Koral deal is further evidence to that end. Like Kieden, Koral put a significant amount of focus on integrating with Salesforce. That pre-existing integration significantly reduces the technology risks of the acquisition; we already know Koral and Salesforce work well together. Salesforce got to see Koral's momentum and its functional footprint long before it had to undertake financial commitments to the idea. As a Salesforce investor, I sincerely hope we see more of these kinds of deals in the future.
- Infrastructure costs – Storing unstructured content, indexing and versioning it, plus adding a sophisticated audit trail involves a lot of cycles and storage. We're not talking about indexed flat files here. What are the infrastructure costs of supporting this on a scaled basis? Will Salesforce offer this as a truly hosted solution, or will this be a subtle departure from the current go-to-market strategy? Is the incremental margin profile of ContentExchange banded more than the sale of its traditional CRM apps? Will SfDC leverage something like Amazon's S3 in a formal manner to provide the needed storage infrastructure at affordable costs? I believe SfDC is still wrestling with these questions internally, which is why they've put off announcing pricing until later in 2007.
- Specialization of the sales force? – SfDC has become a large company and, with that, comes a natural evolution of the field sales force. Global account overlays make sense. Vertical specialists will, over time, make sense. Will offerings like ContentExchange be better served with specialized reps or should this be in everyone's bag?
Related Enterprise Irregular content:
Note: This is not a recommendation to buy or sell AMZN, ADBE, CRM, CSCO, GOOG, MSFT, WEBX or any other security, but is merely a personal analysis to foster discussion for informational purposes only. At the time of this writing, I and/or funds I maintain discretionary control over maintained long equity position in CRM, CSCO and MSFT but did not maintain a position (long or short) in AMZN, ADBE, GOOG, or WEBX . We also may, at times, carry derivative options on underlying positions as a hedge.
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This evening, the Enterprise Irregulars descended on La Famiglia Giorgio restaurant in Boston for a get together. As with all EI get-togethers, I was sure it would be a worthwhile experience, but tonight proved to be particularly entertaining.
