Virtually every CPQ (Configuration, Price, and Quote) software vendor on the planet has a credible solution for the processes from which the category gets its name. That’s the good news. Unfortunately, the world has moved on. Most CPQ is effective for helping to promote transactions, especially the sales transaction, in which a buyer or buying entity makes a one-time purchase of a bill of goods. Typically, it’s so many from column A, a different number from column B, and something different from column C. It might be an annual order but you can bet that last year and next year’s manifests won’t look identical.
CPQ is very useful when the vendor is in a competitive environment and the customer needs to iterate on the order. (Do we really need so many from column A?) The vendor wants to be as responsive as possible to drive the deal to close especially because experience shows that the first vendor with a revised or corrected quote often wins the business.
What’s changing in the world of CPQ is that customers are in need of more than a single transaction today. The rise of subscriptions has meant that things change all the time now, or at least more frequently than they did a short time ago. So the business processes that CPQ needs to support are far more numerous than what supported the transaction.
As subscriptions rise the vendor needs many more things from a CPQ system or whatever you call the software that oversees contracts, incentives, renewals, ecommerce and more. If you’re selling through an indirect channel your CPQ system might need to expose a PRM channel. Likewise, while you might have a billing system tied to your ERP and financials, your CPQ system is going to need at least lookup capability into orders and bills. Finally, your ability to be with customers in their moments of truth anytime and anywhere means you’ll need an ecommerce salient and a mobility capability that your sales people can use and soon, the same functionality for customers who’d rather just do it themselves.
Does your company need all of this in a CPQ system today? Probably not but the writing is on the wall. As selling becomes more automated it will be increasingly important for vendors to have access to a broad solution set that goes well beyond what was adequate a few years ago, something for what’s needed down the road.
As the IoT comes into its own we know that there will be machines communicating with machines—we’re already comfortable with the idea that sensors will report to other machines or even people that something needs attention. But take this a little further and you see that algorithmically driven businesses processes will take over some of the purchasing responsibilities. At that point having a CPQ system that can work through channels with other systems to identify needs and keep transactions within contractually agreed guidelines will be essential.
As good as today’s CPQ might be there’s already room for improvement and that should inform anyone in the market for CPQ. So for the vast numbers of businesses that don’t yet have and use CPQ but who need it (not everyone does) there’s good and not so good news. The not so good news is that it’s getting late and you’ll fall behind if you’re using a combination of spreadsheets and Word to generate quotes—especially if they need an extra day for approvals. The good news is that there are credible products on the market to automate and take the friction out of much that is manual right now. Even better, getting started now with a clearer idea of where this is all heading means you can evaluate the players in the context of these future needs and make one decision that should stand the test of time.
Configure, price, quote (CPQ) 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, Salesforce.com. 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, 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 (SOW) but that’s, again, another story.
In today’s marketplace many deals are consummated almost without human contact. Two people might get together to specify a need and the sales person 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.
So 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.
So, a few weeks ago Salesforce Ventures, Salesforce’s corporate investment group swung into action. They led an investment round (the B round) that garnered $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 hand writing the first draft for your department admin to decipher. It’s a productivity tool for certain.
Not to be outdone, Steel Brick made a similar announcement raising $18 million in a series B round led by Shasta Ventures with participation from existing investors 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 it is a feature at the end of the day. 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.