The Salesforce.org social enterprise of cloud software giant Salesforce is being melded back into the company and Salesforce is paying $300 million to make it happen. The firm has been selling customer or constituent relationship software at a discount or giving it away with nonprofits eventually paying various service fees.
Salesforce.org will convert from a California public benefit corporation into a California business corporation and Salesforce will pay a one-time cash purchase price of $300 million for all shares of Salesforce.org. The $300 million will be distributed to the independent Salesforce.com Foundation, a California nonprofit public benefit corporation and 501(c)(3) organization.
Salesforce announced it will continue to provide free and discounted software to nonprofits and education institutions and will facilitate employee volunteering, strategic grants and matching employee giving up to $5,000 per employee annually. Salesforce made the announcement during a call with investors and analysts on Monday and issued a press release.
Salesforce will create a new nonprofit and education vertical led by Salesforce.org CEO Rob Acker. The new vertical will be responsible for the sales, marketing and customer success of the Salesforce Customer Success Platform to the nonprofit and education communities, as well as the development of Salesforce.org’s Nonprofit Cloud, Education Cloud and Philanthropy Cloud vertical applications. The company will make additional contributions to the Salesforce Foundation.
The deal is subject to approval by the Attorney General of California. Upon the closing of the transaction, Salesforce will terminate its current reseller agreement between Salesforce and Salesforce.org, and Salesforce will incur a one-time, non-cash accounting charge in the fiscal quarter in which the transaction closes.
A spokesperson for Salesforce said the company can make no further comments until the deal is approved, which is expected in either June or July.
Salesforce estimates that this non-cash charge will be approximately $200 million, but the final amount will not be determined until the closing of the transaction. Salesforce is a traded on the New York Stock Exchange with the symbol CRM. Salesforce stock opened Tuesday down $6.95 per share, about 4 percent from its 52-week high of $166.99.
The combination with Salesforce.org is expected to increase the company’s full year fiscal 2020 revenue by approximately $150 million to $200 million, depending on the transaction close date, according to the firm. During the conference call with investors and analysts, Salesforce’s Chief Financial Officer Mark Hawkins admitted that margins are smaller when dealing with nonprofits and the monthly subscription rate.
“But it’s also going to be on a pathway and convergence over time to our overall Salesforce operating margin over the longer term,” Hawkins said during the call. Prices are expected to increase, although not immediately.
Technology experts in the nonprofit sector have been expecting this type of move for some time. “The number of nonprofits using Salesforce has been accelerating, so it’s not a surprise to me at all that they want to bring Salesforce.org into the main business,” said Amy Sample Ward, CEO of NTEN, the Portland, Ore., nonprofit technology organization. “I hope that building an internal vertical for nonprofits and education will mean even more investment in the unique needs those sectors have, and an increased visibility across the other verticals of the power of the technology for social good,” she said.
The deal could cut two ways, according to Karen Graham at Tech Impact, based in Philadelphia, Pa. “On one hand, this could open up access to product development resources at a level not seen before in Salesforce.org. It is part of a dawning realization across the tech sector that nonprofits are not just a feel-good investment, but a huge part of the economy — with formidable buying power. On the other, giving up their public benefit corporation status means Salesfore.org will be accountable above all to Salesforce shareholders, not the good of society,” she said.
Adam Martel, CEO and co-founder, of fundraising technology firm Gravyty in Boston, Mass., said that it’s an interesting deal, but might not be a bad thing for nonprofits. “Because Salesforce.org was an actual 501(c)(3), it always felt like they were cost-constrained and struggling to achieve their full impact to empower both small and large NPOs (they were slow to build new products, slow to fill tech gaps, etc.), especially as they sat in the shadows of Salesforce’s hyper-growth.”
Martel said his hope is that the deal will “finally provide Salesforce.org full access to the robust resources of Salesforce that has made Salesforce such an impactful company. Since nonprofits are so price-sensitive and have an upper-limit to the amount of money they can spend on technology (within the realm of cost to raise a dollar metrics), I think that Salesforce has a great opportunity to improve their products quickly, serve more of the market and achieve greater scale which will increase their revenue and allow them to be directionally aligned with Salesforce investors.”