The only constant in today’s world is change, and nothing exemplifies this more than the innumerable mergers, acquisitions and take-overs that have dotted the IT landscape over the years. The latest rumor in circulation is the imminent takeover of Salesforce by Microsoft.
Sources with insider knowledge revealed to Bloomsberg News that Microsoft has recently made a bid for taking-over Salesforce.com after Salesforce was first approached by another would-be buyer, in all probability Oracle, and that Salesforce is now engaged in consultations with two investment banks to determine whether to turn away the bidders or to work out a sale. Both Oracle and Microsoft have strong product integration with Salesforce.com cloud applications.
Is there truth in the rumors?
Salesforce is the market leader in customer relationship management (CRM); it’s naturally a tempting target for anyone with enough cash on their hands. However, $47.01 billion is a humongous number and if this actually comes through, the Salesforce.com acquisition will be one of the most expensive technology acquisitions ever! Note that only a handful of Fortune 100 companies such as Oracle, Microsoft, IBM or SAP can afford it.
Officially, both Microsoft and Salesforce have been tight-lipped on these developments. Oracle is also silent, however, none of them have denied the rumors.
What’s adding fuel to fire
- Microsoft and Salesforce, once bitter rivals, are of late starting to cozy up with one another. In 2014, they struck a partnership to ensure that their respective software work better together. Marc Benioff, the CEO of Salesforce, and Satya Nadella, the CEO of Microsoft have also been praising each other publicly, and meeting up often in recent times.
- With its own CRM lagging behind, Microsoft’s acquisition of Salesforce would allow the software biggie to expand itself in the CRM space. Just a week before the rumors broke out, Microsoft set itself a goal for increasing its annual revenue from commercial cloud business to $20 billion by 2018. This is a big leap from the $6.3 billion that it earns in this space now. Organic growth alone is not realistically enough to meet this target, leaving acquisition as the most probable way to reach there. The acquisition would allow Microsoft to leap-frog to the number one spot in the enterprise cloud segment, and given the importance of CRM in the front-end application ecosystem these days, the company, now mostly living on its reputation, would become newly relevant to developers.
- Salesforce itself may be amenable to a take-over, as the company was involved in strategic-alliance discussions with SAP SE last year. SAP, however, has confirmed that it’s not bidding for Salesforce now. Marc Benioff may not necessarily want to sell the company he founded and has painstakingly invested a lot of time, effort and other resources and may rather want to go ahead and realize the vision he has set on accomplishing. However, at the end of the day, Salesforce is a customer company, and Benioff’s focus on customer experience could influence his decision on sell. If Beinoff considers that customers would find Salesforce more productive and more valuable if it is tightly integrated with Microsoft, he may just be tempted to sell. In any case, for all the goodwill and market position Salesforce has established, it is not very profitable yet. Selling to Microsoft would allow Salesforce to get access to the former’s extensive partner network, in the process create the first successful partner cloud sales example while turning out a handsome profit as well.
Impact of the takeover
The million-dollar question, however, is the impact any potential acquisition would have on the key stakeholders of the IT industry.
The deal is not likely to change much in the day-to-day workings of the cloud, and for either of the two companies.
End users, especially existing Salesforce and Microsoft customers stand to gain. The deal is sure to enhance interoperability between Salesforce’s offerings and Microsoft’s Office 365, and maybe even merge the two into one. It might become possible for customers to get the best of both worlds by integrating their Salesforce data with Office programs.
As for other players, the clear-cut winners would most likely be large system integrators such as Perficient and other solution providers, who work with both Salesforce and the acquiring company, be it Microsoft or Oracle. Such providers would be able to leverage their already-existing presence to expand their footprint.
The move would, however, be bad news for pure-play smaller regional partners and the small mom-and-pop market, who would suffer from the imminent disruption in the software market that the takeover would cause.
What the future holds
Salesforce’s take-over by Microsoft is by no means a done deal or even confirmed. In fact, the most recent reports suggest the contrary. Sources disclose that Microsoft finds the market cap of approximately $49 billion too high, but the fact remains that with more than $92 billion in cash, Microsoft could very well afford it and may just be setting the stage for negotiations.
The field is still wide open though.
Some Wall Street analysts regard Oracle and not Microsoft as the most likely buyer, and the company who made the initial bid. While Microsoft, and even IBM and HP are all potential suitors, it is Oracle that is desperate to go big and establish itself as a leader in the cloud space. Oracle needs a “transformative move” in the face of competitive pressures from a wide range of SaaS competitors who have overtaken it. The fact that Salesforce.com is built on the Oracle database, and that several top executives of Salesforce, including the CEO Marc Benioff, are former Oracle veterans, would make the company a better strategic fit and ease the integration.
There could be a few dark horses in the fray as well. Acquiring Salesforce would help IBM gain a presence in the CRM space, where it does not have a strong presence, and in the process round out its SaaS portfolio. HP could consider buying Salesforce to kick off a new business model, and add to its already broad set of enterprise offerings. Amazon and Google, both leaders in the IaaS market, would find Salesforce handy to diversify into the SaaS market.
Regardless of who ends up with Salesforce, which itself is still a big assumption, the buyer would have a job on their hands to make the acquisition work. The buyer would need the wherewithal to grow the business on the trajectory and pace that Salesforce is on, while tiding over the regulatory and compliance issues that would surely come up.
Amidst all this, there is also the outside chance that Salesforce could turn the tables and become an acquirer itself. Two potential candidates are Workday, whose human-resources software complements Salesforce’s offerings, and Adobe, which is now increasingly in competition with Salesforce in the marketing software space.
It’s interesting times ahead and you should brace yourself for the ride. Until then, the only winner is Salesforce.com shares, which soared 12 percent last week to touch $74.65!