The rumors are constant, yet Salesforce.com is doing just fine on its own for now
Every few months,
about an impending acquisition of Salesforce.com
, and Microsoft
have all been named as potential suitors, yet Salesforce.com keeps plowing ahead and denying that their end game is to be absorbed by a technology behemoth.
They deserve a lot of credit for being a pioneer of SaaS, or to use their term, cloud applications, said Michael Fauscette, VP of IDC's Software Business Solutions Group. They did much of the heavy lifting to prove SaaS is a viable business model. Fauscette also believes that Salesforce.coms recent PaaS (Platform as a Service) push is a good move and should pay off well in the long term.
That said, Fauscette also believes that Salesforce.com may have a tough time going it alone and could well be an acquisition target in the future. While he declined to name names, Fauscette said that in the tech world there are three distinct castes: the top-tier companies who do the buying (Microsoft, IBM, HP, Cisco and the like); the attractive targets, such as Salesforce.com; and everyone else (those without the deep pockets to buy the missing pieces they need to be successful, and also lacking enough IP to be worth acquiring, except after a bankruptcy proceeding).
Fauscette is a tough critic when he divides the tech world up like this. In his view, even companies as successful as VMware and SAP are targets, not heavy-hitting buyers.
A Troubled Competitive Climate
While Salesforce.com has been and continues to be a success, the competitive landscape is changing in ways that put it at risk. The company earned its stripes in the SMB market, but that original customer base is being eroded by cheaper offerings from Zoho, SugarCRM and others.
At first glance, thats not such a big concern. After all, Saleforce.com has been focusing its efforts for the past few years on moving up market, and it can now claim the likes of CNN, Motorola and Starbucks as customers.
The trouble is that just as Salesforce.com has made inroads into the upper tier, big players like Microsoft and Oracle have expanded their portfolios to compete in this space.
Theyre under a lot of pressure, competitively, Fauscette said. Oracle is very aggressively going after them. That should worry Saleforce.com. Oracle has a huge sales machine. Theyre claiming lots of wins versus Salesforce, and Ive seen some evidence of that.
Saleforce.com Fires Back
When I posed the acquisition question to Bruce Francis, Salesforce.coms VP of Corporate Strategy, he declined to comment. However, he did tout his companys viability, as well as its head start in the cloud computing market.
Take a look at the
Q2 2010 earnings report, Francis said. It shows that cloud computing has real resonance.
For Q2 2010, which ended July 31, 2009, Salesforce.coms revenues were up, year-over-year, 20% to $316 million. The company claimed 3,900 new customers for the quarter, bringing its customer base to 63,200. Net profit for the quarter was $21.2 million.
The Q2 earnings beat most analysts estimates. Some of the success can be chalked up to the weak dollar, which helped Saleforce.com gain overseas customers, such as the Japanese Governments Ministry of Economy, Trade and Industry. However, its expanding role as a cloud provider must also be taken into consideration which well get to momentarily.
During its Q2 earnings conference call, CEO Mark Benioff argued that it was the strength of its platform that was driving Salesforce.coms success. Benioff boasted that Salesforce.com has been scoring plenty of its own wins against Oracle and Microsoft.
He claimed wins against Oracle with insurance broker Marsh, along with Comcast, Thompson Reuters, AT&T and several others, while also saying that several new customers were former Oracle on Demand customers who got fed up and fled to Salesforce.com.
Against Microsoft, Salesforce.com points to head-to-head wins at Fujitsu, Progressive Media, Fain Capital, Etech and others.
Salesforce.com has also been broadening its portfolio beyond SFA and CRM. They recently made investments into SaaS companies targeting the financial and health care industries, backing FinancialForce.com and Practice Fusion.
Saleforce.com has always been a horizontal play, and these vertical moves show that it is intent on staking its claim to what it perceives as underserved, high-value niches.
The Power of the Cloud
Returning to Salesforce.coms cloud presence, Francis argues that it is the SaaS/cloud business model that is integral in driving future success. For shrink-wrap software companies, the bulk of their revenues are on the front end, with smaller service and maintenance fees from there on.
Next Page: the Acquisition Landscape
Compare that to us, Francis said. When we sign a three-year deal with a large company, we can only recognize 1/36th of the revenue each month. Were very much tied to success of our customers.
The company divides its cloud suite into three distinct offerings: the Sales Cloud, its flagship SFA and CRM products; its Service Cloud, a solution for customer service and support call centers and self-service Web portals; and the Custom Cloud, the Force.com platform for developing and running custom applications.
As a sign of things to come, the companys Q2 earnings showed that the Service and Custom Cloud services have grown to represent more than 25% of its new business signings.
A Salesforce.com Customer Speaks Out
FindAPro is typical of Salesforce.coms early customer base. An SMB that provides a review site where homeowners can rate home improvement professionals, FindAPro built its entire site on Force.com.
CEO Justin Rattigan has been a Salesforce.com customer since 2000, sticking with them as he moved from a small Web design firm to e-commerce company Solid Cactus and on to FindAPro.
Back in 2000, when Rattigan first started using Salesforce.com, most CRM and SFA offerings were designed for large enterprises. SMBs were left out in the cold. Everything else was either far too expensive or pretty much useless, he said.
A lot has changed in the decade since Rattigan signed on with Salesforce.com. However, Rattigan hasnt been lured away by lower-priced competitors. Moreover, hes grown to embrace the broader Salesforce.com portfolio.
Salesfore.com is more of a platform now, and using Force.com, I was able to build out my entire site, pretty much by myself, in about a week, he said.
Even if FindAPro one day grows into a large company, Rattigan believes that theyll stick with Salesforce.com. He pointed to the open nature of the platform, noting that major players like Oracle and Microsoft will have to fundamentally change how they do business in order to give end users the openness and flexibility that they now have with Salesforce.com.
The Acquisition Landscape
Clearly, there are strong arguments to be made both for and against a Saleforce.com acquisition. But this is a speculative article, so Im going to go ahead and handicap the most likely outcomes:
An acquisition by Microsoft: 15-1P: Microsoft is too in love with their own CRM and cloud efforts to buy anyone elses. The company prefers the divide-and-conquer strategy over the acquire-and-integrate one.
By Oracle: 10-1: For a while, pundits loved the idea of an Oracle acquisition. However, Oracle is busy building out its On Demand suite and has its sights set on beating Salesforce.com at its own game. Moreover, wouldnt Oracle be more likely to acquire SAP?
By SAP: 9-1: It makes perfect sense, which means its not likely to happen. Despite some movement towards SaaS offerings, SAP is still an old-fashioned shrink-warp software company. A major acquisition could radically change their culture, which means theyll pass.
By Google, 5-1: Rumors flew in 2008 that Google would acquire Salesforce.com. It didnt happen. However, Google has made no secret of its desire to unseat Microsoft in, well, just about everything that Microsoft does. Salesforce.com would give them greater penetration into the cubicle, and, at the very least, the acquisition would give Microsoft a few more gray hairs.
A current partner, such as IBM, Dell or Cisco: 5-2: Last year, IBM rolled out its Center of Excellence, which is intended to assist organizations worldwide in evaluating, implementing and driving value from SaaS for customer relationship management (CRM). There are other CRM vendors who stand to benefit from this, but Salesforce.com was widely seen as the big winner. Would an even closer association make sense for Big Blue?
Other partnerships of note include a cloud computing effort aimed at SMBs with Dell and a contact center in the cloud undertaking with Cisco. It wouldnt be a surprise if either of them came calling one day.
Salesforce.com remains autonomous: even: The case is spelled out above. Sure, the company faces steep competitive pressure, but its well positioned going forward. I wouldnt be the least bit surprised if a few years down the road they were the one doing the acquiring.