Rumors about Salesforce.com being courted by Microsoft, Oracle and, possibly, Amazon.com have been swirling about Wall Street and Silicon Valley for about a week. However, it’s not clear how much substance there is to the speculation.
The buzz began last Wednesday with a Bloomberg report, and analysts ran with it.
Oracle stirred the pot Thursday when co-CEO Safra Catz demurred in response to a question about her company’s interest but remarked that an acquisition of Salesforce.com would disrupt the software market.
Growing speculation pushed prices of Salesforce.com shares up 6 percent in about one minute Tuesday, leading to a brief freeze on trading.
Who are the probable suitors, and who’s going to go home with Salesforce in tow?
Microsoft, Oracle, Amazon and SAP all have been named as possible purchasers, but SAP already has ruled itself out of the game.
Oracle “needs [Salesforce.com] more than Microsoft does, and already has a large investment in them, so the additional cost to Oracle would be lower,” said Rob Enderle, principal analyst at the Enderle Group.
Further, Salesforce “would make Oracle more trendy and would give them a software executive who could run both companies, giving Oracle a better succession plan than they currently have,” he told CRM Buyer. Also, Oracle Chairman Larry Ellison “likes to make big acquisitions.”
Salesforce CEO Marc Benioff used to be a senior executive at Oracle before launching his company.
Microsoft “doesn’t need [Salesforce] as much — it’s more of a platform and tools company,” Enderle suggested. “It already has a strong succession plan and it doesn’t like doing large acquisitions.”
Nope, Redmond’s the One
A deal “could fundamentally supercharge Oracle’s cloud computing services but would probably be interpreted as an admission of that homegrown effort’s failure,” pointed out Charles King, principal analyst at Pund-IT.
Also, there’s an overlap between the offerings of Oracle and Salesforce, and while that might not be a deal breaker, Oracle “has run into similar situations before, as with the purchase of PeopleSoft, and might not be willing to re-enter that particular breach,” he told CRM Buyer.
Microsoft is the more likely suitor, as it’s made cloud computing its focus, and “the purchase of Salesforce could both assist in that strategy and open the door to additional business for Microsoft,” King opined. “The question remains, how much business — and how well those opportunities would balance a hefty price tag.”
Salesforce has a market value of about US$47.5 billion.
“We see this kind of rumor-mongering often with Salesforce, though this current [rumor] is the most persistent,” noted Denis Pombriant, principal of Beagle Research Group.
Such an acquisition does not make sense, because Salesforce “is not doing something that others couldn’t do if they wanted to spend more money in R&D,” he told CRM Buyer.
Further, “the fallacy is that Salesforce always does things right. They have their misses,” Pombriant said.
“I’d put the odds at 100 percent that both Microsoft and Oracle have strongly considered [acquiring Salesforce] but the odds at closer to 20 percent that it actually comes to fruition for either,” said Charles Sizemore, founder of Sizemore Capital.
Any bid would be at a premium of the $46 billion price, and “that would be big even for a giant like Microsoft to absorb without heavy dilution,” he told CRM Buyer. “Financially, it would not make sense.”
The Profitability Curse
One possible obstacle to acquiring Salesforce is that it isn’t making any money yet.
“The fact that Salesforce isn’t showing profits is irrelevant,” Pombriant maintained. “Changing some of its internal practices and cutting headcount could easily tip the balance to profitability — and that, frankly, is what I worry about.”
Being profitable is wrong? Business schools everywhere would be stunned at the idea.
“The money-grinding R&D is what gives Salesforce part of its value,” Pombriant explained. “It’s generating new products and new markets at a prodigious rate — and if you slow that process, they become less valuable in my mind.”