A Salesforce Bid Is Possible (but smart?)
The latest Bloomberg reporting on the possible acquisition of Salesforce has more meat on the bones but still no evidence beyond reports of conversations. But it is completely within the realm of possibility that Salesforce could be bought. The meat on the bones comes from some anonymous sources with first hand knowledge of discussions that Salesforce might have had over the last month or two with a variety of mostly unnamed suitors.
Microsoft has emerged as the possible suitor and the story seems credible. But keep in mind there does not appear to be an offer on the table. Add to this the inevitable logic that markets consolidate and a mature market has room for two contenders. If Microsoft were to buy Salesforce it would set up the dichotomy or duopoly of Oracle vs. Microsoft/Salesforce in the CRM market.
It wouldn’t happen immediately but other full suite CRM vendors like Sugar CRM and SAP could possibly wither on the vine. IBM might buy Sugar to make a go at competing with the duopoly and SAP would still be a formidable ERP player though it has been late to the cloud and one wonders if it could keep up.
At the same time, ancillary vendors like Marketo would either have to evaluate being acquired or being frozen out since both Oracle and Salesforce have their own marketing capabilities. That’s just the beginning. In a two-brand market—think Coke and Pepsi, or think about DB2 and Oracle—the customer relationship becomes more retail oriented.
The danger I see, and I have written about this before, is that in a two horse race, innovation takes a back seat. Each vendor can figure out its unique differentiators and tend to its own flock, staying away from expensive competitive wars. This is the dangerous part of the scenario since Salesforce, far more than any other vendor in the market has been the innovative engine of the industry. In recent years, Salesforce has kept up a regular cadence of innovating a disruption and the market has taken the next two years playing catch up only to find that Salesforce’s cadence has disrupted things again. There is no telling if this cadence could be kept up if Salesforce became part of Microsoft or any other vendor for that matter.
You can heap all the accolades you want on Satya Nadella, CEO of Microsoft, and he deserves some for his insistence on making Microsoft more relevant across a broad swath of his company’s product lines. But making Salesforce a part of Microsoft—or any other large vendor—would insert Salesforce into a competitive landscape for resources already carved out by innovative projects inside Microsoft. Also, the Senior team at Salesforce including co-founders Marc Benioff (CEO) and Parker Harris (CTO) could not be expected to stay on for very long and it is their innovative genius that has produced today’s Salesforce, a company full of Blue Ocean thinking and projects reminiscent of Microsoft in the 1990’s.
For that reason, I think Salesforce, a roughly $5 billion company, barely able to register for the Fortune 500, is too big to be acquired. Taking Salesforce out would have a deleterious effect on innovation, and thus competition, in the industry. It risks creating a duopoly. Perhaps one of the reasons for the rumors of Salesforce retaining bankers for advice about its future is for the specialized legal expertise that might be needed if the Department of Justice or even the European Union decided to weigh in on anti-trust grounds.
There is a lot to consider in all this. It’s not just about two companies considering a merger and trying to set a price or raise the cash. It’s about the future of the whole industry.
After about 1930 the only cars imported to the U.S. were luxury models and sports cars, the country’s manufacturing prowess along with the devastation of the Second World War provided a more or less protected market in North America. During that time automotive innovation barely budged. Many of the innovations we think of as commonplace today came from outside vendors trying to innovate around U.S. patents. Things like the dual overhead cam engine, disk brakes, and front wheel drive were forced on the Big Three automakers from Japanese manufacturers in the 1980’s.
Consolidating the CRM market into a duopoly now would have a similar effect that could stifle innovation and launch a status quo era in software. But we’re just getting started here and that’s why a deal to acquire Salesforce doesn’t make sense to me.