IBM

  • May 6, 2015
  • One billion dollars. Buying Salesforce would take about 60 of these piles.

    One billion dollars. Buying Salesforce would take about 60 of these piles.

    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.

     

     

    Published: 3 years ago


    many-asses1I feel like such a dope.

    About once a year some rumor circulates about Salesforce being bought and speculation runs rampant for a few days about who the suitor is and what the likely scenario will be in the march to the altar. This week saw the annual festival. I never thought it was a great idea but there seemed to be a lot of smoking guns.

    Bloomberg thought that the company was retaining bankers and all of a sudden we all just knew it could mean only one thing. But there are lots of reasons that a public company would do something like this and dealing with a potential takeover attempt is only one of them. A few weeks from now we might all be exposed for the linear thinking chumps that we’ve demonstrated we are. I have very little data (just my old friend logic) for what follows so it might even be true.

    Another possible reason to retain bankers could be if a company is making an acquisition, which would be news of a different sort and still worth pursuing. But what would prompt this? After all, don’t companies buy each other all the time without engaging high priced bankers? Sure they do and Salesforce, by virtue of its high-flying stock could easily do deals for little more than a swap. So why engage the masters of the universe?

    Well, how about an international deal, one in which a foreign company is bought in part or completely by Salesforce? In such a situation you’d want to ensure you crossed all the T’s and dotted the I’s in the proper format following all relevant laws and customs. We’re now getting warm.

    Over the winter Salesforce and Sage made a joint announcement that Sage would begin migrating some of its accounting software to the Salesforce1 Platform. There was a news item but it didn’t get much play. Later, during Vice Chairman, Keith Block’s Boston Salesforce World Tour Event, he mentioned it casually and I wrote about it wondering how I could have missed it. But it wasn’t big news.

    Then yesterday, after the markets closed by the way, I received a save the date email from Sage announcing a fireside chat press conference between Sage CEO Stephen Kelly and Salesforce’s Marc Benioff. It reads in part:

    Hi Denis,

    The world’s #1 small business accounting solutions company and the world’s #1 CRM solution and cloud platform for business are coming together for a fireside chat.

    Please mark your calendar for May 13 at 12 p.m. PDT to listen in on a conversation between Sage CEO Stephen Kelly and Salesforce CEO and Chairman Marc Benioff.

    Audiocast details to follow soon.

    Just a conversation between two CEOs of different companies happening in plain sight, nothing special going on there! I bet they’ll have trouble getting an audience!

    Hmmmm.

    So, the logical deduction I am now making about Salesforce is not that they will buy Sage, frankly I don’t think it would be such a great idea. But I do believe that Salesforce will likely take a minority position in the company via some form of preferred stock that Sage would issue for the occasion. The purchase would give Sage some incentive (and cash) to continue porting its accounting products to the Salesforce1 Platform and it would give Salesforce greater access to some very specialized markets in construction and real estate for openers.

    Is this the answer to all the speculation from earlier this week? I don’t know. But it seems more logical than the annual frenzy of buying Salesforce, which I wrote yesterday is far from likely.

    When I queried Salesforce representatives about the possible takeover they had no comment as you’d expect of a well-managed public company. But I imagine the C-suite at One Market Street in San Francisco had few laughs at our expense this week.

    To know for sure we’ll have to wait till May 13 and the fireside chat when all will be revealed. Or not.

    See you there.

     

    Published: 3 years ago


    Silicon Valley's first innovation lab

    Silicon Valley’s first innovation lab

    After a short and not terribly informative piece on Bloomberg saying that Salesforce had engaged with bankers to potentially evaluate takeover offers, the usual activities ensued. The company’s stock went for a small ride and pundits and prognosticators all began speculating about whom a logical suitor could be and even what the company would be worth on the block. This was not the first time.

    I was one of the speculators placing a metaphorical bet on IBM as the suitor followed by Oracle, HP, and Microsoft in no order. They could all use the shine that acquiring this gem would provide. But let me be clear—I don’t believe Salesforce would be acquired in its current state.

    The reason is simple—even if a buyer paid a premium on the company’s $50 billion market capitalization it would not be enough because Salesforce’s greatest asset is its future and you can’t put an accurate price on that. So far in its 15 plus year history the company has innovated and helped create markets in cloud computing, social media, CRM, modern platforms, wearable devices, web and mobile computing, and more. Salesforce might go by the ticker symbol CRM but its business is front office business innovation.

    All of this is exactly why Salesforce is such an attractive target and precisely why no one will buy them. Large companies, which are the only ones that can afford to be in the bidding, are not hotbeds of innovation. They hang back waiting for markets to prove themselves before swooping in to offer products and services for new niches. Cloud computing is a great example. There’s a famous YouTube video of Larry Ellison at the Churchill Club ridiculing cloud computing as a fad and so much hot air. This was before Larry got religion (and products). Less flamboyant stories can be told of IBM, HP, Microsoft, and SAP—they all waited to enter the market watching Salesforce to ensure it was safe.

    Now, of course, they all talk about cloud computing as if they invented it or at least as if they perfected it. Owning Salesforce would give one of their stories great credibility and then you could see a multiplier effect going out to the other innovative areas the company is involved in. But it could also signal the end of a good thing.

    I don’t see how you can bring Salesforce into one of those shops and expect it to thrive; the cultures are too different. Salesforce is laid back and takes prudent risks entering new markets as they are forming so as to acquire a first mover advantage. The others? Not so much.

    Aside from Apple, I don’t see other companies innovating the way Salesforce does to invent the future. That’s why Salesforce (and Apple) have such bright futures and why buying either company would be detrimental to the tech sector and the economy in general. It would slow or even curtail innovation.

    Some might say that if Salesforce ceased to be the innovation engine that it is, that some other emerging companies would have the chance to take its place, that the free market would do its thing and all would be well. I agree with that but hasten to add that it has taken Salesforce 15 years to get to this point and other companies might be able to evolve quicker to fit into one or more of Salesforce’s niches, but it would take time and there’s no guarantee that those other companies would follow the same trajectory.

    To make an analogy, if Thomas Edison got kicked in the head by a mule before he invented the incandescent lamp and the modern power grid, we’d likely still have them today along with sound recording and movies and many other things. But it’s hard to see that these inventions would have been as early and if that’s true, what would the last century have been like?

    This is all speculation but so is trying to figure out who might be able to afford to buy the company. I’d be surprised if enough shareholders would be prepared to sell and keep in mind that insiders still own a big block. They’re also rich already so it’s hard to see the benefit of selling now rather than letting things evolve as Salesforce’s other endeavors begin to show profits.

     

    Published: 3 years ago


    Salesforce CEO, Marc Benioff

    Salesforce CEO, Marc Benioff

    Today Bloomberg was atwitter with the rumor that Salesforce is in talks with bankers about possible tender offers from some big companies in the industry. Aside from wondering if there’s any validity to the speculation does it or would it make any sense?

    For starters, Salesforce has a market cap north of $50 billion and buyouts command a premium so we’re looking for someone with deep pockets. Regardless of pockets, Oracle, Microsoft, and SAP have their own cloud projects and while any of them could afford the deal, would they contemplate throwing away their other investments? Ordinarily I’d dismiss a sunk-cost argument as illogical but we’re talking about a lot of money.

    IBM could do the deal too and they need a future. Right now they’re buying back stock to keep their share price up and because they don’t have much else to spend their war chest on. Salesforce would be good for soaking up some of their cash. Ditto the others on the list.

    Salesforce has a commanding lead in business software because while others were too timid to go after things like cloud, social, mobile, and IoT, Salesforce jumped in and made markets. Their future is full of all the new markets they’re going after and it ain’t small.

    From that perspective, I wonder if the Justice Department would want to weigh in on an acquisition. Despite there being other vendors in the space, Salesforce occupies a unique place as the innovator. Can we really expect one of the possible suitors to be as aggressive with Salesforce and new markets as Benioff and company? Me thinks not.

    That said though nothing is forever and Salesforce has had a great run. Murphy’s Law would suggest that someone could come in and mess it up.

     

    Published: 3 years ago


    IBM supercomputer WatsonI was discussing Watson, the IBM super silicon brain that won Jeopardy! the other day with a reporter writing an article.  Around the same time, I was also looking into Google Glass, the wearable computer that enables people to record what they see and to see what they’re recording through a teeny tiny screen mounted on a frame over their eyebrows.  It’s all very Buck Rogers or Dick Tracy or Special Forces or just so last week depending on your worldview.

    ggssThen it occurred to me, as I am sure it has occurred to many other people, that the two things could/would/should merge especially as wearable computing is already nearly passé and on the way to being replaced by implantable computing which could rapidly give way to ingestible computing once they figure out how to, you know, make the ingestion part more or less permanent.  But now I am racing ahead of myself by at least seven years.  Besides, what kind of sauce goes with ingestible computing?  I’m betting on black mole.

    Watson has a tremendous ability to learn and to digest huge volumes of input to come up with an answer.  I was told that to appear on the Jeopardy! program, Watson’s handlers force fed it about 200 million pages of structured and unstructured content.  I also recall from the show, that most of Watson was not in the studio with the other contestants because it’s less of a computer and more of a network.  No matter though.  Google Glass would be the thing that could put all that hardware out of mind.  Glass: the killer app for Watson?  Hmmm.

    Glass Watson might be great in any high-pressure situation where snappy answers are important.  That would not include things like stock trading assuming Watson is already doing that sans any help from carbon-based life.  Glass Watson might be a lot of fun in a traffic stop.  “Really officer the light was yellow” or “I was going 37.593 MPH in the 35 MPH zone officer.”  And in social situations where it’s hard to read the social cues Glass Watson might be a boon to introverts like me who want to be more lifelike.

    Naturally, those social situations extend to vendor customer interactions especially where selling might be involved.  A retail clerk with a Glass Watson might be able to assess a customer better and faster than a human though I have to say that twenty years later I am still in awe of the woman in a Nordstrom store who nailed my shirt size in the blink of an eye.

    But what if the customer has a Glass Watson too?  Would we then be in a situation where the people are skipped over entirely?  I worry that my Glass Watson would like everything it sees and the retail Glass Watson would scour my bank accounts even finding the one I misplaced in Geneva (maybe it could retrieve my passwords) and over sell me on everything thus turning into a Glass Watson Hoover as in a vacuum cleaner for my wallet.  All of this could happen in the blink of an eye.

    Still, I always come back to Groucho Marx, an interest I share with Paul Greenberg.  Groucho once quipped, “Time flies like an arrow.  Fruit flies like a banana.”  What would Watson do with that?  I wonder if you can get Google Glass with one of those fake Groucho moustaches?  Now that would be cool.

    Published: 5 years ago