By Stuart Lauchlan, news and analysis editor
“Salesforce.com will be acquired in 2007.” When Franks Gens of analyst firm IDC made that bold prediction at the end of 2006, it was tempting to dismiss it as just part of the ritual ‘crystal ball’ content generated by all research firms and publications around Christmas.
But this week, as Google and Salesforce.com are reported to be in deep discussions about some form of a tie-up, is it the case that Gens is going to turn out to have made the best guess of the year? Is ‘GoogleForce’ an imminent reality?
Such a move would not come cheap. Google is still trying to close its planned $3.1 billion acquisition of online-ad service DoubleClick in what would be its largest deal in its nine-year history. Buying Salesforce.com would cost even more – Salesforce.com has a $5.5 billion market value - but Google could afford it.
So how likely would a full takeover really be? Are they really suited for marriage or is this just puppy love? Salesforce.com chairman Marc Benioff has made no secret of his longstanding admiration for Google, particularly when it comes to a spot of Microsoft-baiting. That said, he is being necessarily tight-lipped about Google at this stage, something which is clearly not a natural state of affairs for the outspoken CEO. "I'm not one to hold back a comment, but in this case, I'm sorry but I can't comment on what's happening between us and Google," he said on Monday.
But Salesforce.com has been touting Google's free alternatives to Microsoft's widely used suite of office applications. "We're accelerating Google against Microsoft because we show customers that they can use Google apps, like Google spreadsheet and Google word processor instead of buying Microsoft Office," Benioff told analysts a couple of weeks ago. "Microsoft doesn't like that."
For its part, Google has been promoting its applications more aggressively this year as it tries to give web surfers more reasons to visit its site, where it makes most of its money from online ads. In an apparent indication of its ambitions, Google earlier this month embraced "Search, Ads and Apps" as its corporate strapline.
According to Google CEO Eric Schmidt, there is a simple rationale behind the change of tagline. "The idea here is to talk about this shift to an online lifestyle," he said. "People are spending more and more time - online - and Google can bring some of these new applications that really matter to them." But it can also be read as a statement of intent with regard to the enterprise applications industry.
A better fit
It remains open to question how Google can enter an enterprise applications market that goes beyond the desktop – which is where a takeover makes sense. "Google isn’t really looking to compete, but they are looking to be a broad base for use," said Nucleus Research analyst Rebecca Wettemann recently. "It's not out of the realm of possibility that they would acquire an enterprise applications company. It certainly would make sense if that's where they're looking to go; an acquisition of an on-demand player would make sense."
Certainly to date Google Apps doesn’t have the functional clout of Office, let along the traction in the market. Who says so? Well, Google CEO Schmidt for one. "Google Apps don’t have all the functionality of Microsoft Office - it's a different way to share information," he said at the Web 2.0 conference in April. "It's casual and a better fit for the Web 2.0 framework.”
So what would both parties gain? Salesforce.com would get market profile way beyond its current status. Google would gain access to a database application that can span a broad spectrum, and applications that store and access unstructured data. Google Apps doesn't have a native CRM component, while the Salesforce suite lacks office productivity applications. So on the surface both parties are set to win from getting together.
But is that enough? Isn’t there a danger that beyond a shared Web 2.0 philosophy, what bonds both firms is really a mutual loathing of Microsoft? Microsoft Live is the natural competitor to the light productivity tools Google has released. Salesforce.com (theoretically) competes with the Microsoft Dynamics CRM application. "The enemy of the enemy is my friend," said Benioff this week. "That makes Google my best friend." Fair enough, but is that enough to contemplate a full merger or takeover on either part?
In his blog, IDC’s Gens justification for a takeover was simple: “SaaS is strategic. Developing SaaS capabilty (and SaaS’ merging with/morphing to online business service delivery) is clearly becoming a critically important capability for the future of 'traditional' software and services vendors, and it is one path to expanding into the business market for the traditionally consumer-oriented online players, such as Google, Yahoo, AOL, et al.
“The platform and ecosystem are the strategic core. While Salesforce.com isn’t the only SaaS player to consider for acquisition, it is arguably the most visible one; and its development of the AppExchange/Apex platform and ecosystem is arguably the most strategically valuable part of the package (not the Salesforce.com applications themselves)
“Acquisition is (relatively) fast and easy. Acquisition (vs organic development) will be the fastest way for at least some of the key players to develop a SaaS platform and ecossystem. Everything’s for sale. Salesforce.com management may not be interested in selling, but - let’s face it - all companies are for sale, at the right price.”
A big public snog
But of course it wouldn’t have to be a full takeover, the full GoogleForce as it were. There are other tie-ups that could take place, positioning the two firms as complementary offerings without the full commitment of a merger. The two firms have worked closely together before.
Salesforce.com has already collaborated with Google to build a module for Google's Search Appliance that lets that enterprise search device better index data in Salesforce.com software. It also has an application to analyse the effectiveness of Google AdWords advertising campaigns. So the precedent is there for close collaboration.
Another option presented itself this week with the announcement of "Salesforce SOA" which enables service-oriented architectures to run as a service on Salesforce.com, enabling users to build SOA-based business processes. It would also enable them to link business applications to web services that are provided by Google or through Google.
So marriage, living in sin or just a great big public snog with tongues to make Microsoft jealous? Rumours seem set to circulate until the start of next month with the common consensus being that an announcement of some kind will be forthcoming in early June. As Salesforce.com’s share price has been rising happily on the back of the speculation, it’s unlikely that Benioff will be doing much to dampen down the buzz - although if the eventual announcement falls short of Wall Street’s over-excitable expectations there could be a price to pay there.
Whatever the case, it’s difficult to see a downside for either Salesforce.com or Google to the prospect of closer ties between them. Both firms have clear ambitions, but to date have complementary products. Over time, Google could develop its own Microsoft-killer apps, but of course these might equally be seen as Salesforce.com killers. So maybe this is the perfect time to decide that a joint future is the best option before either encroaches on the other’s turf. In which case, there are going to be some sleepless nights in Redmond…
