My starting point is that I want to be skeptical about the rumors of a potential alliance between Google and Salesforce.com. Remember last September's alliance of Intuit and Google?. Did that go anywhere? Hell no, despite some characteristically idle speculation last month from Nick Carr that Google should buy Intuit. The truth is that most alliances in the software industry go nowhere. Most of them are merely marketing ploys. They generate a quick burst of speculation on the back of the grand aspirations expressed by the partners, then quickly fade away to nothing.
But just occasionally, the would-be partners start doing a what-if analysis that comes up with a surprise result, and suddenly a merger is on. The timing in the case of GOOG meets CRM is potentially at such a juncture. Let's examine what each party would get out of teaming up.
- In the past six months, Google has become committed to building a subscription base. It was interesting that
in last week's earnings callat the company's annual stockholder meeting this month, the management team was clear that this has become strategic for the company.the New York Times reports that CEO Eric Schmidt described "apps" as one of three strategic components for the company, alongside search and ads, adding that charging businesses for apps "is a business that looks like it is going to grow very nicely for us."
- But all is not well with Google's enterprise pretensions. It's found that providing subscription services to the business market is a lot more fraught than it probably imagined at the outset (an outcome I predicted at the time). Here's a selection of the challenges it has faced:
- Gmail down a third time
- Google 'Frantic' About Personalized Home Page Glitch
- Google does the right thing: Cancels weekday outtage of Google Calendar
- the what-it-will-take list for Google Apps to be ready for business primetime
- Google Apps: Don’t bother unless you know the following
Salesforce.com can bring valuable expertise to help counteract Google's inexperience.
- There's a complementary fit with Salesforce.com. The productivity emphasis of Google Apps doesn't overlap with Salesforce.com's transactional enterprise applications. On top of that, Salesforce.com has a level of enterprise validation that Google has yet to earn for conventional business applications.
- Salesforce.com has a great platform story. AppExchange is a fantastic play and with Google's resources behind it could look really formidable in the enterprise marketplace.
So far so good, but why would Salesforce go for a merger that would cast the company as the acquisition target? A few thoughts on this:
- Google also has an enterprise customer base. It makes its money from selling advertising-as-a-service to customers across the spectrum from long-tail SMBs to very high-spending Fortune 1000 businesses. AdWords has given it much greater penetration of the large enteprise market than Salesforce.com has yet achieved. A merger would give Salesforce.com an entrée to a new raft of large enterprise prospects.
- Salesforce.com has no expertise or track record with an ad-funded business model. A merger with Google would instantly give it the capability to add an ad-funded option for the SMB market.
- It is difficult to imagine Marc Benioff suddenly answerable to Google's management team. But he'd get to head up Google's application division and would have the opportunity and competitive incentive to turn this into the largest part of Google's business — perhaps paving the way to promotion to CEO in the fullness of time.
- The merger would leave Microsoft in the dust. If Microsoft can get spooked by Google buying Doubleclick, imagine what havoc would be wreaked in Redmond if Google bought Salesforce.com. It shouldn't be a consideration, but let's face it, everyone is driven by Microsoft envy. It's just icing on the cake, but getting one up on Bill Gates and Steve Ballmer still sways the motives of software company CEOs everywhere.
The big question here is, what price would Benioff sell for? If aQuantive can be sold for more than 10 times revenue while YouTube went for as much as 100 times revenue, could salesforce go for as much as $10 to $14 billion? Google has $12 billion cash and a market capitalization just $2 billion short of $150 billion as of tonight's close. Salesforce.com was worth $5.42 billion at close tonight. So if Google were to put $10 billion plus on the table, could Salesforce.com's board turn it down? Maybe that's why everything's gone so quiet around these rumors. I'm still skeptical, but all the evidence suggests it could happen.