Is Salesforce Oracle's Next Acquisition?
There have been rumors flying around that a tech titan will possibly buy Salesforce in a couple of years, and Oracle has been the supposed front runner so far. Even though it is a total speculation, many think the potential acquisition paints a promising picture. Does it really, though? Let’s find out together!
Before delving into the arguments behind this speculation, it is definitely worth having a glance at the interesting relationship between Oracle and Salesforce. Well, I should give the actual credit to their founders, Marc Benioff and Larry Ellison, respectively. Although the on-again, off-again war of words between these two leaders on each other’s weaknesses has been entertaining for the peanut gallery, they actually share many perspectives, and that’s what makes this relationship relevant to the potential merger. If you bear with me, I will circle back to this point a bit later.
Now, let’s look into the primary argument behind the speculation I stated in my opening paragraph, will Oracle buy Salesforce? Although the discussion probably started before, the comment by David Linthicum, a senior VP at consultancy Cloud Technology Partners and a cloud computing analyst at Gigaom, made it gain even more momentum: “Salesforce has kind of run out of ideas,” he said. “They have kind of saturated their market.” To me, it sounds very similar to the Commissioner of US patent office Charles H. Duell’s most famous quote purportedly saying: "Everything that can be invented has been invented."
First and foremost, Salesforce, founded in 1998, blazed the trail for the subscription model and has built up a big lead in the enterprise software space. The vendor has been on an acquisition spree where it spent nearly $5 billion last year alone in an attempt to fiercely entrench itself in areas that could give the company an edge over the cut-throat competition with Microsoft and Oracle in the business management segment. Despite the fierce battle between Oracle and Salesforce to become the first enterprise company to reach $10 billion in sales from the SaaS (Software as a Service) segment, they have a somewhat different agenda. While Salesforce is dominating the customer relationship management software space, Oracle has poised itself to be more of a horizontal player in the business management software segment with its focus on customer relationship management, human capital management, enterprise resource planning and supply chain management. More importantly, Oracle and Microsoft have been successful at retaining their positions in the market and on the other hand, passionately inventing business processes at a rapid pace. Therefore, the main argument behind the speculation has not been very convincing. However, it is not the only reason why people think the acquisition might materialize at some point.
Just because Salesforce is a leader in internet-based software for the time being, doesn’t mean the big players, Oracle and Microsoft, are willing to lose the fast-growing cloud market to their younger rival. It’s also important to note that Oracle, which competes with Salesforce’s main customer-relationship-management products, is about three times the size of Salesforce based on market value, while Microsoft is more than eight times as large. All three companies are on a collision course in the SaaS segment which is to become the preferred software provider for enterprises to manage their business processes.
Salesforce is in a bit of a different position as the first highly successful cloud company who built up a big lead in the enterprise software space. Oracle, on the other hand, still generates most of its revenue through the database, financial, and other software that runs on companies' own data centers. The company was simply a late entrant to the game. After all, it wasn't so long ago that Oracle referred to cloud computing as "gibberish." Today, due to the emerging demand for a Salesforce-like delivery model, Oracle is trying to make up for lost time, just like other legacy software companies. Forrester analyst John Rymer said: "They (Oracle) desperately need more cloud expertise at the top to craft the company Oracle is becoming." Oracle's co-founder Larry Ellison told analysts on the company's fourth quarter earnings call: "We want to double the SaaS and PaaS growth of our closest competitors. We think we have a fighting chance to be the first SaaS company to surpass $10 billion in revenue."
How Oracle distinguishes itself is that the vendor has software in more industry verticals than Salesforce, which focuses mostly on sales and customer management applications. This situation is another driving factor behind the speculation about Oracle’s potential acquisition of Salesforce, as some think that the deal could fix Salesforce's inability to make waves outside its core competency of customer relationship management (CRM) software, whereas provides Oracle more firepower in the cloud computing.
Although there are a couple of reasons why the merger between Salesforce and Oracle would make sense, to me, the most striking thing is that how the potential deal would impact the dynamics in Oracle leadership. As you may know, a few years ago Ellison stepped down from the CEO position while appointing two CEOs, Safra Katz and Mark Hurd. The fact that most believe, these appointments are not a final call also makes some industry insiders think of the possibility of Benioff, a former Oracle alum and a protege of Ellison, returning to Oracle and becoming a final caretaker when Ellison leaves.
Even if an acquisition of Salesforce by either Microsoft or Oracle can materialize, I am not sure how the deal could pass through the European Union and SEC regulations, given that it could become a threat to the future of innovation and competition by monopolizing the market. Additionally, again, if the merger happens, how much premium Oracle would end up paying to get the deal done, considering Microsoft paid a 47% premium for LinkedIn? Nevertheless, the Salesforce and Oracle story will evolve with many more twists and turns in coming years, while the war of words between the two will keep bystanders entertained.