Salesforce Chooses AWS for Global Expansion Plans
Salesforce.com (SFDC) announced it would start to run some of its software with Amazon Web Services (AWS) to expand its international infrastructure, in a deal valued at approx. $400 million.
Although the announcement was made shortly after Salesforce’s embarrassing data loss incident in North America, SFDC Chairman and CEO Marc Benioff hinted that the two companies were looking at a potentially deeper partnership in its most recent earnings call, praising Amazon’s cloud unit:
"Jeff Bezos [Amazon CEO], and I have a great meeting of the minds of the future of the cloud," he said during the earnings call. "I think that it's been a great relationship and partnership for us. We want to continue to grow that and expand that strategically. We are definitely exploring ways that we can use AWS more aggressively with Salesforce."
This week the rumblings became official, with Salesforce.com naming AWS its “preferred provider” in the public cloud, just a day after Salesforce stock closed at an all-time high. According to the press release published by both companies, the expansion of services to the AWS cloud platform is part of Salesforce's "planned international infrastructure expansion".
“We are excited to expand our strategic relationship with Amazon as our preferred public cloud infrastructure provider,” expressed Marc Benioff in the press release. “There is no public cloud infrastructure provider that is more sophisticated or has more robust enterprise capabilities for supporting the needs of our growing global customer base.”
Salesforce will use Amazon's cloud with select international markets to support its new infrastructure expansion, as Amazon offers its AWS customers 33 "Availability Zones" across 12 geographic regions, with facilities in the U.S., Australia, Brazil, China, Germany, Ireland, Japan, Korea, and Singapore. SFDC will also continue to invest in its own data centers.
Salesforce and AWS actually have been building a partnership for years. In 2010 the company bought Heroku, an application development platform, which has been hosted in AWS, though it wasn't very well-known until recently. Other Salesforce services which already run on AWS infrastructure are Marketing Cloud Social Studio, SalesforceIQ, and the recently announced Salesforce IoT Cloud. The deal strengthens the tight relationship between the two companies. With the recent expansion of the partnership, Sales Cloud, Service Cloud, App Cloud, Community Cloud, Analytics Cloud, and more will soon run in AWS.
A Look at What the Deal Means For
First off, Salesforce is a SaaS and in need of infrastructure to run its applications.
The benefit of moving to Amazon could be beneficial to cut capital spending and funnel that money into research and development.
The deal with Amazon could reduce its dependency on Oracle Corp., which supplies both hardware and software to Salesforce. Although SFDC is a big customer for Oracle’s emerging public cloud, the two companies compete tooth and nail in the business applications field. This fact is one of the key motivations behind the new deal.
- The move could provide Salesforce more flexibility. Also, the fact that Amazon runs data centers across the world saves time and effort for the company, when considering countries such as China that have strict requirements for cloud computing providers and data can be sent offshore within their geographical boundaries. It makes sense to take advantage of AWS in these cases, instead of meeting those regulations by themselves.
On a side note, Salesforce reported a record number of large transactions in the first quarter of this year, as well as double-digit growth in revenue. Those results led the company to raise its 2017 expected year-end earnings by $80 million, to as much as $8.2 billion.
The deal shows that AWS wins another round in the cloud computing battle with Oracle, IBM SoftLayer, HPE, and other technology competitors, shortly after winning most of Netflix's substantial business. According to the Synergy Research Group, Amazon's AWS (Amazon Web Services) division had 31% of the cloud market in 2015, compared with 9% for Microsoft, 7% for IBM, 4% for Google, and 4% for Salesforce.
Amazon is looking towards acquiring big customers to reinforce its position in the market. So by being named as the preferred provider by Salesforce, AWS will most likely land more deals.
There have been some predictions that the relationship between AWS and Salesforce can become the new IBM and SAP with a twist, as they have had a tight partnership in software integration, consulting, and IT services.
Although this partnership is just about infrastructure for now, it has a potential to include databases in the future. So it wouldn’t be shocking if Salesforce eventually moves away from Oracle to either open source options or AWS database services.
“Leading enterprises and ISVs around the world are migrating their business-critical applications to the AWS Cloud to be more agile and efficient, reduce costs, and take advantage of the security, reliability, and broad functionality we offer,” said Andy Jassy, CEO, AWS. “Companies rely on Salesforce to transform their businesses and we are thrilled Salesforce has chosen AWS as their public cloud infrastructure partner, helping them continue to scale, add new services and maintain their incredible momentum.”
Recently Microsoft CEO Satya Nadella and Benioff have been making an appearance at each other’s companies’ events and conferences such as Microsoft's Build event, Salesforce's Dreamforce, and so on. The most recent example was Nadella delivering the keynote at Dreamforce '15 hyping Office 365 integration with the leading CRM. On the other hand, the fact that Salesforce competes directly with Microsoft’s Dynamics CRM makes it clear why SDFC didn’t choose Microsoft Azure as a part of this push. Moreover, it's obviously bad news for Larry Ellison and Co. as well, as Salesforce is a heavy user of Oracle.
Although it is not common to see a vendor identify with only one of its numerous partners as “preferential” without some serious commitment, it doesn’t mean that Salesforce will abandon Oracle hardware or turn its back on Microsoft either. Time will tell how the partnership with Amazon shapes the cloud computing market in the coming years.