Five Reasons Why I Think Oracle Will Buy Salesforce.com - InformationWeek

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IT Leadership // CIO Insights & Innovation
Commentary
11/16/2007
02:27 PM
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Five Reasons Why I Think Oracle Will Buy Salesforce.com

Marc Benioff says Salesforce.com is on target to hit $1 billion in revenue next year, but I don't think it will happen. I predict that before Salesforce.com hits that run rate as an independent, publicly traded company, Oracle will buy it.

Marc Benioff says Salesforce.com is on target to hit $1 billion in revenue next year, but I don't think it will happen. I predict that before Salesforce.com hits that run rate as an independent, publicly traded company, Oracle will buy it.This is nothing more than an educated hunch, but a strong enough one that I'm willing to put my name on it. Here's why I think it will happen.

1) The troika of Larry Ellison, Charles Phillips, and Safra Katz has indicated it's going to keep on acquiring, and some of those acquisitions will be big companies. I think Marc plans to eventually sell Salesforce.com, and I think Oracle is one of few companies that could afford it. There's Microsoft and IBM, but….

2) Oracle "gets" Salesforce.com, and Salesforce.com "gets" Oracle. I lived many years in Silicon Valley and San Francisco, and I've talked to many folks at IBM and Microsoft over the years. Salesforce.com's culture wouldn't fit well with either. Marc, who came out of Oracle, is outspoken, flamboyant, yet casual, while also unnervingly quick and cutthroat. Kind of like Larry. That's the Silicon Valley executive personality, and I don't see it meshing with the folks at IBM and Microsoft.

3) But would Oracle even want Salesforce.com, you ask, considering its teeny profit margin? I admit, that's not a great selling point. Ellison even said in a conference call with investors a few months ago that "no one has figured out how to make money off of SaaS." Still, Salesforce.com has other things to offer, and the first is mindshare. Most customers have been happy with Salesforce.com, and happy with the savings they get from the software-as-a-service model. About 5 out of 6 CIOs I talk to have at least some passing interest in SaaS. Whether it makes vendors high profits or not, Larry isn't going to stop the tide of SaaS, if that's what customers want. Salesforce.com has the reputation for quality SaaS, and has succeeded where others have failed. (By the way, what the heck ever happened to Siebel On Demand?) The second thing Salesforce.com has is ...

4) Customers. Salesforce.com keeps piling them on, adding another 2,800 in the quarter to a total of 38,100. Benioff said in a conference call yesterday that Citigroup had signed on for 30,000 users of Salesforce.com sales and marketing software. Which gets us to how I think Ellison will make money off SaaS: By buying Salesforce.com and up-selling and side-selling those customers with other things in what vendors like to call the "software stack." I don't know how much Oracle stuff Citigroup uses, but I'm sure Larry's got new things he could offer up from his growing bag of tricks. And some of that stuff in the bag is pricey licensed software, not that low-margin SaaS stuff.

5) Going back to point No. 1, I think Marc would consider a reasonable offer because he hasn't said he wouldn't. I've talked to several CEOs who've vehemently declared they're "not for sale" and then sell a few months down the road. When I sat down with Marc at the Software 2007 conference in May and asked him if Salesforce.com was an acquisition target, he said: "We're probably too big for SAP. It's hard to say [about other possible suitors]. We're a very different company, very unique. Whether it's our distribution model or our philanthropy model, it's very different than a traditional software company. It would take a lot of work." When I asked specifically about Oracle, he waved it off as a no comment.

In fact, I bet Marc and Larry and/or Charles already have had some talks, and Benioff is conflicted over whether he'd want to sell Salesforce.com. He's a strong personality who wants to make his mark in the world, whether it's leading the charge on changing the traditional licensed software model to SaaS or showing other software companies, like he refers to above, how to be generous with their money to those in need. He wants to make a difference in the world, the sure sign of an idealist.

But while Salesforce.com reported a 48% year-over-year growth in revenues in its third fiscal quarter announced yesterday, growth has been steadily and consistently declining. Some analysts insist the stock is over-valued. As Neil Young sang, "It's better to burn out, than to fade away." Idealists who want to change the world don't fade away. Unless Benioff has a sure plan to reverse that growth and grow margins, and stave off Microsoft and SAP in the world of SaaS, he'll sell before Salesforce.com fades into something less meaningful, and with less mindshare than it's got today. Oracle -- if it can make the purchase make sense for its shareholders -- is the most logical buyer.

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