Google and Salesforce: A Tighter Bond

On April 14, software maker Salesforce.com said it would begin distributing Google Apps, Web-based programs designed to help companies be more productive. Salesforce.com will also weave the Google technology into its own customer relationship management applications to make it a snap to jump from, say, a Google Spreadsheet program to a Salesforce customer-tracking application.

Business User Appeal

Executives and analysts characterized the alliance as a way to help both companies form a stronger front against Microsoft (Nasdaq: MSFT) , the leader in sales of desktop applications. "The integration is significantly deep and compelling," says Salesforce CEO Marc Benioff, arguing that his Redmond, Wash., rival doesn't innovate. "Microsoft has let us all down." He hopes the partnership with Google puts a dent in Microsoft's Office suite of programs, which includes tools for making spreadsheets and slide presentations.

However, cutting into Office is a tall order, given that the productivity programs are used by more than 400 million people around the globe. Right now, Salesforce manages customer information for about 1.1 million users. That helps explain why Microsoft was dismissive of the deal. Google Apps, launched a little more than a year ago, doesn't have the security features or support that enterprise customers demand, says Chris Caposella, senior vice president of Microsoft's information worker product management group, which oversees the company's Office operations. "They don't understand the enterprise yet, and the big question is will they have the intestinal fortitude to learn?" Caposella says. "It took Microsoft 10 years to get there."

Still, Web-based productivity applications have to start from somewhere. A pairing between Salesforce.com, a company that has pioneered online software distribution, with Google, renowned for features that are streamlined and easy to use, could nudge companies to give the programs a try, says Sheryl Kingstone, director of enterprise research at the Yankee Group, an industry research firm. Kingstone acknowledges that Google Apps aren't as "functionally rich" as Microsoft Office. However, getting the programs in front of business users gives them the opportunity to test the applications out. That awareness should help rev up the business.

While the Salesforce-Google alliance is primarily a distribution deal, it also could presage an even tighter relationship between the two companies. Collaboration between Google and Salesforce is predicated on the idea that business users want to manage all their interactions with a customer -- on a Web dashboard, in written documents, and through e-mail -- in a single place.

Buyout Possibility

Speculation that Google might want to buy Salesforce.com has swirled at least since last June, when Salesforce.com released a version of its customer management software that lets small companies manage Google ad campaigns inside Salesforce.com's product. The companies have also combined Salesforce's CRM software with Google Maps, and Salesforce has joined a group of companies supporting Google's OpenSocial programming standards for writing software that runs on social networks.

Why would Google want to buy Salesforce.com? The logic goes that Google is primarily a consumer technology company with a big interest in building an enterprise business. It can partner with Salesforce.com, but that only gets Google so far. Buying Salesforce.com puts enterprise applications at the core of its operations. "Does it make sense? Absolutely," says Yankee's Kingstone. "The future is around the consumerization of the enterprise."

Speculation that Salesforce.com might be in the crosshairs of an acquirer has buoyed the software maker's shares, which have risen more than 45 percent since Sept. 4, and on April 15 closed at US$59.35. Katherine Egbert, an analyst at Jefferies & Co., says a buyout of Salesforce by Google, Oracle (Nasdaq: ORCL) or another large tech company could fetch as much as $75 to $80 a share. Sanford C. Bernstein analyst Charles DiBona wrote in an April 9 research report that Salesforce "could be an attractive acquisition target" for several big tech companies, which would neutralize a downgrade to "market perform" that he issued on the stock.

Google didn't respond to a request for comment. Benioff won't discuss the possibility of a buyout but he does see scope for Salesforce to work more closely with Google. Notes Benioff: "It's gone a long way already."