Sunday, August 7, 2016

Salesforce vs Microsoft, New Cloud war begins

Marc Benioff of is an aggressive business man. He spends money aggressively on acquisitions  and R&D. Remember his recent bid on LinkedIn which got acquired by Microsoft  for $26 billion. And now Salesforce acquired Quip,  a cloud based word competitor. That clearly indicates Salesforce enters into Microsoft trajectory  After Satya Nadella became the CEO , Microsoft was in good terms with Salesforce and Benioff.
  • Office 365 got integrated to Salesforce.
  • Salesforce published Outlook apps (for CRM outlook extension is very important)
  • And Satya Nadella shared stage on Salesforce Dreamforce conference.
All these were considered as the examples of the relationship between SFDC and Microsoft. But actually these were not big deals. these were just vital deals. Outlook app for a CRM is unavoidable. And integration between Office 365 and salesforce was also an absolutely necessary one as both platforms have a lot of common customers. We should also think about Microsoft's $55 billion bid to acquire Salesforce. But Since Benioff demanded a price as high as $70 billion, that deal didn't materialize.

Rivalry begins

On June 13 Microsoft announced its plan to acquire LinkedIn professional network after a fierce competition with Salesforce. Last month Microsoft announced Dynamics 365, its combined cloud suit of  ERP and CRM. I believe even before that the war begun. When Salesforce chose Amazon Web Service as their preferred cloud  partner. Microsoft is in  a battle to catch up Amazon WS which holds 31% of massive Cloud IaaS and PaaS market whereas azure holds only 11%. Salesforce deal was so important for Microsoft .It was a $400 million deal for 4 years. It would have been a huge endorsement for Microsoft. But Salesforce chose MS revel. Microsoft want to be successful in Cloud. As AWS bags such massive deals it won't be able to beat AWS by Azure. But the massive amount of money invested(and still investing) in Azure should pay off. In one way or other. If AWS  is unbeatable, Microsoft want to develop more SaaS platform built on Azure. Dynamics 365 is a step to that.

Why Dynamics 365  is a threat to Salesforce?

Salesforce holds around 20% market share of massive 25 billion CRM market and Microsoft just holds less than 5% and MS holds another 5% market share in 25 billion ERP market. So we can consider it as a 50 billion market. Not just Salesforce, Oracle,SAP, Netsuite and many other players hold the handle of this CRM -ERP market. Microsoft Dynamics CRM Online is an inferior offering when compare to Salesforce SalesCloud and Microsoft doesn't  have good offering on Customer Service and Marketing Automation (other pillars of CRM). But the problem with salesforce is it is too costly. If Businesses get a cheap option which have same standard of Salesforce , they will switch for sure. Here comes the LinkedIn deal. Many businesses buy  LinkedIn subscriptions for to find new Leads etc. Now if Microsoft revamped Dynamics CRM online and if they offer Dynamics CRM, and LinkedIn as a bundle(at a discounted price) along with ERP it will become hot pizza . Salesforce won't be able to offer that discounted price even if they can integrate to LinkedIn.  Remember when Microsoft initially offer office 365, it was a combination of all their cloud products Exchange Online,Office Online,Sharepoint Online and Lync Online. But in 5 years it bacame the market leading productivity suite. Acquisitions, updates , App releasing, new products ... Microsoft played all their tricks to boost Office 365. If Microsoft plays all these tricks for Dynamics 365 Salesforce will be in trouble. If Microsoft could grab a 10% $50billion CRM-ERP market, they will get a $5 billion in cash every year and their Azure investments will also get justified. Benioff sent an email  to LinkedIn CEO stating that "he would have offer much more than what Microsoft offered". That indicates how badly he want to acquire LinkedIn which had a market capitalization of ~ $17Billion only at the time of acquisition news. But it was  a sweet revenge by Microsoft for Salesforce's AWS deal.

How Salesforce strikes back?

Sales force is not quiet. They acquired Quip a Microsoft word and excel competitor for $850 million. A new generation product founded by former Facebook CEO. It won't be a threat to Microsoft's Office 365 productivity suit. But they can expand their portfolio by more acquisitions. Box, Evernote, Prezi, Slack etc can be considered as potential targets.  And if salesforce offer it as  a bundle against office 365 microsoft have to be affraid. But i still doubt whether Salesforce have that much deep pocket to acquire these unicorns and offer discounted pricing. 

And Microsft won't do  acquisition only plays. they always do the combination of Acquisition and Development.  They developed Project Madeira (Financial for Small businesses), Acquired Linked In. But they may also target companies like Zendesk or Freshdesk, Marketo, Workday etc. Let's wait and see...

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