Salesforce Listening to Takeover Offers?

May 4, 2015 • Analytics, Big Data, Data Management Inc., the software provider that has hired bankers to field takeover offers, would make sense as a partner for a buyer willing to spend a lot to become the leader in cloud computing.

Salesforce jumped 12 percent to close at $74.65 in New York on Wednesday, giving the company a market value of about $49 billion.

Here are several reasons someone might want to spend that kind of money:

All Cloud, All The Time

Salesforce’s business is entirely cloud-based. That means that as the company adds clients, it can lower costs-per-customer through economies of scale and by improving operations in its software and data centers. It also can update products and roll out new business lines quickly via the Internet.

Also, customers are flocking to software and service contracts that tend to be simpler for cloud computing than for traditional software. Cloud clients also can avoid the sunk costs of buying hardware.

“Specific to the cloud, the shift is accelerating and it’s happened more quickly than the big guys were hoping,” Steven R. Koenig, an analyst at Wedbush Securities Inc., said in an interview. The San Francisco-based company would give an acquirer “a lot of critical mass in the cloud.”

Market Dominance

Salesforce had 16 percent of the customer-relationship management market in 2013, compared with 13 percent for SAP SE, 10 percent for Oracle Corp. and 7 percent for Microsoft Corp., according to Gartner Inc.

Salesforce will have more than 15 million end users in 2018, up from around 6 million last year, Gartner wrote in a November report.

The CRM market has “gone to Salesforce, and no one is going to catch up,” Koenig said.

Long-Term, Big-Spending, Customers

Around 40 percent of organizations with greater than a billion dollars in annual revenue ran all their CRM applications within their own data centers last year, according to Gartner. That will shrink to 25 percent by 2020 as companies move to the cloud, Gartner said.

As customers start to move into cloud CRM systems offered by Salesforce, Microsoft, Oracle and SAP, they also to tend to buy related products, such as analytics or marketing services, from the same company. That stitches clients tightly to their provider, making it less likely for them to move away.

“There is still room for and competitors to grow rapidly in CRM without reaching capacity for at least the next five years,” Gartner wrote.

International Expansion

Salesforce has begun investing in data centers around the world. Chief Executive Officer Marc Benioff has said the company would open “multiple” data centers in Germany, along with ones in France and Canada. Local facilities help the company serve customers with stringent data regulations, without having to give up the economies of scale and operational expertize gained by being a cloud company.

Not Just CRM

Though Salesforce continues to grow, it has to search for opportunities in new businesses.

“We’ve seen decelerating fundamentals,” said Koenig, the Wedbush analyst.

That has led to an ambitious expansion campaign, touched off by Salesforce’s acquisition of marketing specialist ExactTarget for $2.42 billion in 2013.

Since then, Salesforce also has expanded into data analytics through investments and product development. Lashing these various products together with its Salesforce1 program has allowed the company to pursue larger contracts with bigger firms.

Salesforce closed 550 deals valued more than a million dollars each in its most recent fiscal year, up around 100 from the prior year, the company said in February.

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