By Daniel Newman
Salesforce.com is spending $15.7 billion to buy Tableau, the world’s leading Business Intelligence vendor. While this acquisition may look like a big move for Salesforce, I believe it exposes the company’s desperate effort to keep up with Microsoft. This deal comes at a big cost, both financially and strategically.
On the financial side, the price for Tableau represents almost a 50% premium over its market value. Overpaying for strategic investments isn’t unheard of, and when you get to acquisitions this large, the numbers to win board approval on either side can sometimes be steep.
But for Salesforce /zigman2/quotes/200515854/composite CRM -1.87% , this price was extraordinarily high for one major reason: Tableau and Salesforce have vastly different, and in some ways opposite business strategies, which means the integration of the technologies will be at best patchwork and at worst nonexistent.
As a quick history lesson, Salesforce was born in the cloud and deserves credit for popularizing the idea of Software as a Service (SaaS). Its philosophy was about removing the pain of software licensing and complex infrastructure in order to democratize highly capable Customer Relationship Management (CRM) software to anyone with a credit card and internet connectivity. CEO Marc Benioff has often touted this differentiation and criticized the competition for what he termed their antiquated ways.
Benioff is known for taking shots at competitors on earnings calls, especially SAP /zigman2/quotes/207905606/composite SAP +0.74% /zigman2/quotes/202053813/delayed XE:SAP +0.14% and Oracle /zigman2/quotes/202180826/composite ORCL +0.74% . In a call in 2016, he tore into how terribly the duo was doing in cloud and how Saleforce was taking their customers with ease. This goes back to the earliest days for Salesforce, where Benioff sold the company as the “End of Software ,” even acquiring the phone number 1-800-NOSOFTWARE and regularly wearing a pin with a red slash through the word “software.”
Tableau, however, is nothing like Salesforce. The company’s business is dominated by on-premise customers, with less than one-third using its service in the cloud. The platform is designed to integrate multiple data sets, and for those who want to run it in the cloud, they can do so on Amazon’s /zigman2/quotes/210331248/composite AMZN -1.64% AWS, Microsoft’s /zigman2/quotes/207732364/composite MSFT -1.30% Azure, or Google /zigman2/quotes/205453964/composite GOOG -0.27% /zigman2/quotes/202490156/composite GOOGL -0.25% .
Not only will it be interesting to see how this open approach evolves in the wake of the acquisition, but I will be intrigued to see how Tableau customers feel about being forced into Salesforce’s walled garden. For both business and technical reasons, I don’t see Salesforce immediately pushing customers to migrating their Tableau deployments to cloud or a certain cloud provider, but I believe dealing with legacy deployments will be a significant issue for Salesforce.
Is it going to just run Tableau like a completely separate company? I don’t see that as a way to compete with Microsoft Dynamics 365, which is not only in the cloud but has already dealt with the challenges of integrating with legacy on-premise solutions.
Some analyst rumblings I hear tout Salesforce buying an on-premise software company as a wise move into hybrid spaces; however, I simply cannot get there. Running a hybrid strategy, with vastly disparate solutions in multiple clouds and locations wounds the company’s identity and essentially makes it just like the companies it criticized so harshly.
Pot, meet Kettle.
How Microsoft is challenging Salesforce
For a long time, Microsoft’s efforts in cloud-based Customer Relationship Management and Resource Planning software businesses were relatively insignificant, especially during Salesforce’s meteoric rise. Three years ago, no analyst would have claimed that Salesforce is chasing Microsoft.
But over the past 36 months, the tide has turned. Microsoft Dynamics 365 has seen quarter after quarter of double-digit growth (43% and 51%, respectively, over the last two quarters. Couple this with the momentum of Azure Cloud (revenue surged 73% in the latest quarter vs. a year earlier ) and Power Platform (part of its business productivity unit and which had triple-digit year-over-year revenue growth in the last quarter), and Microsoft is firmly at the epicenter of Cloud, AI, and Business Intelligence. With its massive foothold in Office Productivity and the power of the Azure platform, it is also able to fill any gaps in its SaaS offering by leveraging its portfolio and tremendous customer base.
Salesforce has the bigger market share in pure SaaS, but if the acquisition of Tableau is an admission that enterprises need a bigger, hybrid software ecosystem, then it is suddenly competing in a much bigger pond where Microsoft’s intelligent cloud and business productivity operations are five times the total size of Salesforce .
Salesforce’s growth appears to be running out of steam, as innovation by acquisition can only take it so far. The overpaying for assets that muddy the company’s identity with little clear path to integration feels more desperate than strategic.
Equally as significant, for the first time since Benioff disrupted the software space, Salesforce is chasing a more formidable competitor in Microsoft, which has always done on-premise better — and now is doing cloud better as well.
Also read Therese Poletti: Salesforce and Google just spent billions on Big Data because of Microsoft
Daniel Newman is the principal analyst at Futurum Research. Follow him on Twitter @danielnewmanUV. Futurum Research, like all research and analyst firms, provides or has provided research, analysis, advising, and/or consulting to many high-tech companies in the tech and digital industries. The firm doesn’t hold any equity positions with any companies cited.