231-922-9460 | Google +

Thursday, August 9, 2012

Salesforce Attracts Big Rivals as Strategy Delivers

Even before Salesforce.com Inc. (CRM) went public in 2004, Chief Executive Officer Marc Benioff wasted few opportunities to poke fun at bigger, more established software companies, calling their products “landfill.”

In his management book “Behind the Cloud,” Benioff advised upstarts to “box above your weight.”

Now, Oracle Corp. (ORCL), SAP AG (SAP) and Microsoft Corp. (MSFT) are punching back, buying companies that offer business-management tools over the Internet, gaining traction in an area pioneered by Salesforce.

That’s stepping up pressure on Benioff to move beyonrd his core -- programs that manage sales -- and accelerate a push into software-development and social-media marketing, part of a bigger market valued by UBS AG at more than $100 billion.

Salesforce is facing pressure to expand into new markets.

When he started Salesforce, Benioff bet that wider use of the Internet would help enterprises stop buying servers and software and installing them in-house. The bet paid off, as companies look to use online services -- now called cloud computing -- to cut costs and streamline operations.

Salesforce now faces greater competition as Microsoft, Oracle and SAP have all made recent moves to become more broadly competitive against Salesforce.

For Rent

Concern over accelerating competition has diminished Salesforce’s value. The company’s enterprise value -- which accounts for its debt and market capitalization -- will fall to 5.85 times sales in the current fiscal year, versus its yearly average of 7.72 since 2005, data compiled by Bloomberg show. On the same basis, Oracle’s value has held up better amid an acquisition spree, with a ratio of 3.56 for its current year, compared with an average of 4.64.

Salesforce’s revenue growth may taper this year and next, from the 37 percent rate in the fiscal year that ended Jan. 31. The rally that lifted Salesforce’s stock 64 percent through April 19 from a low on Jan. 4 has since fizzled. The shares have declined 15 percent since that peak.

Benioff for years has beaten the drum for corporate software delivered as an online service as a more efficient way for companies to run sales, marketing and customer support. Instead of paying multimillion-dollar licensing fees up front, SAAS allows customers to rent applications by the month via a Web browser, with Salesforce handling updates.

Tough Rivals

Recently Oracle, SAP and Microsoft have all made moves that validate what Salesforce.com has been delivering to companies over the past decade.

Benioff, who recently joined the board of Cisco Systems Inc. (CSCO), spent 13 years at Oracle before starting Salesforce in 1999 with the blessing of Oracle CEO Larry Ellison, who also invested $2 million in the venture.
A decade later, Ellison, speaking at a posh Silicon Valley hotel three summers ago, lambasted Salesforce, accusing the software maker of repackaging decades-old technology. Cloud computing, Ellison ranted, was “nonsense.”

“All it is, is a computer attached to a network.” Of Salesforce, Ellison added, “They change a term and they think they’ve invented technology.”

These days, Ellison has embraced cloud computing, buying companies and starting his own online computing service to deliver Oracle’s business applications and database software.

Gathering Clouds

Oracle, based in Redwood City, California, says it’s already booked $1 billion from cloud computing, as well as online human resources and customer support companies it acquired in the past year. Customers include Yahoo! Inc. (YHOO), Starbucks Corp. (SBUX) and Hyatt Hotels Corp. (H)

Beyond the $13 billion customer relationship management software segment, UBS analyst Brent Thill estimates the broader platform software market, which includes databases and development tools, to be worth $101 billion.
“We’re the second biggest software-as-a-service provider today and to be honest with you, we just got started,” Oracle co-President Mark Hurd said in a recent interview.

Oracle also plans to add accounting, supply chain management, and manufacturing planning to its online offerings.

Dream Deals

SAP, the world’s largest maker of business management applications, reported better-than-estimated earnings thanks to its SuccessFactors online HR software. Redmond, Washington-based Microsoft, a perennial Benioff target, last month bought Yammer Inc., a Facebook-like corporate networking tool that competes with Salesforce’s Chatter.

To contend with the newfound competition, Salesforce is expanding into human resources and tools for marketing on Facebook and Twitter. At its annual Dreamforce conference on Sept. 18 in San Francisco, where Salesforce is based, the company plans to detail its new human resources offering. Benioff will unveil Work.com, which will let managers set organizational goals and recognize employees.

One of Salesforce's  customers DuPont has been acquiring companies through structured M&As and making a lot of acquisitions that give them new capabilities.  said DuPont Co. DuPont has standardized on three vendors -- SAP, Salesforce and Microsoft -- and expects each to deliver technology it can rent on a monthly basis.

Star Hire

Salesforce can hit $10 billion in sales given its pace of growth, though no target dates have been set. Analysts expect Salesforce to reach $10.8 billion in annual sales by 2020, according to estimates.

Salesforce has begun to lean on the expertise of a Silicon Valley engineering executive who joined Salesforce last year after spending 12 years at Oracle and almost three at SAP.

The challenge at Salesforce is that the company grew out of selling primarily to small and medium-sized businesses, not necessarily large enterprises.

The newest senior developer at Salesforce are determined to establish credibility after presiding over the years-late Fusion suite at Oracle, then departing SAP after less than three years.

Social Element

Salesforce and Oracle are also dueling to take advantage of growing corporate demand for marketers to create campaigns and garner product feedback from Facebook and Twitter users’ streams of posts.

Oracle bought closely held Involver Inc. following deals for Vitrue Inc. and Collective Intellect Inc. in the past three months. Google Inc. (GOOG) recently said it would buy Wildfire Interactive Inc. for about $250 million to let ad clients design social media marketing campaigns.

The acquisitions echo Salesforce’s $745 million latest deal for social marketing company Buddy Media Inc.

Oracle and Salesforce are buying social media ad delivery companies because they see a lot of activity, and the growth rates are very high.

For more national and worldwide Business News, visit the Peak News Room blog.
For more local and state of Michigan Business News, visit the Michigan Business News  blog.
For more Health News, visit the Healthcare and Medical News blog.
For more Electronics News, visit the Electronics America blog.
For more Real Estate News, visit the Commercial and Residential Real Estate blog.
For more Law News, visit the Nation of Law blog.
For more Advertising News, visit the Advertising, Marketing and Media blog.
For more Environmental News, visit the Environmental Responsibility News blog.