Technology companies believe in two certainties: to survive, you have to grow, and to grow you have to innovate. There are two ways to innovate; organically leveraging internal R&D and inorganically through partnering, M&A and corporate investment arms. In the software and SaaS world, mergers and acquisitions have become a dime a dozen in the largest software and SaaS companies such as Google, Microsoft, and Oracle.
The week before last, we saw Google announce it was snapping up Looker. Last week, Salesforce announced the intention to acquire Tableau for $15.7B. As I look at Salesforce’s Tableau acquisition, I can’t help but wonder if Salesforce has lost its organic innovation mojo, happy to snap up smaller competitors and leverage their innovation. Also, is this the beginning of the cracks in Salesforce’s “all SaaS” strategy after feeling the pressure of hybrid models? Read on as I explore both of these.
The number-one CRM vendor, Salesforce.com, announced plans on June 10 to acquire the number-one business intelligence (BI) vendor, Tableau, in an all-stock deal, valued at $15.7 billion, a near 50% premium of Tableau’s price of the stock at the time. Not only does Salesforce appear to be overpaying for this acquisition, but the company also appears to be in response to Google’s $2.6B Looker acquisition and Microsoft’s success in the space. To be fair, M&A doesn’t happen overnight, the investment banking industry is connected, and surely Salesforce and Google both knew what the other was working on and likely even had competing offers.
Reduction of Salesforce’s organic innovation?
I have run businesses at large tech companies, know how the game works, and believe mature innovation strategies include elements of organic and inorganic innovation. However, when inorganic starts to dominate the innovation strategy, questions must be asked about the company and its future.
Has Salesforce forgotten how to innovate internally?
With all the success and close customer proximity, why didn’t Salesforce see the importance of BI? Why didn’t its corporate strategists invest earlier to build its own capability?
I get that as Salesforce expands its core business, it becomes more challenging to grow, and in high-tech, a lack of growth leads to a company’s downfall. In the past 15 months, though, Salesforce has announced two high-priced acquisitions totaling over $21.8 billion: Tableau and MuleSoft. (In both cases paying a substantial premium)
Marc Benioff, co-founder, and co-CEO of Salesforce responded to critics of the company’s recent acquisition on a recent Mad Money episode and stated, “innovation is one of our [Salesforce’s] core values” and that “companies, to be competitive nowadays, have to also believe in inorganic innovation.” Benioff’s defensiveness says everything I need to know. Having worked over 20 years and an executive at high tech companies, I am certain there are many questions in the executive suite on organic innovation.
Salesforce responding to hybrid cloud pressure?
The other thing we need to consider is if Salesforce’s “SaaS only” approach will be pure in the future. If you recall, five years ago, the sentiment was that all of IT was headed to the public cloud and vendors like IBM, Dell, HPE, IBM, VMware, SAP, Red Hat and Lenovo were finished. As an industry, we are out of the drunken-sailor stage and recognize that the future is a hybrid cloud. Just look at the reality of hybrid with Microsoft Azure Stack, AWS Outposts, Google Cloud Anthos, and SAP HANA.
Tableau is very much a hybrid cloud solution that runs on-prem and in the public cloud and it’s unlikely Salesforce will turn off that hybrid capability. What I’m wondering is if this move (and MuleSoft) implies that Salesforce feels the pressure of the hybrid cloud and will need to make the entire stack hybrid, including CRM.
If this is the case, you have to wonder if Salesforce, who has printed money with a SaaS-only model, can succeed in a Napoleonic war on the SaaS and on-prem fronts. I’m not picking on Salesforce here- strategically, any company that shifts from its core risks failure. Microsoft and SAP are the best examples of companies that have been successful on-prem and in the cloud, but it begs the question if Salesforce can do this. Who knows, maybe Salesforce will “pull a Microsoft” and create staggering growth and competitiveness as it has done with Dynamics 365 and PowerBI with underlying Azure. Or maybe not.
Salesforce became great based on two tenets: internal, organic innovation delivered through a SaaS model. Since Salesforce is wandering away from its core model with no clear sign of return, the question I pose is, “Has the company given up on what made them great and what are the future implications?”
It’s hard to hard argue with Salesforce’s impressive, 20% growth every quarter, but I also know fundamentally that moving from what made a company great is a very risky proposition. I also know enough to look beyond the latest quarterly earnings report and look a few years into the future.
We will not understand the benefits or determinants this acquisition may bring to Salesforce for a while, so until the smoke has cleared, all we can do is predict the company’s future. Salesforce has either blown its competition out of the water with the Tableau acquisition or jumpstarted its inevitable decline. Call me skeptical.
Note: Moor Insights & Strategy intern Pearson Riley contributed to this article.