This just doesn't make any sense, not that I know more than the next guy. Nadella is a tech guy, it's very unlikely that he wants to make his CEO depend on such a huge financial deal. Salesforce's market cap is almost 50B right now with no GAAP earning. What's in it for Microsoft?
The main driver of Microsoft's net income growth over the last few years has been all enterprise software (Windows Server, SQL Server, Sharepoint). Their CRM (Dynamics) is the #2 player in the market.
Acquiring Salesforce would enable Microsoft to dominate this sector (approach 50% market share potentially). Salesforce has done a great job of fostering an ecosystem of apps that rely on their data platform.
Microsoft can add value to the existing SalesForce product by replacing their cloud infrastructure. While pioneering this concept in the enterprise SalesForce's infrastructure is outdated and aging. Plugging the existing customer base and app ecosystem into Azure (or Microsoft's cloud at large) could be a huge win for both companies.
Net-net this makes a ton of sense in theory, but big mergers destroy value more often than not as they are extremely challenging to execute effectively (it's basically a multi-billion dollar corporate refactoring exercise).
Salesforce.com may feel like Web 1.0 software, but SAP feels like terminal style software. The syntax of ABAP (SAP script language) is somewhat similar to COBOL: http://en.wikipedia.org/wiki/ABAP . Microsoft Dynamics CRM feels like Web 2.0. Oracle bought SiebelCRM and it's seem more modern.
This says nothing about their capabilities, they are all feature rich. And conservatism in ERP and CRM business is valued by enterprise customers.
It would further orient Microsoft as a services company than a product company, so it would be consistent with some other moves they've been making (open sourcing .NET, selling Windows 10, Office as a subscription...)
Microsoft's ultimate goal is for every new business to buy a Microsoft subscription which includes Windows, Office, Sharepoint Online, Exchange Online, and now maybe a Salesforce product.
It is a one stop shop for all of a business's technology needs. All they need in addition to it is the physical hardware and they're good to go. Right now a lot of businesses only run on Windows+Office+online services+an accountant package. Now they won't even need the accountant package.
For big companies like MSFT, this needs to be quantified into future revenue and EPS. What CRM brings to the table right now doesn't contribute much to MSFT to revenue (5B more a year, with expect 20% increase next year) and negative to EPS. So all 50B+ has to be contributed to synergy and goodwill. That's a huge call, and I don't think Nadella would be able to make it.
Wow, I had no idea Salesforce had negative GAAP earnings since inception. I assumed they were making a killing as they are SaaS. I guess they are going the Amazon route and plowing everything back into the company to grow top line.
If this rumor is true I'm guessing MSFT sees the opportunity for some serious cost synergies/reductions. At a $46B market cap that would seem to be a lot though!
Salesforce has amazing gross profit margins as you'd expect (76%), but from day one they've intentionally spent to the max seeking market share. Probably a smart move, given the vast scale of Oracle and SAP, and Oracle's general aggressiveness in trying to corner segments through acquisition to build up a moat around their business.
About 50% of their revenue still goes to marketing expenditures. Another big dent in their earnings potential, of course, are the stock options they hand out (which is why Salesforce likes to talk about non-GAAP) - something like $500m to $600m per year now, equivalent to roughly 10% of sales.
Microsoft, IMO, gets business needs at a pretty hard wired and basic level, unlike Google or Apple. Their core audience and financials is B2B - consumers are, IMO, a sideshow, and likely have been since the early '90s.
I'm not a huge MS fan, but I am pretty sure that I feel much more comfortable using MS services for my company as opposed to Google, whose customer service is legendary.
> Microsoft, IMO, gets business needs at a pretty hard wired and basic level, unlike Google or Apple.
I'm not sure they get business needs any better than Google and Apple, but they are very well-tuned to how to appeal to enterprise CTOs -- which I think is often more about appealing to business conventional wisdom than needs, per se -- on top of having the advantage for those buyers of being what IBM was a few decades earlier ("Nobody ever got fired for buying...")
