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This past month, Salesforce spent $15.7 Billion to buy Tableau, the world’s leading Business Intelligence (BI) vendor.
While the acquisition may look like a big move for Salesforce, I believe it exposes the company’s desperate effort to keep up with Microsoft. This xxx is coming at a big cost, both financially and strategically.
On the financial side, the price for Tableau represents almost a 50 percent premium on the 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 of a sale can sometimes be steep.
But for Salesforce, 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, non-existent.
The Backstory: Salesforce and the Cloud
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 and Oracle. In a call in 2016, he tore into how terribly the duo was doing in cloud and how Salesforce 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.”
The Salesforce-Tableau differences are significant, and key 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 AWS, Azure, or Google. Not only will it be interesting to see how this open approach evolves in the wake of the acquisition, but I will also be intrigued to see how current 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 Dynamics365, 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.
Microsoft has Turned the Tide in Cloud Offerings
For a long time, Microsoft’s efforts in cloud-based Customer Relationship Management and Resource Planning software 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 seeing 43 and 51 percent, respectively over the last 2 quarters. Couple this with the momentum of Azure Cloud (Up 73% fiscal Q3 2020), Power Platform putting the company firmly at the epicenter of Cloud, AI, and Business Intelligence. With its massive foothold into Office Productivity and the power of the Azure platform, it is also able to fill any gaps in its SaaS offering by leveraging their portfolio and tremendous customer base. Salesforce has the marketshare in SaaS (for now), but if the acquisition of Tableau is an admission that enterprises need a bigger, hybrid 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 (Last Quarter).
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, but now is doing cloud better as well.
Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice.
The original version of this article was first published on MarketWatch.