For an executive who learned the ropes from Larry Ellison, Marc Benioff has adopted a very ‘un-Oracle-like’ approach to M&A. Since the company he founded, Salesforce.com, went public in mid-2004, Benioff has inked just five deals. The total shopping bill: less than $100m. Oracle, on the other hand, hardly touches a deal worth less than $100m. In the same four-year period that Salesforce.com has been public, Oracle has closed 45 deals with an announced value of more than $30bn.
Of course, the two companies are in very different stages of their lives, which goes a long way toward shaping their M&A activity. While Ellison and Oracle look to consolidate huge blocks of the software landscape, Benioff and Salesforce.com target tiny technology purchases that allow them to extend their on-demand offering to new markets. We saw that with Salesforce.com’s purchase last year of content management startup Koral, which had just nine employees. And on Wednesday, Salesforce.com announced its largest deal so far, spending $31m on call center software vendor InStranet.
But we would add another – perhaps less obvious – reason for the rather shallow deal flow at Salesforce.com. In many ways, the company is caught between shopping and partnering. In an effort to get a richer valuation, Salesforce.com has pushed Force.com and AppExchange as a way to be viewed as a platform company, rather than merely an applications vendor. (That effort got a big boost this week from Dell, which said it will be developing applications on the Force.com platform over the next three years.)
However, the very success of these efforts helps to explain why Salesforce.com has to keep its checkbook in its pocket when shopping. It can either focus on building out its platform or it can focus on deal-making – it can’t do both. By design, platforms are broad, open and inclusive, while M&A necessarily involves selecting one above all others. Benioff can’t pick a favorite child and expect to have a big, happy family.
To illustrate the dilemma, consider the situation concerning sales compensation, a line of business that’s a logical extension of Salesforce.com’s core CRM product and one the company could easily buy its way into. Indeed, there are already more than a half-dozen companies offering their sales compensation products on AppExchange. But imagine if Salesforce.com decided to buy one of the vendors, say Xactly Corp. Obviously, that purchase would alienate AppExchange rivals like Centive and Callidus Software, which would probably pull their offerings from AppExchange the day the deal was announced. Salesforce.com may well make up that immediate loss of revenue down the line. But as indicated by Wall Street’s brutal reaction Thursday to the company’s second-quarter report, it’s best not to tamper with the top line.
Salesforce.com: an unwilling buyer
*451 Group estimate, Source: The 451 M&A KnowledgeBase