Google, Salesforce Deepen Ties

It's not the merger some had hoped for, but other on-demand software vendors could soon find themselves in buyers' crosshairs

by Aaron Ricadela

Salesforce.com CEO Marc Benioff loves to laud Google (GOOG), citing its ultrafast development and simple design as paragons of Internet software. Now, Benioff stands to book some revenue from the two-year courtship of his Bay Area neighbor with a marketing deal the companies plan to announce June 5.

Salesforce (CRM) will introduce a version of its customer relationship management software that lets small companies buy Google text ads to promote their businesses, then manage leads that result from the campaigns from within Salesforce's product. The tieup fell short of speculation that Google might buy or invest in Salesforce and underscores that while purveyors of on-demand software are seeking new partnerships for growth, the mergers-and-acquisitions market for those firms remains tepid.

"There's no way Benioff would do anything quickly," says Gordon Ritter, a general partner at Emergence Capital Partners, which invests in online software companies and was an early backer of Salesforce. Ritter also holds a personal stake in Salesforce.com.

"Oil and Water"

What's keeping the market cool for buyouts of these sellers of software distributed via the Internet? Ritter says there are at least three reasons.

Salesforce likely won't sell while its stock is rising; shares of Salesforce closed June 4 at $47.06—up 29% since the start of the year—and investors think the stock will climb further. For all of Salesforce's success—the company expects to grow 45% this year to at least $722 million in revenues—it isn't mature enough to absorb substantial acquisitions itself.

And there have been few takers among traditional software companies for startups specializing in software that customers rent over the Internet, rather than purchase through large licensing deals. The result is differing, sometimes hard-to-reconcile methods of accounting for sales. "They're oil and water," says Ritter. "No one in the legacy business is going to pay big money."

"Major Mind Meld"

Nevertheless, Salesforce and Google are forging closer ties. At the press conference in San Francisco featuring Benioff and Sheryl Sandberg, Google's vice-president of global online sales and operations, the companies will show the result of technology Salesforce got when it bought startup Kieden in August, 2006, which lets Salesforce.com users manage Google ad campaigns (see BusinessWeek.com, 8/22/06, "Salesforce Dives Into the Mash Pit").

So far, the feature is limited to a version of Salesforce for companies with no more than five users, but it could augur more joint projects and strengthen each company's hand as they prepare to battle Microsoft (MSFT), which is developing online versions of its sales management and other software. "This is a deal that's foreshadowing things to come," says Rob Bois, a research director at AMR Research.

Google and Salesforce have worked together before. The companies have combined Salesforce.com with Google Maps to help sales staff find meetings. Google's OneBox appliance server lets companies search data inside Salesforce's program. And Salesforce sells Google's Docs & Spreadsheets software through its AppExchange online store. There's the potential for more collaboration, including the ability for large companies to manage Google ad campaigns using Salesforce products.