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Is Salesforce Big Enough To Avoid Amazon, Oracle Overtures?

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Salesforce.com ( CRM ) is fortifying its kingdom on a cloud, but now the question is whether that automatically comes with an acquisition-proof moat.

Salesforce's $2.8 billion buyout last week of e-commerce platform Demandware (DWRE) beefs up its arsenal as Silicon Valley continues to engage in turf battles atop virtual thunderheads. The rumored bidding war over Demandware is said to have included Oracle ( ORCL ) and Adobe ( ADBE ), which both compete -- to varying degrees -- with Salesforce's cloud-based customer-relationship-management software.

But few players now seem to have the full suite of enterprise tools that Salesforce offers. By adding an enterprise cloud e-commerce platform to its product lineup, it allows Salesforce to "own the entire customer journey," as Piper Jaffray analyst Alex Zukin put it. Salesforce's products involve the first contacts with customers to sales and transactions and on to service issues.

"That's the holy grail," Zukin told Investor's Business Daily.

Is it enough to put Salesforce out of reach? With Salesforce's market cap at well over $56 billion, and with an increasing number of acquisitions under its belt, it might be getting too formidable to be a takeover target.

A 'Big Deal'

The Demandware buy comes on the heels of Salesforce's announcement that it has chosen the web services unit of Amazon ( AMZN ) as its "preferred public cloud infrastructure provider," expanding its existing partnership and using Amazon's cloud provider in certain markets abroad to "help bring new infrastructure online more quickly and efficiently."

Deutsche Bank analyst Karl Keirstead called the agreement a "big deal."

"It is a major endorsement of (Amazon Web Services), and Salesforce becomes the first of the larger 'incumbent' (software-as-a-service) vendors to give up on the idea that they need to own/control their own data center infrastructure footprint," he wrote. Keirstead added, though, that the deal materially shrinks the chances of Microsoft ( MSFT ) acquiring Salesforce, a rumored partnership in years past.

Piper Jaffray's Zukin isn't so sure. He recalled chatter of years past that has included not only Microsoft but Oracle as a potential Salesforce buyer.

"I think Salesforce is a unique strategic asset and I wouldn't put it past someone else from buying them over the next couple of years," Zukin said.

Zukin speculated in early May that a separate deal, in which Salesforce would build its new Internet of Things service on Amazon's cloud, could lead to a "cozier" relationship between the two, perhaps in the form of a strategic sales partnership. Amazon also could spin out its web services unit and merge it with Salesforce, or even acquire the company outright, with the latter being the least likely, he speculated.

'Cloud Game Of Thrones'

"Fundamentally we view (Salesforce) as a clear beneficiary of a larger 'Cloud Game of Thrones' being waged among (Oracle, Microsoft, Amazon and Alphabet (GOOGL)'s Google) for the Cloud Platform 'Iron Throne,'" Zukin wrote on May 12. (Coincidentally, Salesforce CEO Marc Benioff is a distant cousin of "Game of Thrones" co-showrunner David Benioff.)

Zukin still thinks Amazon could annex Salesforce in some capacity, though. When asked if the Demandware acquisition put Salesforce at odds with Amazon -- given that Demandware builds e-commerce solutions for individual businesses, ostensibly guiding them away from selling their wares on Amazon -- he demurred.

"You could almost argue the opposite case," he said. "It almost makes Salesforce an interesting acquisition to Amazon."

While Amazon is the rumored Salesforce acquirer du jour, Zukin's money is on Google's name being added to the mix next year.

"Depending on who bought them, it would make tremendous sense," said Zukin. "A combination of (Amazon Web Services) and Salesforce.com is a killer combination that would put (others) on the defensive."

"That would make Amazon the new IBM (IBM)," he said.

A $400 Million Deal?

Salesforce's deal with Amazon Web Services is believed to clock in at $400 million through 2020, according to a Wall Street Journal report citing someone familiar with the matter, plus a recent SEC filing that refers to a purchase commitment with an unnamed third-party provider for "certain infrastructure services for a period of four years."

[ibdchart symbol="CRM" type="daily" size="threequarter" position="rightchart" ]"As Salesforce looks to leverage their services internationally, I think they're going to do so utilizing that Amazon infrastructure rather than going out and leasing data centers in international markets," said Morningstar analyst Rodney Nelson. "It's a lot easier to just rent capacity from Amazon, where they already have a presence overseas."

He called the deal the "right move," but said it's hard to predict how that relationship could expand down the road.

At the very least, Salesforce's moves are well-timed. More businesses are feeling comfortable moving their data to the public cloud as well as looking to save on technology costs, Nelson says. That has resulted in an accelerated migration to cloud services.

Salesforce, which is seen hitting the $8 billion mark in revenue this year, is largely expected to benefit as Amazon, Google, Microsoft and others stake out their space in cloud computing.

And for its part, Salesforce right now sees itself as more the hunter than the hunted.

"The M&A season right now is the most intense, most exciting I have ever seen," Salesforce Chief Executive Marc Benioff said last week on CNBC. "I have never seen more deals and more things happening. We're not winning every deal; this is just a deal that we were actually able to get done. We're excited that we could actually get Demandware, and it's tough to get deals done in this environment because everybody's positioning for growth for next year."

More Land Grabs

Still, it wouldn't be a true game of thrones unless more land grabs were on the horizon.

"I think we're already seeing the M&A market heat up," said Nelson, noting Oracle's acquisitions in recent weeks of Opower, which provides cloud services to utilities, and Textura, a construction software firm.

"We've also already seen the privatization market intensify," said Nelson, highlighting Marketo and Qlik's recent moves to go private, "So I think we're going to see activity remain high for a while."

The service and app clouds are Salesforce's fastest-growing products, say analysts, and Zukin says its new Demandware-based "commerce cloud" could become its fastest grower. The company says it expects to create "yet another billion-dollar cloud" with the purchase.

Salesforce's clients span across industries and include the likes of GE (GE), Delta Air Lines (DAL) and Comcast's (CMCSA) NBCUniversal.

Shares now trade in the lower end of buy territory after breaking out of a period of consolidation with an 83 entry point and recovering from an early February dive that sent the stock tumbling 20% over the course of two trading sessions to a 16-month low.

The plunge was prompted by Tableau 's (DATA) disappointing full-year earnings guidance that sliced Tableau's shares nearly in half on Feb. 5, which weighed heavily on software stocks, including ServiceNow (NOW) and Splunk (SPLK).

Tableau's shares have only recovered slightly, while Salesforce shares came back to hit a new high of 84.48 on May 26. Shares rose 0.7% to 83.10 in morning trading on the stock market today .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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