 "How LinkedIn drove a wedge between Microsoft and Salesforce")
This is a story of love lost after a fight over social media.
Today, Microsoft and Salesforce are archrivals that recently battled each other to buy the social network LinkedIn - hungry for its troves of highly personalised data about business people. When Microsoft won, Salesforce threw cold water on the acquisition by saying it would violate European antimonopoly laws.
But not long ago, the two software giants were tight. They even talked about merging their businesses — not once, but twice. The second round of talks hasn’t previously been reported. A behind-the-scenes look at the fight between Salesforce, which upended business software by pioneering a rent-by-the-month model, and Microsoft, which is racing to adjust, exposes an awakening in corporate America about the value of social networks like LinkedIn and Twitter. The data stashed in their servers has elevated services like these from an amusing distraction to an essential tool that helps big businesses understand their customers.
At first, Microsoft and Salesforce put past grievances behind them — the two had squabbled over patents, employee poaching and more — and agreed to make their products work better with each other. Their relationship warmed up when they began to talk about a merger, but then quickly got frosty when they couldn’t agree on a price. There are big personalities behind the battle. At Microsoft, the job of adjusting course has fallen to Satya Nadella, a poetry-quoting chief executive who is trying to aggressively remake the company in hot areas like the cloud business applications where Salesforce is a leader. “Microsoft decided it could go ahead and recreate the best parts of Salesforce,” said Venky Ganesan, a managing director at Menlo Ventures who has spoken with Nadella and other business-development executives at Microsoft.
Marc Benioff, a founder and the chief executive of Salesforce, is considered a self-assured visionary. But he had doubts about staying independent around the time he understood that Microsoft was getting serious about competing with his company. Salesforce was founded in 1999 to bring about “the end of software as we know it,” as Benioff liked to say. The slogan appealed to Benioff, a former Oracle executive who alternates between the brashness of a Silicon Valley tycoon and the mellowness of a Hawaiian surfer. (He has a sprawling compound in Hawaii and frequently signs off emails with “Aloha.”) At the time, software used by businesses was usually sold through huge licensing deals for software that would be installed directly on company PCs. Benioff’s idea was to undercut that model: He would offer the same thing over the internet, without expensive installations, and customers would pay by the month. The idea proved prescient. Though it only recently began turning a profit, Salesforce is on track to have more than $8 billion in revenue this year, representing annual growth of about 25 per cent. The total market value of the company is over $50 billion. Salesforce is the largest tech employer in San Francisco, and the company will move into the city’s tallest building, Salesforce Tower, when it is completed.
Salesforce’s main products are for customer relationship management, or CRM, unglamorous tools that are nevertheless critical for helping businesses where it counts: by managing sales leads and client interactions that bring in revenue. Sales in the CRM market totaled $26.3 billion last year, and Salesforce was in the No. 1 spot, with just under 20 per cent, according to Gartner, a research firm. Microsoft was in fourth place, also behind Oracle and SAP, with just 4.3 per cent. It took Microsoft years to see the potential in what Salesforce was doing. Microsoft had its own CRM product, Dynamics, but it took a back seat inside an empire that, under the former chief executive Steven A Ballmer, was consumed with battling more prominent competitors like Apple, Google and Sony.
Nadella, a longtime Microsoft executive whose career odyssey at the company included overseeing its CRM product, was less combative than his predecessor. He began reaching out to leaders of many rival companies after he became chief executive in early 2014, with a special goal of improving Microsoft’s standing in Silicon Valley.
John W Thompson, a longtime Silicon Valley executive who had recently become chairman of Microsoft’s board, arranged a dinner at the Rosewood hotel in Menlo Park, Calif., for Nadella to meet other tech executives, including Benioff, the Salesforce chief said in a 2015 interview. “At the end of dinner, I really gave Satya a number of areas I thought we could work closely on,” Benioff said in the interview. “He took me up on all of them.”
Nadella and Benioff declined to be interviewed for this article.
A few months later, the two men had negotiated an agreement to make Microsoft’s Office 365 suite of applications work better with Salesforce’s online services, which they said business customers were clamouring for. They promised more collaborations to come. They began tweeting at each other like old friends.
At one point, Benioff offered to buy the Dynamics business that Salesforce competed with, but Nadella turned him down, according to two people briefed on the discussions.
The two companies stayed close and by the spring of 2015 their conversations evolved into another deal: Microsoft would acquire Salesforce. In May 2015, CNBC reported that the talks had fallen apart because Salesforce was demanding around $70 billion, about $22 billion more than the company’s market value at the time.
Several people briefed on the talks said that account was accurate, though two of them said another factor was that Benioff thought Microsoft was not respectful enough of his accomplishments in building Salesforce. It was unclear whether Benioff would be happy in a subordinate role at Microsoft after building Salesforce from the ground up, and it was equally hard to imagine a successful Salesforce without him.
Quickly, there were signs that Microsoft planned to get its act together in the CRM business. As part of a broader shake-up, Nadella moved Dynamics under Scott Guthrie, one of Microsoft’s most respected engineering leaders. This telegraphed that it intended to go after Salesforce’s business.
“They’re serious in a way they haven’t been before,” said Charles Fitzgerald, an angel investor in Seattle and a former Microsoft manager who occasionally consults with the company.
Salesforce did not sit idle. In November, it hired a former head of Dynamics, Bob Stutz, to oversee its data analytics products.
Still, Microsoft and Salesforce had reasons to keep the peace. Nadella wanted Salesforce to use Microsoft’s cloud computing infrastructure, called Azure, to run its internet applications. A marquee customer like Salesforce could lend credibility to Azure as Microsoft tried to catch Amazon, the top cloud infrastructure provider.
In September 2015, Nadella spoke at Dreamforce - Salesforce’s annual tech jamboree in San Francisco - where Benioff positively gushed over him in his introduction. “Satya and I have become good friends over the past couple of years,” he said. “He is an incredible person, an incredible visionary, an incredible leader of an incredible company.”
In the months after, Benioff met privately with Nadella to talk business. Benioff discussed using Microsoft’s HoloLens augmented reality headset in a Salesforce presentation; that never panned out. And he again brought up the idea of Microsoft’s acquiring Salesforce, according to several people briefed on the talks.
Microsoft seemed less receptive to the idea than before, partly because of Salesforce’s price tag and also because Microsoft had decided to compete more aggressively with its own product, these people said. By last February, the discussions were dead, they said.
The conversations became contentious enough to place a strain on the longtime friendship between Benioff and Thompson, according to two people with knowledge of the relationship. The two men did not speak for months (although things have since thawed). That’s around the time Benioff seemed to recognize the seriousness of the threat posed by Microsoft - a well-capitalized competitor, many times the size of Salesforce - according to people who discussed the issue with him.
The most alluring acquisition target for both companies, though, was LinkedIn.
The business social networking site has become an indispensable tool for people to advertise their employment histories and professional achievements. LinkedIn’s enormous database of profiles could be coupled more tightly with CRM systems to help sales representatives close deals, both companies believed. LinkedIn’s data could also be used to strengthen Microsoft products such as Office, one of Microsoft’s most lucrative products. And LinkedIn comes with a steady revenue stream.
On February 16, Nadella met with Jeff Weiner, the chief executive of LinkedIn, to talk about existing business relationships between the companies, but the conversation eventually veered toward a Microsoft acquisition of LinkedIn, according to a LinkedIn filing with securities regulators. Benioff raised the possibility of a Salesforce acquisition of LinkedIn with Weiner almost a month later.
For the next several months, Microsoft and Salesforce privately made competing offers for LinkedIn, each sweetening their bids as the competition increased. Bill Gates, Microsoft’s co-founder and a board member, wooed Reid Hoffman, the LinkedIn founder and chairman, according to the LinkedIn filing. Salesforce code-named its LinkedIn effort Project Burgundy.
In mid-June, Microsoft won LinkedIn with a bid of $196 a share, all of it in cash, which provided more certainty for LinkedIn shareholders than the combination of cash and stock that Salesforce was offering. Microsoft has more than $136 billion in cash and short-term investments. Salesforce has less than $1.2 billion.
After LinkedIn filed the details of its acquisition process with regulators, Benioff sent an email to the Salesforce board commenting on how the company had nearly beat Microsoft. The message was one of many published by the website DCLeaks.com from the hacked email account of Colin Powell, the former United States secretary of state and a Salesforce board member.
“We were closer than we realised - maybe a $105 cash plus $105 stock would have done it!” Mr. Benioff wrote. “But we were definitely over our skis!!!!”
As the prospect of a LinkedIn deal began to dim for Salesforce, the company’s chief legal officer, Burke Norton, sent an email to the board saying the company, as result, could contemplate a number of other acquisition targets, one of which - Demandware - it ended up buying. Other possibilities, including Adobe, Box, Tableau and Workday, remain independent, according to a presentation attached to the email, which was published on DCLeaks.com.
Benioff has bought at least 10 companies in all. His most expensive purchase, at $2.8 billion, was Demandware, which helps companies run their online shopping sites. One big acquisition, the document software company Quip, took direct aim at Microsoft Office, one of Microsoft’s cash cows.
There is, of course, no guarantee that LinkedIn will give Microsoft the edge it seeks in data analytics, machine learning and CRM software. The company has a history of fumbling big acquisitions, including its disastrous acquisition of Nokia, which ended in a $7.6 billion write-off, after which Microsoft backed away from mobile phones.
While Salesforce’s acquisitions and war chest are relatively small, the company highlighted in a presentation to analysts this fall that it had acquired Quip in part to land its co-founder, Bret Taylor, a former Facebook and Google executive. Analysts view Taylor as someone who can weave Salesforce’s pieces into a more competitive company.
In the meantime, Benioff cut a deal in May to use primarily Amazon’s cloud computing services, not Microsoft’s. The deal was worth $400 million over four years for Amazon.
Microsoft wooed away a big Salesforce customer, HP, in September to use Dynamics.
Salesforce began grumbling to regulators in Europe about the LinkedIn deal last month, raising concerns that the agreement would hinder access to LinkedIn’s data for other companies and give Microsoft an unfair advantage. Benioff even blasted the deal on Twitter.
“Given Microsoft’s history and existing monopolies, it is sometimes necessary for antitrust enforcement agencies to intervene to ensure that Microsoft is operating in a manner that promotes competition, rather than stifles it,” said Norton, Salesforce’s chief legal officer.
It’s not clear if the complaints will be a problem for the deal, which has already been approved in the United States.
In response to Salesforce’s complaints, Microsoft has said it will bring more price competition to the market. But neither company is totally estranged from its rival, and they say they must work together. In a statement, Peggy Johnson, an executive vice president at Microsoft, said that “while we’ll continue to compete, we look forward to continuing to partner.”
© 2016 The New York Times News Service
Today, Microsoft and Salesforce are archrivals that recently battled each other to buy the social network LinkedIn - hungry for its troves of highly personalised data about business people. When Microsoft won, Salesforce threw cold water on the acquisition by saying it would violate European antimonopoly laws.
But not long ago, the two software giants were tight. They even talked about merging their businesses — not once, but twice. The second round of talks hasn’t previously been reported. A behind-the-scenes look at the fight between Salesforce, which upended business software by pioneering a rent-by-the-month model, and Microsoft, which is racing to adjust, exposes an awakening in corporate America about the value of social networks like LinkedIn and Twitter. The data stashed in their servers has elevated services like these from an amusing distraction to an essential tool that helps big businesses understand their customers.
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But now that tech giants like Microsoft and Salesforce covet that data, they are finding that only a few companies have it. That’s partly why Salesforce considered bidding recently for Twitter, despite its growth struggles. Microsoft was so eager to have LinkedIn that it agreed to pay $26.2 billion in cash for it, the biggest deal in its history. Salesforce fired back, complaining that Microsoft could use LinkedIn data to increase its control of the business software market.
At first, Microsoft and Salesforce put past grievances behind them — the two had squabbled over patents, employee poaching and more — and agreed to make their products work better with each other. Their relationship warmed up when they began to talk about a merger, but then quickly got frosty when they couldn’t agree on a price. There are big personalities behind the battle. At Microsoft, the job of adjusting course has fallen to Satya Nadella, a poetry-quoting chief executive who is trying to aggressively remake the company in hot areas like the cloud business applications where Salesforce is a leader. “Microsoft decided it could go ahead and recreate the best parts of Salesforce,” said Venky Ganesan, a managing director at Menlo Ventures who has spoken with Nadella and other business-development executives at Microsoft.
Marc Benioff, a founder and the chief executive of Salesforce, is considered a self-assured visionary. But he had doubts about staying independent around the time he understood that Microsoft was getting serious about competing with his company. Salesforce was founded in 1999 to bring about “the end of software as we know it,” as Benioff liked to say. The slogan appealed to Benioff, a former Oracle executive who alternates between the brashness of a Silicon Valley tycoon and the mellowness of a Hawaiian surfer. (He has a sprawling compound in Hawaii and frequently signs off emails with “Aloha.”) At the time, software used by businesses was usually sold through huge licensing deals for software that would be installed directly on company PCs. Benioff’s idea was to undercut that model: He would offer the same thing over the internet, without expensive installations, and customers would pay by the month. The idea proved prescient. Though it only recently began turning a profit, Salesforce is on track to have more than $8 billion in revenue this year, representing annual growth of about 25 per cent. The total market value of the company is over $50 billion. Salesforce is the largest tech employer in San Francisco, and the company will move into the city’s tallest building, Salesforce Tower, when it is completed.
Salesforce’s main products are for customer relationship management, or CRM, unglamorous tools that are nevertheless critical for helping businesses where it counts: by managing sales leads and client interactions that bring in revenue. Sales in the CRM market totaled $26.3 billion last year, and Salesforce was in the No. 1 spot, with just under 20 per cent, according to Gartner, a research firm. Microsoft was in fourth place, also behind Oracle and SAP, with just 4.3 per cent. It took Microsoft years to see the potential in what Salesforce was doing. Microsoft had its own CRM product, Dynamics, but it took a back seat inside an empire that, under the former chief executive Steven A Ballmer, was consumed with battling more prominent competitors like Apple, Google and Sony.
Nadella, a longtime Microsoft executive whose career odyssey at the company included overseeing its CRM product, was less combative than his predecessor. He began reaching out to leaders of many rival companies after he became chief executive in early 2014, with a special goal of improving Microsoft’s standing in Silicon Valley.
John W Thompson, a longtime Silicon Valley executive who had recently become chairman of Microsoft’s board, arranged a dinner at the Rosewood hotel in Menlo Park, Calif., for Nadella to meet other tech executives, including Benioff, the Salesforce chief said in a 2015 interview. “At the end of dinner, I really gave Satya a number of areas I thought we could work closely on,” Benioff said in the interview. “He took me up on all of them.”
Nadella and Benioff declined to be interviewed for this article.
A few months later, the two men had negotiated an agreement to make Microsoft’s Office 365 suite of applications work better with Salesforce’s online services, which they said business customers were clamouring for. They promised more collaborations to come. They began tweeting at each other like old friends.
At one point, Benioff offered to buy the Dynamics business that Salesforce competed with, but Nadella turned him down, according to two people briefed on the discussions.
The two companies stayed close and by the spring of 2015 their conversations evolved into another deal: Microsoft would acquire Salesforce. In May 2015, CNBC reported that the talks had fallen apart because Salesforce was demanding around $70 billion, about $22 billion more than the company’s market value at the time.
Several people briefed on the talks said that account was accurate, though two of them said another factor was that Benioff thought Microsoft was not respectful enough of his accomplishments in building Salesforce. It was unclear whether Benioff would be happy in a subordinate role at Microsoft after building Salesforce from the ground up, and it was equally hard to imagine a successful Salesforce without him.
Quickly, there were signs that Microsoft planned to get its act together in the CRM business. As part of a broader shake-up, Nadella moved Dynamics under Scott Guthrie, one of Microsoft’s most respected engineering leaders. This telegraphed that it intended to go after Salesforce’s business.
“They’re serious in a way they haven’t been before,” said Charles Fitzgerald, an angel investor in Seattle and a former Microsoft manager who occasionally consults with the company.
Salesforce did not sit idle. In November, it hired a former head of Dynamics, Bob Stutz, to oversee its data analytics products.
Still, Microsoft and Salesforce had reasons to keep the peace. Nadella wanted Salesforce to use Microsoft’s cloud computing infrastructure, called Azure, to run its internet applications. A marquee customer like Salesforce could lend credibility to Azure as Microsoft tried to catch Amazon, the top cloud infrastructure provider.
In September 2015, Nadella spoke at Dreamforce - Salesforce’s annual tech jamboree in San Francisco - where Benioff positively gushed over him in his introduction. “Satya and I have become good friends over the past couple of years,” he said. “He is an incredible person, an incredible visionary, an incredible leader of an incredible company.”
In the months after, Benioff met privately with Nadella to talk business. Benioff discussed using Microsoft’s HoloLens augmented reality headset in a Salesforce presentation; that never panned out. And he again brought up the idea of Microsoft’s acquiring Salesforce, according to several people briefed on the talks.
Microsoft seemed less receptive to the idea than before, partly because of Salesforce’s price tag and also because Microsoft had decided to compete more aggressively with its own product, these people said. By last February, the discussions were dead, they said.
The conversations became contentious enough to place a strain on the longtime friendship between Benioff and Thompson, according to two people with knowledge of the relationship. The two men did not speak for months (although things have since thawed). That’s around the time Benioff seemed to recognize the seriousness of the threat posed by Microsoft - a well-capitalized competitor, many times the size of Salesforce - according to people who discussed the issue with him.
The most alluring acquisition target for both companies, though, was LinkedIn.
The business social networking site has become an indispensable tool for people to advertise their employment histories and professional achievements. LinkedIn’s enormous database of profiles could be coupled more tightly with CRM systems to help sales representatives close deals, both companies believed. LinkedIn’s data could also be used to strengthen Microsoft products such as Office, one of Microsoft’s most lucrative products. And LinkedIn comes with a steady revenue stream.
On February 16, Nadella met with Jeff Weiner, the chief executive of LinkedIn, to talk about existing business relationships between the companies, but the conversation eventually veered toward a Microsoft acquisition of LinkedIn, according to a LinkedIn filing with securities regulators. Benioff raised the possibility of a Salesforce acquisition of LinkedIn with Weiner almost a month later.
For the next several months, Microsoft and Salesforce privately made competing offers for LinkedIn, each sweetening their bids as the competition increased. Bill Gates, Microsoft’s co-founder and a board member, wooed Reid Hoffman, the LinkedIn founder and chairman, according to the LinkedIn filing. Salesforce code-named its LinkedIn effort Project Burgundy.
In mid-June, Microsoft won LinkedIn with a bid of $196 a share, all of it in cash, which provided more certainty for LinkedIn shareholders than the combination of cash and stock that Salesforce was offering. Microsoft has more than $136 billion in cash and short-term investments. Salesforce has less than $1.2 billion.
After LinkedIn filed the details of its acquisition process with regulators, Benioff sent an email to the Salesforce board commenting on how the company had nearly beat Microsoft. The message was one of many published by the website DCLeaks.com from the hacked email account of Colin Powell, the former United States secretary of state and a Salesforce board member.
“We were closer than we realised - maybe a $105 cash plus $105 stock would have done it!” Mr. Benioff wrote. “But we were definitely over our skis!!!!”
As the prospect of a LinkedIn deal began to dim for Salesforce, the company’s chief legal officer, Burke Norton, sent an email to the board saying the company, as result, could contemplate a number of other acquisition targets, one of which - Demandware - it ended up buying. Other possibilities, including Adobe, Box, Tableau and Workday, remain independent, according to a presentation attached to the email, which was published on DCLeaks.com.
Benioff has bought at least 10 companies in all. His most expensive purchase, at $2.8 billion, was Demandware, which helps companies run their online shopping sites. One big acquisition, the document software company Quip, took direct aim at Microsoft Office, one of Microsoft’s cash cows.
There is, of course, no guarantee that LinkedIn will give Microsoft the edge it seeks in data analytics, machine learning and CRM software. The company has a history of fumbling big acquisitions, including its disastrous acquisition of Nokia, which ended in a $7.6 billion write-off, after which Microsoft backed away from mobile phones.
While Salesforce’s acquisitions and war chest are relatively small, the company highlighted in a presentation to analysts this fall that it had acquired Quip in part to land its co-founder, Bret Taylor, a former Facebook and Google executive. Analysts view Taylor as someone who can weave Salesforce’s pieces into a more competitive company.
In the meantime, Benioff cut a deal in May to use primarily Amazon’s cloud computing services, not Microsoft’s. The deal was worth $400 million over four years for Amazon.
Microsoft wooed away a big Salesforce customer, HP, in September to use Dynamics.
Salesforce began grumbling to regulators in Europe about the LinkedIn deal last month, raising concerns that the agreement would hinder access to LinkedIn’s data for other companies and give Microsoft an unfair advantage. Benioff even blasted the deal on Twitter.
“Given Microsoft’s history and existing monopolies, it is sometimes necessary for antitrust enforcement agencies to intervene to ensure that Microsoft is operating in a manner that promotes competition, rather than stifles it,” said Norton, Salesforce’s chief legal officer.
It’s not clear if the complaints will be a problem for the deal, which has already been approved in the United States.
In response to Salesforce’s complaints, Microsoft has said it will bring more price competition to the market. But neither company is totally estranged from its rival, and they say they must work together. In a statement, Peggy Johnson, an executive vice president at Microsoft, said that “while we’ll continue to compete, we look forward to continuing to partner.”
© 2016 The New York Times News Service