Oracle buys Salesforce.com: Headline of the near future?

Several factors have some people thinking that Oracle might acquire Salesforce.com, perhaps within the next year. Here's why it makes sense.

There's some buzz that Oracle will buy Salesforce.com, possibly within the next year. The idea is complete speculation, but considering each company's current place in the IT industry, as well as recent chumminess between their CEOs, it makes sense.

If Oracle buys Salesforce, the main drivers would be Salesforce's inability to make waves outside its core competency of customer relationship management (CRM) software, as well as Oracle's inability to be widely considered as a major cloud computing player.

"Salesforce has kind of run out of ideas," said David Linthicum, a senior VP at consultancy Cloud Technology Partners and a cloud computing analyst at Gigaom. "They have kind of saturated their market."

"The problem with Oracle and the cloud was that they were a reluctant cloud player," added Ahmed Limam, a human resources consultant and former Oracle business development director. "They want to be there, but they're not yet 100% credible."

Merging the two companies after Oracle buys Salesforce could close those gaping holes, while also solving other, tangential issues.

The Salesforce ceiling

Salesforce has been the dominant CRM company for years now, but it has struggled to spread its wings further into the enterprise IT space. Database.com is an example. In late 2010, Salesforce announced the relational data store, calling it the "world's first enterprise database built for the cloud." Analysts said it was a shot across the bow of Oracle.

"We see cloud databases as a massive market opportunity that will power the shift to enterprise applications that are natively cloud, mobile and social," CEO Marc Benioff said in the press release.

Two-and-a-half years later, Salesforce had a new announcement: It would standardize on Oracle Linux, the Exadata system, Java and yes, Oracle Database. During a press conference about that announcement, Benioff called Oracle "the best database company in the world." So much for Database.com.

Salesforce itself acknowledges that its bread and butter is cloud CRM and likely will be for a while.

"We derive substantially all of our revenue from subscriptions to our CRM enterprise cloud computing application service, and we expect this will continue for the foreseeable future," the company wrote in its annual financial report filed with the U.S. Securities and Exchange Commission (SEC) in March. Salesforce added that the markets for offerings such as the Salesforce1 ExactTarget Marketing Cloud and Salesforce1 Platform "remain relatively new and it is uncertain whether [those] efforts will ever result in significant revenue for us."

There's no doubt that Salesforce has paved a trail in the cloud computing industry. It just cracked the top 10 in software revenue, according to Gartner, and has been named the most innovative company in the world by Forbes several years in a row. However, the company has continued to spend more than it brings in, and has lost a total of a half-billion dollars in the last three years, according to SEC filings.

Linthicum argues that Salesforce's ongoing push toward vertical industries is a sign of weakness, a sign that the company is out of ideas and has hit its ceiling in enterprise IT.

Oracle's weak cloud play

Few people consider Oracle to be a strong player in cloud computing. Amazon Web Services is the clear leader in infrastructure as a service, according to a Gartner Magic Quadrant report, with lesser players including Microsoft and Rackspace. Meanwhile, another Gartner Magic Quadrant report ranked Salesforce as the leader in platform-as-a-service offerings for enterprise applications, followed by Microsoft, Google and others.

Oracle wasn't even listed in either case. "Oracle's cloud story is fairly abysmal these days," Linthicum said bluntly.

There's no doubt that Oracle strives to be a major provider of cloud computing services. In its most recent annual report to the SEC, the word cloud is mentioned ad nauseam in the company's business overview:

"We are the world's largest provider of enterprise software and a leading provider of computer hardware products and services that are engineered to work together in the cloud," the overview reads. "We are a leader in the core technologies of cloud computing. … We provide cloud services, as well as software and hardware products to other cloud service providers. Oracle database and middleware software, applications software and hardware systems … are the building blocks of our own cloud services, our partners' cloud services and our customers' private cloud environments. Our customers can subscribe to use select Oracle software and hardware products through our cloud offerings, or purchase our software and hardware products and related services to build their own private cloud or on-premises information technology (IT) environments."

Still not convinced? References to the cloud also dominated a recent Oracle quarterly earnings call. Not even Salesforce mentions the cloud as often in its business description, and it is solely a cloud-based software vendor. The scenario where Oracle buys Salesforce "would probably be easier" for Oracle than trying to build up its own cloud presence, HR consultant Limam said.

Other factors

There are other reasons why Oracle's buying Salesforce would make sense. First, the relationship between Benioff and Oracle CEO Larry Ellison has gotten friendlier. It was only a few years ago that Ellison canceled Benioff's scheduled speech at Oracle OpenWorld and the two were calling each other's products false clouds. But they have a history together -- Benioff used to work closely with Ellison while at Oracle -- and now the companies have signed a decade-long partnership.

"I'm still very good friends with [Ellison]," Benioff recently told a group of reporters. "He just came over for lunch."

Michael Corey, president of Hosting.com's Ntirety database services division and a former president of the Independent Oracle Users Group, speculated that Ellison could see Benioff as a potential successor. "I still go back," Corey said, "to this theory of who is Larry going to leave his legacy to? Does he really want to be dealing with this much longer?"

Second, Oracle has a track record of acquiring companies to nudge itself into particular IT markets. For example, it pushed its way more broadly into the enterprise applications space with the hostile takeover of PeopleSoft, and found its way into the server hardware business when it bought Sun Microsystems. So, why not Salesforce?

"Nothing is impossible in this industry," HR consultant Limam said. "It's part of their DNA. Oracle is a serial acquirer."

Mark Fontecchio may be reached at mfontecchio@techtarget.com and on Twitter @markfontecchio.

This was first published in May 2014

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