By submitting your email address, you agree to receive emails regarding relevant topic offers from TechTarget and its partners. You can withdraw your consent at any time. Contact TechTarget at 275 Grove Street, Newton, MA.
As the dust settles on HP's cloud computing rhetoric, where will it go from here?
CEO Leo Apotheker said this week that acquisitions will be a key part of HP's cloud strategy, particularly in software. As little as 2% of HP revenue comes from software, and none comes from cloud applications. It also has zero following among the developer community.
So what could HP buy to get instant credibility in the cloud application market and win developers at the same time? How about Salesforce.com?
A quick look at the numbers shows that financially, HP could pull off the deal. It has a market capitalization of around $90 billion while Salesforce.com is at about $16 billion. HP could raise debt or issue shares; it has the resources.
Looking at HP's perspective
Salesforce.com is unquestionably the market leader in CRM software in the cloud. Oracle acquired Siebel and has more CRM products, but most customers really only need a subset of that complex functionality and are moving to Salesforce.com in droves. At its last earnings call on February 24, Salesforce.com claimed 92,300 subscribers, including 5,100 new customers in the last quarter alone. It expects revenue to hit $2 billion this year.
Could HP screw up Salesforce.com? Yes, absolutely.
To keep up the momentum, Salesforce.com has itself been making acquisitions. Just in the last few months, it bought online meeting company Dimdim, as well as Heroku, the leading Ruby on Rails Platform as a Service (PaaS) for developers to build, test and run applications on the Web. Salesforce.com also has its own PaaS offering, Force.com, where it claims developers have built more than 185,000 applications.
Granted, many of these will be "hello world" apps by developers testing out the service, but there are thousands of legitimate apps running on Force.com, too. Salesforce is also working with VMware on a joint offering called VMforce that integrates internal VMware environments with Force.com.
What do Salesforce.com and HP get?
In buying Salesforce, HP would get the most popular enterprise application in the cloud today plus a large and growing developer community to foster new cloud-based application development. This is a very attractive proposition for a hardware-oriented company looking for software(and cloud) credibility.
Joining HP would give the CRM supplier a global data center footprint and IT channel that rivals Microsoft and Oracle, which would be much simpler (and cheaper) than building out on its own. The cost of building data centers is expensive and could constrain Salesforce.com's growth at some point.
Do users benefit?
If you buy the story that IT organizations really want to pare down the number of vendors in their shops -- the "one throat to choke" approach -- this consolidation makes sense. Could HP screw up Salesforce.com? Yes, absolutely. But hopefully the IT giant noticed what EMC and others have done when buying companies outside their traditional business -- they leave them well alone.
Could it really happen?
Both companies are based in the Bay Area, which makes things easier logistically. But it would still be the biggest software deal in history. The largest so far was Symantec's acquisition of Veritas for $13 billion in 2004. Salesforce.com has more cash than debt, and typically with deals of this size, the suitor pays a 20% to 30% premium for the shares. That would value the deal at a whopping $20 billion.
But price would not be the biggest obstacle here. That might be Salesforce.com's CEO, Mark Benioff, who by all accounts does not need the money and apparently does not want to sell. And it is his company by the way. He owns the majority of shares and has said that he thinks he can turn it into a $100 billion business.
HP might have to offer Salesforce.com shareholders such a huge premium to squeeze Benioff out that it wouldn't be worth it anymore.
It's more likely HP that will buy smaller, bite-sized cloud management software providers, Software as a Service companies and other less costly acquisitions and try to nibble its way into the cloud market.
That's never been the way to dominate a tech market, though. Just ask Oracle, which spent multiple tens of billions buying up category leaders like BEA Systems (application servers); Siebel Systems (CRM) and PeopleSoft (human resources management).
And it's a land grab in cloud right now. If you plan to compete with Microsoft Azure but you're not launching for another year, as HP said this week, the market will have passed you by.
Jo Maitland is the Senior Executive Editor of SearchCloudComputing.com. Contact her at email@example.com.
Dig Deeper on Software as a Service and cloud computing