Can Salesforce Solve Oracle's Succession Problem?
When news broke recently that Saleforce.com had hired investment bankers to wade through potential takeover offers, Salesforce shares spiked and investors took notice. It seemed that tech would finally get a multi-billion dollar deal after a conspicuous merger lull.
There’s probably some way to do the math and show how good (at least on paper) it would be for Microsoft, SAP or Oracle to pick off Salesforce. After all, Salesforce is an enormous cloud computing business (it rents access to software that’s hosted in offsite databases) - and companies such as Microsoft, SAP and Oracle are all desperate to offer cloud-based products after years of shunning them.
But the thing that no spreadsheet can square is how Marc Benioff, Salesforce’s founder, fits into the equation. Benioff is only 50 years old, young by CEO standards, and he’s the face and driving force of his company.
Benioff’s willpower helped fuel Salesforce's remarkable stock surge and staying power all these years, despite the company enduring a long history of unprofitability. Benioff got investors and analysts to buy into his vision of a business world that didn’t rely on big, expensive software contracts. Benioff - salesman par excellence - made Salesforce special.
It’s hard to imagine Salesforce thriving without him, especially if it were absorbed by one of the big organizations that, until a few years ago, denied that cloud computing would become important. Even as these businesses belatedly rush into the cloud, more than a decade after Benioff first showed the way, they aren’t transitioning elegantly.
So if Microsoft or SAP bought Salesforce, what would happen to Benioff? I don't see Benioff content as a division head, reporting to someone else in a huge, creaky company after already building a business with a nearly $47 billion market cap and what Bloomberg estimates will be $6.5 billion in 2016 revenue.
And there’s no room at either company for Benioff to take the top spot. Microsoft’s chief, Satya Nadella, and SAP’s CEO, Bill McDermott, were both recently appointed as the sole leaders of their companies. (McDermott shared the top spot until 2014.) Nadella, 47, and McDermott, 53, are also Benioff’s contemporaries, making it unlikely that they’ll step away with enough time for him to take over as CEO.
Unless Benioff decides to leave Salesforce altogether – for politics, philanthropy, or some other business endeavor – his presence could be more problematic than the company’s pricey market cap when it comes to doing a deal. While financial markets are humming along in support of big mergers, the market for chief executives with huge egos and big visions (both of which Benioff reportedly has in spades) who specialize in cloud software is much less liquid.
Oracle is the only company that might be able to absorb Salesforce and its CEO. Benioff worked there for 13 years and he knows the business, and its CEO, Larry Ellison, very well. Benioff and Ellison's on-again, off-again friendship was memorialized in the Fortune Small Business profile of Benioff called “The Fresh Prince of Software.” The relationship has presumably been better since 2013 when Salesforce and Oracle signed a nine-year technology partnership.
Ellison, now serving as Oracle's chief technology officer, seems to truly believe that his company needs a complete reboot when it comes to thinking more like, well, a company like Salesforce. He recently told investors that customers are embracing cloud products and that the market is growing faster than expected. His designated co-heads say they believe that too. Oracle’s co-CEO Mark Hurd told Bloomberg’s Jack Clark that 95 percent of the company’s products will be available in the cloud by October, up from 65 percent today.
Investors have lauded co-CEOs Hurd and Safra Catz, along with Ellison, for how they’ve retrofitted Oracle for a world where customers rent software rather than buy hugely expensive installations. But some observers, including Forrester Research analyst Andrew Bartels, aren’t so sure that Oracle's leaders can manage, build out and sustain the company as a huge cloud business.
Catz has already said she has no intention of running Oracle herself, and that if Ellison leaves she’ll go with him. She’s very much a product of the old Oracle, the legacy business that Ellison wants to disrupt. Presumably Ellison can’t do that himself or he’d still be the CEO. Analysts say that Hurd is more of a manager than a transformer, something that was already born out during his time as the CEO of Hewlett-Packard.
Oracle might want to have Salesforce’s huge software licensing business and the innovative, fast-paced culture that has allowed the company to grow. It also might want to repatriate the executives who left for Salesforce, including Benioff and Salesforce’s current president, Keith Block.
Benioff is one of the few executives who understands the cultures of both companies and who is considered to be the biggest, most audacious, most ambitious CEO in the enterprise software business since Ellison himself.
“In reality, Benioff is the best executive to oversee the transformation of Oracle,” said Bartels. “But whether that’s part of his thinking and whether Ellison is prepared to hand over the reins is another matter.”
Many analysts and competitors thought Benioff was crazy when he founded Salesforce in 1999 with the notion that companies would want to use software as subscribers rather than as owners. It’s now clear that he was right. The fortunes of giants like Microsoft, IBM and Oracle will rise or fall on their ability to be more like Salesforce. It will be interesting to see whether Benioff gets a chance to transform one of those behemoths - not as a competitor, but as the CEO.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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Timothy L. O'Brien at email@example.com