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Leaked Salesforce Board Deck Reveals M&A Strategy

An Interview With Wayne Morris, Former Corporate VP At Microsoft
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Manny Medina:                   By now you have seen the e-mail that was leaked that went to ... When Colin Powell's e-mail was hacked that reveal Salesforce M&A strategy going forward. What has been seen cannot be unseen. What are your thoughts on how this area is for Salesforce to do M&A, based on what you know from the industry? Where do you think they're going?

Wayne Morris:                     I think what we saw was actually one moment in time where they're kind of laying out a landscape of where they might want to go. I think Salesforce is interesting. Obviously very ambitious. They have some very lofty goals. In order to continue to drive and fulfill that expectation, that's both their own but also the market's, they have to continue to build up their market presence. They have to be able to drive revenue growth at the rate that they've been doing it. of course that becomes harder and harder when your core business is becoming more and more penetrated.

                                                      When you look at the Salesforce automation business, they've got quite a heavy penetration there. It's also now, not the fastest growing business that's out there. It's very-

Manny Medina:                   I think it's growing at 12% last check.

Wayne Morris:                     Something like that, yes. When you look at their business and how much they have of it, they're not going to be able to grow much faster than the market. We've seen them start to move, and a lot of acquisitions that they. First into the marketing space, into some of the service space, and more recently into the analytics, then the e-commerce space. It kind of makes sense.

Manny Medina:                   If you look at the deck, the deck was more about marketing assets and advertising assets, and e-commerce assets than ERP assets. If you listen to what Larry Ellison has to say, in his mind, the ERP business is the real business. It's huge, it's stable, etc. Why don't you think Salesforce is after that piece of the market as opposed to the more advertising heavy piece of the market?

Wayne Morris:                     I think two schools of thought Manny. One is, keep on looking at your core and go adjacent to the core and add to that. If you think about what they've done with the whole CRM, moving into e-commerce makes more sense because it's a natural kind of adjunct to that. I believe that ERP and certainly the core financial management is a very sticky business. Once it's in, it's very hard to get out.

Manny Medina:                   Absolutely. Absolutely.

Wayne Morris:                     That's obviously the Oracle approach, and others, like SAP, etc. 

Manny Medina:                   If you look at the evaluations, Oracle is worth $120 billion, SAP is close to $90 billion. They're back over the ERP install base. It was surprising that Salesforce didn't decide to attack that, and instead decided to attack more of the advertising type of the funnel type of stuff.

Wayne Morris:                     Right.

Manny Medina:                   What would you say is their next big move?

Wayne Morris:                     I think at the moment, what they seem to be doing is try to really flush out the analytic space. I think everybody is moving that way. We saw them make the announcement around Einstein, etc.

Manny Medina:                   Yeah.

Wayne Morris:                     I think that's going to become the very core component of any platform. It can't be just kind of bolted on. It has to be part of the underlying foundation of the platform to be used anywhere within that business process cycle.

Manny Medina:                   What would, to the current analytics companies like Tableau or people who are pure play third-party analytics?

Wayne Morris:                     I think over time, they're going to be interesting in the moves that they're going to have to make if they want to remain independent and competitive. One of the things that they're going to want to do and probably will do is more and more vertical or industry expertise built within the construct of what they're doing, versus a visualization and data analysis type tool that's more generic.

Manny Medina:                   Were you surprised by anything you saw on the deck? Was there anything amiss?

Wayne Morris:                     No, I think, and there's been a few comments on it obviously in the Press today.

Manny Medina:                   Yeah, yeah.

Wayne Morris:                     The one that probably, it was both on their target list and on their interlooper list was Adobe, which was kind of an interesting one. Given the size that Adobe is and the breadth that they have.

Manny Medina:                   Right.

Wayne Morris:                     That was probably the most interesting one that was there. You mentioned Tableau. I think the other interesting thing with Tableau is the vast majority of their revenue is still on premise, which is quite a different model to where you would think Salesforce would be wanting to focus.

Manny Medina:                   Right. They mentioned in their deck how the revenue was slowing down, and the lack of Cloud penetration was a flag for them.

Wayne Morris:                     Yes.

Manny Medina:                   Wouldn't that make that blow on other value asset they should pick up? It just went up 5% today on the rumors alone you know?

Wayne Morris:                     I think there's two things that Salesforce is probably after at this point. One is, how do I bring in innovative technologies to be able to advance what I'm doing for my product capability perspective? The other clearly is, how do I get more revenue?

Manny Medina:                   Right.

Wayne Morris:                     Looking at revenue plays, I think Tableau's getting close to $1 billion in revenues. $800 million, $900 million. That's a good chunk to add to them. If they had a belief that they could turn that to be more Cloud over time, it could make a lot of sense for them.

Manny Medina:                   Got it, that makes a lot of sense. Do you feel that they would have, that they are capping out on price? Meaning they're capturing all the value they can with the current pricing of the CRM?

Wayne Morris:                     I don't think there's too much more there because bear in mind that they're now getting more price pressure from the likes of Microsoft.

Manny Medina:                   Right. Right.

Wayne Morris:                     It's very hard for them to continue to raise price. They've got to expand and say I need a greater share of wallet from the individual customer.

Manny Medina:                   That would dictate in where you make the investments. You can't invest in Sales if you're not getting the return from price in Sales, unless you're getting market share, which is also getting tough given that Microsoft is in the game and they're already so penetrated.

Wayne Morris:                     Yeah.

Manny Medina:                   That makes sense as to why they're expanding TAM.

Wayne Morris:                     Exactly.

Manny Medina:                   You are the CEO of Salesforce. What is your next acquisition?

Wayne Morris:                     It would be interesting to me. You mentioned it before. I'm a little surprised that they haven't kind of moved a little more into the core. There are companies out there like FinancialForce, etc. that have built their financials on top of Salesforce, which would seem to be a natural fit.

Wayne Morris:                     Obviously, we'll see if that manages, if Oracle manages to close that one. It's a very difficult one for anyone to buy given the position that Larry Ellison has with it.

Manny Medina:                   Right. There are other low hanging fruit there like Intecht or-

Wayne Morris:                     Potentially yes.

Manny Medina:                   Or even, you know.

Wayne Morris:                     Intecht tends to be a little bit lower in the market. It'd be very good for them from a mid-market type of opportunity, but a little higher up, a little harder.

Manny Medina:                   Got it. Were you surprised by seeing Glassdoor reviews as part of the great acquisition criteria for each of these companies? I was a little.

Wayne Morris:                     Yeah, I think it's an indication of company culture.

Manny Medina:                   Right.

Wayne Morris:                     Going through an acquisition integration is one of the most distracting things for an Executive team that you can go through. I've been through a number on both sides of that equation. The more that the culture is already strong, it's a good culture. Being able to bring that in or leave them independent for awhile gives you that option. It's interesting that they're using that as a proxy, I think, for, Is the company culture a healthy one?

Manny Medina:                   Wayne, we covered quite a few things today. We also got Wayne's view on the Salesforce leak, M&A deck. I think it's fascinating to see how quickly the market is evolving and how little attention has been paid to core CRM sales technology. Any closing thoughts?

Wayne Morris:                     No. This has been great to have the conversation Manny. I think we're going to see more and more change happen at a quicker pace as we go through the next months and years.

Manny Medina:                   Absolutely. I look forward to having you back when a lot more of that development has happened.

Wayne Morris:                     Yeah, okay. Great. Thanks Manny.

Manny Medina:                   Awesome. Thank you so much for coming. Thank you.