salesforce.com, inc. (NYSE:CRM) announced its plans to acquire cloud-based digital marketing company ExactTarget Inc (NYSE:ET) last week. The deal has Salesforce paying a 53% premium for ExactTarget, which is clearly a big win for the takeover target’s shareholders. The market is unsure if the deal is so great for Salesforce.
Let’s take a look at the pros and cons of Salesforce’s latest acquisition, and then come to a verdict.
- Stay ahead of the competition. The ExactTarget Inc (NYSE:ET) purchase keeps Salesforce.com in the pole position of cusomer relationship management, or CRM, services. Big names such as Oracle Corporation (NASDAQ:ORCL) are making moves into the cloud CRM space. Oracle bought up PeopleSoft and Siebel last decade, but most recently paid $871 million for ExactTarget competitor Eloqua.Interestingly, many Eloqua users also use Salesforce’s CRM software. But Oracle is working hard to better integrate Eloqua with its own CRM services, and convincing Eloqua subscribers to buy the rest of Oracles sales suite. The effect is double edged – decreased revenue at salesforce.com, inc. (NYSE:CRM), increased revenue at Oracle.Meanwhile, companies like Microsoft Corporation (NASDAQ:MSFT) and SAP AG (ADR) (NYSE:SAP) are expected to make moves to bolster their CRM services. Microsoft is pushing its Microsoft Dynamics service, which focuses on small businesses compared to SAP, Oracle, or Salesforce.Microsoft Dynamics is a $1.1 billion business that grew revenue 26% last year, but still lags well behind Salesforce, SAP, and Oracle. While SAP and Oracle are seeing relatively slow growth, Salesforce continues to grow rapidly – also 26% last year – particularly through acquisitions. Microsoft may consider purchasing Marketo, the long rumored Salesforce.com takeover target, in an effort to leapfrog the competition and catch up to Salesforce.ExactTarget keeps Salesforce.com ahead of the competition, as it was one of the first movers in the segment and considered the best platform in marketing software-as-a-service, or SaaS. It’s software was revamped recently to coordinate with many new big data technologies.
- Strengthens its weakness. There are three pillars to Salesforce.com’s business – sales, service, and marketing. The latter is certainly the company’s biggest weakness, as it’s a leader in the two former pillars.The company is working hard to improve its marketing CRM SaaS. It bought Radian6 and Buddy Media last year, which both offer services for social media marketing. ExactTarget Inc (NYSE:ET) is a step above both of those businesses. It adds robust email marketing services – something almost every company uses.
- ExactTarget adds a lucrative business model to salesforce.com, inc. (NYSE:CRM). It sells subscriptions to access its software, and then charges per email sent too.It has a customer base of over 6,000 clients including big names such as The Coca-Cola Company (NYSE:KO), NIKE, Inc. (NYSE:NKE), Groupon Inc (NASDAQ:GRPN), and The Gap Inc. (NYSE:GPS). Most of ExactTarget’s clients are business-to-consumer companies, which means a lot of new clients for Salesforce, which usually works with business-to-business companies.
- The two companies are synergistic. With a load of new clients coming into the Salesforce.com ecosystem, the company will have a tremendous opportunity to cross-sell complimentary CRM services. The two companies worked closely together before, so many companies will already be familiar with Salesforce’s products, making sales easier.