Yesterday rumors broke out that Salesforce is entertaining buyout offers and has hired investment bankers to consider “strategic options”. My first thought? What a great time to sell! My second thought: please don’t jinx it – not when someone is coming up on a $50-$60 billion payday at 10x forward sales. The P/E of course is incalculable since there is no E.
Nobody rings a bell at the top of the market. But we gotta admit – Marc Benioff is the best salesman in software the cloud, ever. Now, I am trying hard not to think of Steve Case and AOL and Time-Warner, because this time it will be different, of course.
In the past few weeks, BlackRock’s chief Larry Fink released a letter addressed to the CEOs of S&P 500 companies talking about the need for a long-term view. That may not be a good idea, because it is no fun to think about write-downs and kitchen-sink quarters. Only spoilsports talk about a hangover when the party is in full swing.
Consolidation
Consolidation is coming to the cloud; we at Zoho recognized that a long time ago. Our entire strategy has been dictated by our desire to stay independent (as I have explained before), even as consolidation alters the landscape around us. Even CRM, a very significant industry just by itself, doesn’t make much sense as a stand-alone product. The proof is that Salesforce (hint: their stock ticker is still CRM) has been on an acquisition rampage over the past few years trying to complement its product portfolio and show growth by acquiring revenue.
But even with the more than $3 Billion spent on acquisitions in the past 3 years, and even with their market cap of $40 billion $50 billion dollars, Salesforce finds itself the target of a takeover.
Why do we expect consolidation? Simple – there are too many companies not making money. Why don’t they make money? Again, simple – they spend way too much on sales and marketing. Let’s consider a hypothetical combination of Box and Zendesk – both “Post-IPO Non-profits” as we call them – you could cut the combined sales and marketing spend by half, and that may just be enough for them to turn a profit. That is the classic case for consolidation; a case that looks compelling on a spreadsheet – you know, the tool that Box actually doesn’t know how to build.
If only company cultures were modeled as cells in a spreadsheet, where people stay in their neat little boxes and hairy code-bases magically combine to produce beautiful children.
Take the case of Salesforce acquisitions for the past 3 years – here is the extensive list. How many of them have been integrated even at a single sign-on level, let alone at a product level? In fact, to solve that problem, Salesforce recently acquired a single sign-on company.
Winner’s Curse
When you escape the jinx, there is still the curse – the winner’s curse. Most acquisitions fail and silently get written down or written off entirely – see for example, Zimbra’s acquisition by Yahoo. Salesforce has written down a bunch in the last few years, after overpaying by hundreds of millions of dollars – at least, the money didn’t come out of their profit!
Jinxes and curses? No, we don’t want these to befall our customers. Since consolidation is coming, if you are a customer of cloud companies, it’s time to get used to being traded around.
Except, of course, if you are a Zoho customer. With us, you will not underwrite any acquisition premiums or bloated sales and marketing costs. You will get a broad suite of deeply integrated products that helps you run your business on the cloud. Private and bootstrapped since our founding – we don’t answer to anyone but you. We never will. We aren’t going anywhere.
Sridhar
Great article, Sridhar! We (and several of our clients) love Zoho CRM and other Zoho apps. Keep up the great work. @JimBarker22
Dear Sridhar, I am a big fan of Zoho, however I think we are generalising by saying consolidation is coming in the cloud. Like in every other industry innovations will continue to happen and consolidations will also continue to happen. The case in question - SFDC may be the bloatware could be wrong but them build an app store and so many companies building apps around them would eventually lower the sales and marketing costs for all of them. By building everything themselves I feel Zoho missed the trick. I would love to see an app store where innovative companies would be happy to list their products instead of worrying if Zoho is building this next :) Still a big fan though!
Respect. most candid article in a long time and wish you continued success.
M&A is what you do when you are no longer innovating. M&A is not innovating either. To get back on top, get a technology, your technology, not whole product, far removed from your core and grow that. As for global markets, they are sold by local distributors. You get cash, they get the customer. And, if they are unethical, they lose the customer. You are not marketing there when you sell through a distributor, and you are selling an American product with it's inherent American culture/thinking built in. It may not it, but there is that cash. If it actually fit the local market, you marketed there, and there were no distributors, you'd create some wealth beyond the cash.
Zoho has been innovating for the past few years in coming up with customer centric solutions. I recently switched from Zoho to another small biz CRM - Insightly as it was light weight and more suited for my small biz. But having been a Zoho user, I do miss a lot of the features which were nice to have and not mission critical. I did not appreciate the fact that I had to pay extra to use mobile apps version for the Zoho CRM. If you have 15 users and all require mobile access - the costs quickly add up. Plus we are going through a overdo of the the SaaS subscription economy and everyone would like to cut a few subscriptions here and there. Only other comment - Zoho CRM worked very slow in India ( I have a 10 MBPS leased line at work) and few friends who use it in India also agree on this. But in all, cheers to Shridar for creating and sustaining a brilliant product suite.
I had always liked Salesforce before I moved to Singapore and saw how Salesforce Singapore through it's local partners was deceiving so many SME customers into buying editions and features they did not need. What's more is how arrogant the Singapore office is with regards to providing support to their customers. It's arrogant nature along with it's lack of ethics is going to be it's downfall.
Kudos for (re-)setting the stage, Sridhar. We need leaders. You just reinforced my decision to keep running my CRM and more via Zoho. Companies and individuals who create don't have to worry about competition. I like Zoho, because they create. When cloud consolidation in the CRM space happens, it represents opportunity for Zoho. Unfortunately, consolidation happens because someone (the deep pocketed person who wants to buy Salesforce) has lost his or her way, forgot that creating and serving is the key. Unfortunately, CRM customers in general will be worse off without Mark Benioff as the industry spokes-leader, plus they will have reduced options to choose.
@ William -- Zoho CRM Support has improved a lot in recent years. However, I still see many companies not taking advantage of large pool of Zoho Partners. You are welcome to call one in your area and directly ask your questions. You will find this option much easier when you simply need to get hold of someone on the phone right away. You can find a local person to help you here - https://www.zoho.com/partners-resellers.html @ Sridhar -- Seems like "Customer Acquisition" has become a new acronym of "business". Companies have made buying/selling customers their primary business. They are choosing to merge, buy, sell their business only to trade customers.
Hi Sirdhar, Thank you for your comment, I have been a customer for a few years now and while I have probable not utilized your product to its full potential, I do find it has a lot offer us users. I do feel that you could improve the help section a lot as I find it very had to use and tends to stop short in a lot of cases of actually providing me with the help I am looking for. While you are a cloud based CRM It works great on the computer but some simple functions for the mobile app like text for android would be great. Love the video tutorial as we can see how to do as well as have it explained. Better searching for help in the main help section would improve it even more. Look forward to a long continued working relation with Zoho. William.
Thank you William. I will pass your feedback to our product team, to improve the help section. We are working on updating our mobile apps as well.
I love Zoho. But don't mind me asking, Where are you headed? Happy being a "lifestyle business". If so, tremendous respect. Also curious to know your revs to know where does such a path take an entrepreneur.
@Amith Lulla - where are we headed? As you can see from our product suite, we have a broad vision. Zoho Cop. has over 2500 employees world-wide now, and we run entirely on the Zoho suite of products. While we have a broad vision, we just don't accept the loss of creative freedom that comes with being a public company. We believe we serve our customers better over the long haul by staying private.
Hi Shridhar, I endorse your article completely. I had a feeling that Salesforce's go to market strategy needed a complete overhaul. Your article just reenforced my belief. Zoho Corp on the other hand is a F1 engine still in first gear! Meaning there's still a lot of power and thrust to come soon. As in a F1 race, Zoho wins not just because of its applications but also because of its people. My message to the world; You can only win in finding out more about Zoho! Thank you for bringing the Zoho suite of products to the market! It will be 10 years in November since the first version of Zoho CRM came out... Zoho CRM is maturing very nicely, and I love it! See you at Zoholics at the end of the month. Andre
Thank you for your kind words Andre, see you soon!
I absolutely love Salesforce and would be upset if they were to get taken over. I always hate changes to already working websites. Like take Odesk for example, their website has been a nightmare for the last couple of months and they are losing clients left and right. We have a saying in Texas, "If it ain't broke, don't fix!"
Enjoyed reading the article Sridhar! Specially LOVED, "Post-IPO Non-Profits"!