The calculus on this one is pretty simple. Google needs a new source of income, on top of search ads. Almost all of their core products outside of search and YouTube are cloud-based SaaS applications, none of which they’ve been able to monetize. Salesforce’s own set of SaaS products mesh so well with Google’s that they have actually been using Google Apps as their default productivity suite. The synergies here are simply overwhelming.
Today’s news is just another drop in the bucket. The two companies are bridging the APIs for Google’s App Engine and Salesforce’s Force.com, which will allow developers to build applications for both. Considering how linked these companies already are, this was a natural.
It’s important to note that Google isn’t Salesforce’s only partner. Part of Salesforce’s model is to hook up with any company that will expand their range of services, while they focus on growing their client-base and developing core products. They have deals with Amazon and Facebook, among others, and have even entertained the idea of partnering with Microsoft when they launch their Azure service.
But Google is the obvious fit. Google Docs & Spreadsheets (as well as Gmail, for that matter) are the key apps that Salesforce lacks. And if need be, Google has the scale to replicate Amazon Web Services, or any of Salesforce’s other existing partners.
Most of all, though, Google desperately needs to grow its services division. As the economy goes, so goes advertising, usually in multiples of two or three. So if GDP contracts 4% this quarter, expect U.S. advertising to shrink 8-12%. Search ads should hold up better than other forms, and there are still places in the world that are growing, but expectations for Google have rightfully been tempered (and its stock has taken it on the chin).
Acquiring Salesforce would be a rapid and effective way for Google to finally turn their productivity apps into actual revenue. Salesforce is growing extraordinarily fast, and its stock has been hit hard by macro issues the past few months (down 55% from its 52-week high). With Google’s size and clout, the business could be a fantastic growth engine in the coming years.
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