Why The Layoffs At Microsoft Are Bad News For Salesforce.com
(This post originally appeared on Forbes)
Last week Microsoft laid off 18,000 employees, representing about 14% of its workforce. Microsoft has never had a layoff this big in its history. The move makes a big statement about the company’s future. And Salesforce.com should be worried.
Salesforce.com? Why would the leading provider of cloud based CRM (Customer Relationship Management) applications and services be worried that Microsoft laid off 18,000 people? What does one have to do with the other? And didn’t these two companies just enter into a recent partnership deal?
Yes they did. Not four months after being named CEO, Satya Nadella forged one of his very first partnership deals with none other than Salesforce.com. What an interesting choice. Also interesting is the details of this “partnership.” According to the press release, Salesforce.com’s products will now be better integrated with and enabled on future versions of Windows, Office and SharePoint as well as on OneDrive and just about any device available, mobile or stationary.
My company sells Dynamics CRM. We also provide Salesforce.com consulting services. Both are great products. But Salesforce.com is more popular. And they have always positioned themselves as an alternative to Microsoft technologies. But now, with this agreement, Salesforce.com becomes more and more like Dynamics CRM. On the face of things, this seems like a validation of Salesforce.com – the big, giant software company forging a new relationship with the smaller, CRM upstart. But in reality, Microsoft has now taken away most of the differentiating features between Salesforce.com and its own Dynamics CRM offering, making the two services interchangeable in many ways.
Why would Nadella do this?
In his 3,200 word memo to employees which he released days before announcing the company’s layoffs, the words “cloud”, “mobile,” and “productivity” were mentioned dozens and dozens of times. “At our core,” he writes. “Microsoft is the productivity and platform company for the mobile-first and cloud-first world. We will reinvent productivity to empower every person and every organization on the planet to do more and achieve more. We think about productivity for people, teams and the business processes of entire organizations as one interconnected digital substrate. We also think about interconnected platforms for individuals, IT and developers. This comprehensive view enables us to solve the more complex, nuanced and real-world day-to-day challenges in an increasingly digital world.”
Central to this is CRM. It is the only application in Microsoft’s universe that connects all of their productivity applications – from Office to Sharepoint to SQL to ERP Solutions to Windows to Exchange to Skype to Yammer and to thousands of other apps in its store. And it does so (or will do so) across all devices and platforms. It’s truly mobile-first and cloud-first. It can be delivered to both simple (small) and complex (big) environments. When CRM is used the right way it is the centralized point of data for all information coming into and out of an organization – sales, service, marketing, operations, you name it. It is the basis for making sure nothing falls through the cracks and everyone is on the same page. It is the one application that increases productivity across all platforms.
To achieve Nadella’s goals for Microsoft, I believe he will make his CRM application the center of these platforms. Nadella gets this. He createdDynamics CRM while working at the Microsoft Business Solutions Group. And right now there’s only one CRM application that’s in his way. That’s Salesforce.com. Watch out behind you, Salesforce.com.
Dynamics CRM is quickly catching up, both in number of users and implementations. In 2013, the company’s CRM product stood fourth behind Salesforce.com, Oracle and SAP controlling only 6.8% of the CRM market. But it grew almost 23% that year, second behind Salesforce.com. You could say that Salesforce.com has little to worry about – they’re the leader, the innovator, the brand name of CRM. And they make an awesome product. But up until now, Microsoft hasn’t focused a whole lot of effort on the CRM market.
This will change. And a now-neutralized Salesforce.com will find itself up against an awakened giant. Microsoft has 20 times the revenues of Salesforce.com and earned $22 billion in its last reported fiscal year compared to Salesforce.com’s $232 million loss. Oh, and it had $89 billion in cash and short term investments on hand at the end of its last fiscal quarter. Salesforce.com had less than a billion (about $900 million at April 30, 2014). I would not call these two equal partners.
So let’s go back to May 29th, when Microsoft and Salesforce.com announced their “partnership.” Interesting that of all the things Satya Nadella had on his plate as the new CEO one of his first orders of action was to forge a “partnership” with Salesforce.com, a partnership which (as mentioned before but is worth mentioning again) basically takes away all differentiation between the leading CRM company and his own CRM offering and ties that competitor closer to him. And then within 60 days later he announces a paring down of the company and a focus on “productivity”, “cloud” and “mobile”? What better way to tie that vision together than to build it around the Microsoft CRM platform that he created?
The pieces are falling into place, and it’s not good news for Salesforce.com. Nadella’s long-term sights are likely set on Apple and Google. But in the short term, he’ll accomplish his goals and use his vast resources to first defuse companies like Salesforce.com so that his own applications can be more competitive and easier to select as the center of his envisioned mobile-first, cloud-first, productive world. So keep this in mind when you’re considering your next CRM system.