- Salesforce announced Microsoft Azure will be its public cloud vendor for Salesforce's cloud software for marketing professionals.
- It's the latest in a long history of disputes and partnerships, and the first formal announcement between the two companies since their relationship soured after a contentious battle for LinkedIn in 2016.
- The two tech giants have had a rocky history, with their CEOs exchanging public barbs and suing each other for patent infringement.
- When Satya Nadella became Microsoft's CEO he introduced a friendlier Microsoft. Nadella "opened a door that was closed. And locked. And barricaded," Salesforce CEO Marc Benioff said around that time. Salesforce and Microsoft announced their first partnership in 2014 and continued to work together.
- Then tensions rose again after Microsoft reportedly tried to buy Salesforce and came to a head after both companies bid on LinkedIn. Benioff even complained about the deal to regulators after Microsoft announced it would acquire LinkedIn. The companies partnered with their rivals after that.
- The latest deal is indicative of Nadella's strategy to do whatever it takes to make Microsoft the top cloud company as it tries to catch up to market-leading Amazon and helps Salesforce stay relevant, analysts say.
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Salesforce's surprise announcement that Microsoft Azure will be its public cloud vendor for Salesforce's cloud software for marketing professionals is the latest twist in a long history of partnerships and disputes.
The two tech giants have had a complicated relationship over the years, perhaps starting in the mid-2000s when former Microsoft CEO Steve Ballmer and Salesforce CEO Marc Benioff traded public jabs. The animosity continued for nearly a decade until Microsoft named a new CEO, Satya Nadella, who introduced a friendlier Microsoft.
Nadella "opened a door that was closed. And locked. And barricaded," Benioff said at the time. The companies partnered for the first time and Nadella even appeared at Salesforce's big Dreamforce conference. But tensions started to rise once again as Microsoft reportedly tried to buy Salesforce, and later beat Salesforce in a contentious bid to acquire LinkedIn.
Thursday's announcement is the first formal partnership between Microsoft and Salesforce since that deal soured their relationship in 2016.
The latest back-and-forth is indicative of Nadella's strategy to do whatever it takes to make Microsoft the top cloud company as it tries to catch up to market-leading Amazon, Rob Oliver, a senior research analyst at Baird Equity Research, told Business Insider.
"If you look at the way that Satya Nadella has approached his job since he took the helm, he ran the Azure business," Oliver said. "And he has approached this job as, 'Microsoft is the No. 1 enterprise incumbent globally. What do we need to do to be the No. 1 cloud enterprise incumbent?"
The deal means Microsoft is putting aside competition in the customer relationship management space, where its Dynamics 365 competes with Salesforce, in order to grow its cloud business, Seth Lippincott, director of research at Nucleus Research said. That indicates the cloud is what Microsoft expects to drive the company's growth, Lippincott said.
It also reveals Microsoft's strategy to catch up to the market-leading Amazon Web Services is to go after market share through big partnerships, Gartner analyst Sid Nag said.
Microsoft has a big gap to close to catch up with AWS. Gartner in a report released over the summer pegged the 2018 market share for AWS at 47.8% and that of Microsoft Azure at 15.5%. It seems clear that Microsoft has realized that it can't close that distance without a little help from some frenemies.
"Organic growth is an extremely hard way to catch up with the market leader three times the size of the nearest competitor," Nag said. "Their best bet to grow is through these partnerships and catch up with AWS."
Meanwhile, the deal helps Salesforce stay relevant, said Baird's Oliver. The company been looking to move its data to public cloud providers versus its own data centers, he said. As part of the deal Salesforce will also build an integration across Sales Cloud, Service Cloud, and Microsoft Teams. Having these integrations with Microsoft's suite of productivity tools as part of that, which many enterprise customers use.
The takeaway: The deal is mutually beneficial. "It's pretty clear that there was a little something for everyone in this deal," Oliver said.
Here's a look back at the complicated history between Salesforce and Microsoft:
2005: CEOs trade barbs
The first time Microsoft and Salesforce publicly traded barbs appears to be when then-Microsoft CEO Steve Ballmer – known for having a "hard time" getting along with other CEOs – took aim at Salesforce during a conference in Redmond.
Ballmer said Microsoft would give Salesforce a "very effective run for its money" and Salesforce CEO Marc Benioff quickly responded by issuing the following statement:
"Microsoft's failed enterprise software strategy has let the industry down. We have competed against them in the CRM market since 2002, and they have failed to deliver a competitive product. They just cancelled version two of that legacy application and skipped ahead to three. In the meantime, we are on the 18th generation of our service in just six years. Customers are tired of waiting for Microsoft to innovate."
Source: ZDNet
2010: Microsoft and Salesforce sue each other for patent infringement
Microsoft sued Salesforce for patent infringement in May 2010 and Salesforce filed a countersuit a little more than a month later.
The patents in question included systems for things like displaying a webpage with an embedded menu and automated website creation using a template.
The companies settled the dispute by August when Salesforce agreed to pay Microsoft an undisclosed amount.
"Microsoft's patent portfolio is the strongest in the software industry and is the result of decades of software innovation. Today's agreement is an example of how companies can compete vigorously in the marketplace while respecting each other's intellectual property rights," Microsoft deputy general counsel Horacio Gutierrez said in a statement at the time.
Source: CNET and TechCrunch
2013: Benioff tells Ballmer it's time to go
Microsoft CEO Steve Ballmer announced plans to step down, pondering whether he was "an emblem of an old era."
Salesforce CEO Marc Benioff's response, in an earnings conference call at the time: You're right Steve. It's time to go.
"The world has changed," Benioff said. "The companies that are struggling in the market today have not gone cloud. They have not gone social. They have not gone mobile. They are still trying to sell the same old stuff."
Source: Business Insider
2014: Tensions start to fade as Satya Nadella is named as Microsoft's CEO
Microsoft named Satya Nadella as Steve Ballmer's replacement in February 2014, kicking off a series of partnerships.
Benioff would later say Nadella is the "opposite" of Ballmer.
"I think one of the reasons Steve Ballmer is not the CEO of Microsoft and Satya Nadella is is because Steve had a hard time having relationships with other CEOs," Salesforce CEO Marc Benioff said in an interview on Bloomberg TV's Bloomberg "Go" in 2015. "I know that from my personal experience, and Satya's the opposite."
Source: Business Insider
2014: Microsoft strikes its first deal with Salesforce
Less than three months after Satya Nadella became Microsoft CEO, the company inked its first deal with Salesforce, teaming up to bring Salesforce's customer relationship management apps and platform to Microsoft's Azure cloud.
The companies followed up the deal with another partnership in October of that year with new joint products.
"We're committed to working with Microsoft to further our mutual customers' success," Salesforce CEO Marc Benioff said at the time.
Source: Business Insider
2015: Microsoft reportedly tries to buy Salesforce
Microsoft was in "significant talks" to acquire Salesforce, CNBC reported in May 2015 based on "a number of people familiar with the situation," but the companies couldn't agree on a price.
Microsoft wanted to pay around $55 billion, but Salesforce CEO Marc Benioff was said to have continually raised his expectations as high as $70 billion.
Microsoft CEO Satya Nadella, freshly into his new role, was said to be reluctant to pull the trigger.
Source: CNBC
2015: Nadella appears at Salesforce's Dreamforce conference
Microsoft CEO Satya Nadella appeared at Salesforce's Dreamforce conference in August 2015, its biggest event of the year. It was the first time Dreamforce ever had a notable guest from Microsoft.
It was seen as a sign of a shifting attitude of a friendlier Microsoft.
"Satya has opened a door that was closed. And locked. And barricaded," Salesforce CEO Marc Benioff said around that time.
Salesforce and Microsoft deepened their partnership shortly after.
Source: Business Insider and Wired
2016: The relationship sours as Microsoft beats Salesforce to buy LinkedIn
Microsoft outmaneuvered Salesforce and acquired professional social network LinkedIn for $26.2 billion, souring the new-found friendship between the two longtime rivals.
Salesforce CEO Marc Benioff after the deal was announced said he'd be willing to pay "much more" for LinkedIn and later complained to regulators about the deal.
Until now, this year marked the last time Microsoft and Salesforce publicly announced formal partnership agreements.
Source: Business Insider and Baird analysis
2016: Microsoft and Salesforce partner with each others' rivals
Salesforce picked Amazon's cloud computing service as its "preferred public cloud infrastructure provider," meaning the company would start using AWS across all of its core products.
"There is no public cloud infrastructure provider that is more sophisticated or has more robust enterprise capabilities for supporting the needs of our growing global customer base," Salesforce CEO Marc Benioff said in a statement at the time. Salesforce later announced deals with other Microsoft rivals including Google Cloud and IBM and in 2018 said it was running a "vast majority" of workloads on AWS.
Meanwhile, Microsoft has inked big deals with Adobe, including as recently as March 2019.
Source: Business Insider and Baird analysis
Nov. 14, 2019: Microsoft and Salesforce announce another big deal
Salesforce chose Microsoft Azure as the public cloud to power Marketing Cloud, its cloud software for marketing professionals. The companies are also working together to allow customers to share information from Salesforce within the Microsoft Teams chat app.
The deal marks their first formal partnership agreement since 2016, the year their relationship soured over Microsoft's LinkedIn acquisition.
Source: Business Insider and Baird
What's next...
Undoubtedly, Salesforce and Microsoft will still compete. But the partnership represents a change in strategy, Daniel Newman, the founding partner and principal analyst at Futurum Research, told Business Insider.
"I feel like Microsoft has this very strong collaboration strategy, and frankly Salesforce really does too," Newman said. "Benioff is more outspoken about his competitive wares but the company has a very strong ecosystem of integrations to applications that are also competitive."
The deal underscores the increasing prominence of Microsoft in the cloud market. Inking big partnerships like this one with Salesforce, indicates that it could be catching up to AWS in the cloud wars, analysts say.
"What were seeing more and more which each wave, is that perception of parity, that both clouds are of equal choice and equal capability," Newman said. "AWS started as the leader and there's still work to be done from Azure's standpoint but Azure's continued mounting wins continue to put pressure on AWS to innovate harder."
Newman said it will be interesting to watch Salesforce and Microsoft's partnership and how it drives adoption of Microsoft products by Salesforce customers and how much business it generates for Microsoft Azure.