Microsoft (NASDAQ:MSFT) and Salesforce.com (NYSE:CRM) recently entered a strategic partnership to offer Salesforce.com's Customer Relationship Management (CRM) app on Microsoft's Windows and Azure platform. Furthermore, the companies are planning to create interoperability between Salesforce.com's CRM Software as a Service (SaaS) applications and Microsoft Office 365. This partnership once again brings into focus Microsoft's newly energized "Mobile First, Cloud First" strategy, and Salesforce.com's efforts to increase the coverage of its offering across different platforms. In this article, we will briefly look at the recent partnership arrangement and how both companies will benefit from it.
Both companies have stressed the importance of collaboration, and through this partnership will work toward connecting customers that use both Salesforce.com's CRM platform and Windows products extensively. The companies plan to deliver the following solutions:
- Salesforce1 for Windows and Windows Phone 8.1 will enable customers to access Salesforce from their Windows devices. A preview is planned to be available in fall 2014 with general availability in 2015.
- Salesforce for Office 365 is a new solution for interoperability between Salesforce and Office 365. It will give customers access to the content that they need to collaborate, sell, service and market from the Windows platform. Some of the planned features include accessing, sharing, editing and collaborating on Office content from within Salesforce, and on Salesforce1 using Office Mobile, Office for iPad and Office 365.
Win-Win Situation For Both Companies
Microsoft draws over 50% of its revenues from sale of licenses for its flagship operating system Windows and productivity suite Office. With Windows 8 and the Surface launch, Microsoft introduced a uniform interface across its device environments: PCs, Tablets and Smart Phones. And it is working hard to popularize its Cloud offering, including the Azure development platform and Office 365. In the past few quarters, its OS sales have taken a dip due to tepid PC sales, and its latest version of Windows 8.1 has been slow to take off. Furthermore, competition in productivity suites, especially from Google Docs, has eroded some of Microsft's market share. To counter these trends, the company is offering discounts to OEMs for Windows 8.1 cheaper devices, and Office productivity suite on different platforms such as iPad. 
Furthermore, Microsoft is increasingly targeting enterprise customers to reignite sales of Windows through new hardware launches. We believe that the company is strategically positioned to target enterprise clients since corporations around the world continue to favor Windows as their Operating System. This partnership will further Microsoft's cause to deliver a world class product on its platform.
Moreover, Salesforce's CRM delivered through cloud resonates well with small and medium enterprises that lack dedicated hardware budgets to complement on-premise CRM bundles. Its latest offering, Salesforce1, allows users to access Salesforce's desktop platform through a mobile interface with easier and customized services for its customers. The new Salesforce1 platform, intended for smartphones and tablets, has 10 times more Application Programming Interfaces (APIs) than any other Salesforce platform. This allows application developers across small, medium and large enterprises to leverage customer mobile connectivity and provide their applications across various platforms and interfaces. With this agreement, both companies intend to better integrate their Cloud environments.
Both Microsoft and Salesforce stand to gain from this partnership. While Salesforce can target its customers on Windows mobile and tablet, Microsoft can attract more enterprise clients for its Surface tablet and mobile phones. Given the growth potential within the smartphone service market, we expect good demand for the product from various enterprises and this should translate into additional revenue growth for Microsoft's hardware business and Salesforce's CRM business.
However, we have yet to analyze how this partnership might affect Microsoft's competing Dynamic CRM, which has a revenue run-rate of over $1.5 billion and a market share of nearly 7% in 2013.  Going forward, we expect accelerated growth in the CRM software market globally due to rising adoption by enterprises and across industries such as mobility, social media and technologies, web analytics and e-commerce. Technology research firm Gartner recently updated its forecast for the CRM market from $21 billion to $37 billion by 2017. The report also points out that the CRM industry is witnessing growth faster than forecast, which indicates the immense opportunity that companies such as Salesforce, SAP, Microsoft and Oracle have in this market. 
At present, we have $41 price estimate for Microsoft, which is approximately 3.2% above the current market price.
Disclosure: No positions.