Salesforce Investors May Be Betting Too Heavily on Google

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Includes: CRM, GOOG
by: Tiernan Ray

Shares of online software vendor Salesforce.com (NYSE:CRM) were up 6% Wednesday at $48.66 on an invitation to press saying the company will announce some major news next Tuesday in San Francisco. The speculation, according to a Reuters report, is that it’s a deal with Google (NASDAQ:GOOG) to jointly sell business software hosted on the Internet.

But the speculation may be getting ahead of the facts, says Cowen & Co. analyst Peter Goldmacher in an interview I had with him.

Goldmacher opines the deal may consist of Salesforce.com having its sales reps sell bundles that include Google’s Gmail email service and other programs, albeit versions that are more robust than the free versions that Internet users partake of and, thus, more suitable for business customers.

But, says Goldmacher, “I think the market is over-estimating any potential effect on Salesforce of a Google deal.” Goldmacher thinks this is essentially free sales and marketing for Google and added expense for Salesforce:

Salesforce cares very deeply about being associated with the number one Internet company. Salesforce might even be paying money to Google in the form of some sort of royalty arrangement or marketing co-dollars. The point is, Salesforce needs to get Google to love them. Their market [for hosted applications] is getting tougher and they want the imprematuer of the premiere online company. But anyone expecting it to be a windfall for Salesforce, to provide material revenue to Salesforce, I don’t think that’s going to be the case. If anything, it may be Salesforce working for Google. Google gets the benefit of a direct sales force working for them. [Salesforce.com has a team of sales reps who call on businesses to sell them subscriptions to the company’s programs.]

Moreover, Goldmacher wonders if Salesforce isn’t “sticking its head in the lion,” by collaborating. “I could see a scenario where Google turns its [Gmail] e-mail program into sales force automation program similar to what Salesforce does,” thereby displacing Salesforce applications.

Goldmacher has a neutral rating on Salesforce shares.

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