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Salesforce acquires Mulesoft - A Defensive Move

The News

On March 20, 2018 Salesforce announced the signature of a definitive agreement to acquire Mulesoft for a whopping 6.5 billion USD – whopping because the 2017 Mulesoft revenues have been at just $296.5 Million, albeit with a $1 billion target for 2021.
The press release states that “together, Salesforce and MuleSoft will accelerate customers’ digital transformations, enabling them to unlock data across legacy systems, cloud apps, and devices to make smarter, faster decisions and create highly differentiated, connected, customer experiences.”
Mulesoft is recognized by Gartner as a leader in the 2017 Enterprise Integration Platform as a Service Quadrant.

The Bigger Picture

As I have stated repeatedly before, most recently here, the enterprise software market is engaged in something that can be called a platform war. There are a few big players and some emergent players in the enterprise software market, and then we have a number of companies that come from the infrastructure side of the house.
Business applications get commoditized. Therefore the platform becomes crucial in a battle for dominance.
And it is not a given that there will be a dominance.
Looking at the 4 big software vendors, Microsoft, Oracle, Salesforce, and SAP, they all have different legacies, strengths and weaknesses. They share one weakness, which is that their core business is in a mainly saturated enterprise market.
All of them want and need to play their strengths, while mitigating their weaknesses in order to become the dominant player.
Looking at Salesforce, one of its key strengths is the brand. Right or wrong, pretty much the first name that comes to mind when thinking CRM is … Salesforce. And sure, Salesforce builds good, sometimes even great, software, based on a strong business model. And where there is a need, the company is strong enough to buy leading players, like ten days ago Cloudcraze and now Mulesoft.
There are some weaknesses or risks, though:
·      Salesforce focuses on CRM, which might end up being a corner
·      It is hard for enterprise level companies to scale down to become more attractive to SMBs. Salesforce addresses this e.g. with Salesforce Essentials. Mulesoft can play a role here, too.
·      While Salesforce is profitable, it is not that profitable with an EPS of $0.26 according to the FY 2017 annual report. With a relatively high price point this is a risk factor. Salesforce battles this by staying a thought leader, delivering best-of-breed applications, and now strengthening its integration ability.
·      The many acquisitions need integration, so do seamlessly connected processes that digitally transforming companies require and demand. Here Mulesoft comes into the picture.
·      Last but not least, Salesforce is challenged getting at sufficient data to feed advanced machine learning models. Here Mulesoft will again play a role

My PoV and Analysis

This acquisition is a defensive move – a strong one, but still a defensive one. It fortifies the position while enabling Salesforce to address some of its challenges that I laid out above.
For Salesforce it is necessary, even mandatory, to be able to seamlessly integrate into the application systems of other vendors. CRM and the plethora of applications around, is not and never will be the core application any company on this planet runs. It is important, yes, but an ERP is more important.
Salesforce is not an ERP company.
Salesforce is closer to the saturated enterprise end of the market than to the underserved SMB end of the market.
Salesforce does not have the wide and powerful access to data that the core competition has. And data nowadays is truly King.
Salesforce has strong, very strong, competition.
Salesforce is clearly aware of all this.
And then it cannot be denied that currently there is a need to connect applications that live in different clouds.
Besides becoming the default plumbing between applications that are built on the Salesforce platform(s) and acquired applications that are not, Mulesoft can become the foundation for a platform of platforms that bolsters the claim of ease of integration.
The first three challenges above can clearly get addressed by Mulesoft. How big an opportunity (or threat, if this was a competitive bid) Salesforce sees can get estimated by the price the company is willing to pay.
But the main reason for the acquisition seems to be around the word data. In the words of Benioff: “Together, Salesforce and MuleSoft will enable customers to connect all of the information throughout their enterprise, across all public and privat clouds and data sources …”. This statement clearly not only addresses first party data but also third party data and hints into connecting to social media. Identity, profiles, and of course consents, are a main topic here. Will we see a CIAM acquisition next?
The company is clearly playing a combination of ‘best of integration’ with ‘best of breed’ game. The integration part ring fences the application part, while making them more attractive with its ability to dig into data.
And oh, it also helps with the price point.
Really, a strong move.
Strong enough?
Time will tell.
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