Analysts to Google: Buy Salesforce

Noting that Google's Apps business isn't where it should be, an industry research firm exhorted the search vendor to shell out what could be $10.5 billion to buy Salesforce.com.

Google's latest agreement with Salesforce.com, in which the SAAS (software-as-a-service) vendor's 1 million paying subscribers can use Google Apps for free, is a lame duck, according to a May 29 report from The 451 Group analysts Brenon Daly and China Martens.

 Announced April 14, Salesforce for Google Apps allows Salesforce.com customers -- sales organizations, marketing groups and support teams -- to use Gmail, Google Talk, Google Calendar, and the Google Docs spreadsheet, presentations and word processing applications from within the Salesforce.com platform.

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But the analysts argue that this arrangement will do little good for Google, because Salesforce.com's sales staff doesn't have incentives to push Google Apps.

"They get paid for selling Salesforce.com software, regardless of what software it's hooked into," the analysts wrote. "A sales agent on the cusp of pocketing a handsome commission by selling hundreds of seats of Salesforce.com's SFA module has virtually no incentive to push an unrelated product."

The analysts took Google officials to task for failing to realize this, or at the least deluding themselves into thinking that Google Apps will eventually sell themselves inside the Salesforce.com channel. The analysts' conclusion is that, to control Salesforce.com's distribution channel, Google must control Salesforce.com.

It's most likely only a matter of time before Google pulls the trigger on its partner. That brings us to the tasty prospect of an acquisition, which the analysts opined on in the report.

But at what cost? Pairing Salesforce.com's $8.5 billion market capitalization with a 23 percent premium based on Google's return on shares puts the bill at about $10.5 billion, the analysts said.

"Google could ... pay the bill from the cash and equivalents it has on hand and still have some coins left over," they wrote.

Not only would Google gain the leading SAAS CRM (customer relationship management) solution at a time when Microsoft is struggling to position its own CRM product properly, but Google would leverage Salesforce.com's AppExchange business, selling apps through Google Checkout.

The analysts said Google Apps still isn't where Google needs it to be despite the 3,000 customers per day who are signing up for the collaboration software. At $50 per user per year for Google Apps Premier Edition, Google isn't going to make a whole lot from those five- to 30-person shops to make a dent in the space.

Hyped, hot cloud computing practice aside, that's not going to cut it versus market giant Microsoft, whose Office productivity suite reaps operating margins of 75 percent, The 451 Group said.

The 451 Group report comes amid belief that Google could buy SAAS BI provider Panorama Software. But like Google's previous App purchases, including Postini, buying Panorama would be the equivalent of bringing an axe instead of a chainsaw to chop down the great oak in the enterprise app forest: Microsoft.

"If the search engine wants to be an enterprise player, it needs to buy big," Daly and Martens concluded. "And in acquiring Salesforce.com, Google would finally have a true platform, one that could help it go after not just Microsoft Office but also content management, business intelligence and other offerings."