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Salesforce.com and Twitter—two companies that have banked hundreds of millions of dollars in venture capital over the years but have yet to show any substantial profit—are “exploring” a multibillion-dollar merger in which Salesforce will become Twitter’s new owner, The Wall Street Journal reported Sept. 23.
Neither company commented officially on the story.
Later in the day Sept. 23, reports surfaced that the Disney Company and Google were also interested in talking to Twitter, but nothing substantive came of them.
Twitter famously has been losing tens of millions of dollars per year for nearly the past decade. Salesforce also has lost millions, but since both internet companies are considered in “growth mode,” that’s what investors want to see to maintain a continued supply of capital to both of them.
For the record, Salesforce, has been profitable on occasion, but just barely. For example, in the quarter ending April 30, 2015, posted net income of just over $4 million or $0.01 per share. There have been a few other similar quarterly performances. Naturally, it does have a large cushion of operating income and cash reserves. Neither company is in danger of folding anytime soon.
Deal in Early Stages of Exploration
The Journal described the exploration as in its early stages and that it ultimately might not lead to a deal. The newspaper also said it was unclear what other companies might be considering buying Twitter, one of the three busiest social networks in the Western world (with Facebook and Instagram), and which had a market value of about $13 billion as of Sept. 22.
That estimated value, however, is down substantially from a high of $40.7 billion in December 2013, according to Thomson Reuters. Twitter has had major changes in its leadership during the last 18 months, including at the CEO level, where Dick Costolo was replaced by co-founder Jack Dorsey in July 2015.
Twitter’s stock price rose 20 percent to $22.44 on Sept. 23. Prior to that day, the stock had dipped 30 percent over the past 12 months. Salesforce’s stock dropped 4.3 percent to $71.35.
What’s the Reasoning Here?
Why would Salesforce want to acquire a property like Twitter? How could a news-messaging cloud service augment the Salesforce core business of customer-relationship management?
“A couple of things come to mind,” Pund-IT Principal Analyst Charles King told eWEEK. “First, [Salesforce CEO and founder] Marc Benioff has been clear that he intends to expand SF into new markets, particularly efforts he can jump-start with significant acquisitions. Twitter certainly qualifies, especially given recent efforts like promoting real-time news events, live-streaming NFL games and the upcoming presidential debates and then piggybacking on related advertising opportunities.
“But SF has also expanded its traditional offerings to include online marketing and advertising services, so there are natural affinities between those efforts and owning one of the market’s premiere social media sites.”
Vala Afshar, whose title is listed as Salesforce’s chief digital evangelist on a verified Twitter account, offered apparent reasons a company would want to buy Twitter. The tweet, which Afshar later said included his own personal views, read: “Why @twitter? 1 personal learning network 2 the best realtime, context rich news 3 democratize intelligence 4 great place to promote others.”
Deal May Cost Up to $15 Billion
CRM Analyst Denis Pombriant of Beagle Research Group, who has covered Salesforce and the CRM industry for years, wasn’t as sure why Salesforce would want to spend up to $15 billion to buy Twitter.
“Beats me! Twitter has not been making much money, if at all … It seems only Facebook makes money,” Pombriant told eWEEK. “Since Microsoft bought LinkedIn, it might make sense for each of the majors to own something the others really need, so that they are in a kind of standoff—’I won’t make Twitter proprietary if you don’t make LinkedIn proprietary.’ That’s a stretch, but it’s all I can come up with.”
Rob Enderle, principle analyst at the Enderle Group, has his own ideas about why Salesforce might want to acquire Twitter.
“If you think about it, Salesforce is all about making sales people more effective,” Enderle told eWEEK. “Traditional sales training teaches that the more you know about your customer, the better you are able to engage with them. While Twitter sucks as an advertising platform, it is one of the best tools to find out what people are interested in.
“This could give a sales person or marketer far deeper information about their target audience and give Salesforce a massive advantage in this space as a result. It likely would be far higher quality than you’d get out of Facebook or Google simply because it would be far more timely and tied to an AI engine. Salesforce could recommend real-time campaigns or prep sales people uniquely for their engagements based on advice from the AI.”
Any New Owner Would Have to Handle Twitter Carefully
What would make this acquisition difficult is not screwing up Twitter post-acquisition, Enderle said.
“Twitter’s most important customers are likely reporters who take the tweets and use them to find stories, giving people who are active on the service the sense that they better informed and more deeply engaged with events,” Enderle said. “It would be incredibly easy to break this; in fact, some of the handling of trolls and bullying has been pretty poor to date weakening the service substantially.
“If you overlay Salesforce corporate policy, this damage could dramatically increase and potentially destroy the service. Keeping this at arm’s length and properly staffed will likely be critical to the success of this offering, and given how different it is than Salesforce, possibly a bridge too far for the firm.”
Silicon Valley in general is a well-connected community, and Twitter and Salesforce already have some inside connections. For example, Salesforce recently acquired productivity-software maker Quip for $582 million. Quip was co-founded by Bret Taylor, a former Facebook executive and Twitter’s newest board member. Taylor will report directly to Benioff in his new role at Facebook.
Salesforce also runs a partnership with Twitter to feed social-media data into Salesforce’s analytics systems to give its customers insights on things such as how their customers are talking about their products and brands.
That 4-year-old deal provides Salesforce access to the full number of public tweets on Twitter, giving Salesforce insight into the value of that information for its products.
Editor’s note: This story has been updated to clarify the financial performance of Salesforce.com.