Written By: Susan Smithfield – Corporate Finance
Microsoft says it has hit rival Salesforce.com where it hurts most, but Salesforce insists that Microsoft’s claims are hype because it remains the leader in the CRM (customer relationship management) software-application market. What Microsoft has done is “stolen” a major Salesforce customer: HP Inc, the portion of the legacy Hewlett-Packard organization that is focused on the personal computer and printer business. The enterprise-focused unit was spun off as Hewlett-Packard Enterprise.
HP has signed on to use Microsoft’s Dynamics CRM software for six years. The companies didn’t disclose the financial terms of the deal, but Microsoft executives have been playing up the win, terming it a major coup against rival Salesforce. Speaking at a Deutsche Bank technology conference a day after signing HP for the multiyear CRM deal, Microsoft’s cloud CEO, Scott Guthrie, said that what they have done is equivalent to a Salesforce takeout.
Until Microsoft roiled the waters, HP was one of Salesforce’s largest customers and major sources of revenue. But now this customer has ditched Salesforce’s CRM environment for Microsoft’s Dynamics CRM. As such, HP is planning a major migration to Dynamics. The company plans to turn over more than 50 percent of its total workforce to the Dynamics CRM platform. That means an outflow of some 26,000 HP employees from Salesforce and Oracle CRM environments. Of those shifting to Dynamics, 20,000 are support personnel and 6,500 are salespeople.
HP’s defection to Microsoft continues what has recently been seen as tightening ties between the two companies. Microsoft and HP have always been close allies from back when personal computers were the main computing devices and Windows was synonymous with computers. As such, when old friends appear to be renewing their bond, there is a valid reason for competitors to worry because it can shake up the very foundations on which their businesses are built. In any case, HP’s switch to Microsoft’s Dynamics could spark a trend of former large customers returning to Microsoft’s fold. Perhaps HP could be planning to bring more of the jobs it currently gives away back to Microsoft so that it can enjoy even more economies of scale.
Even after losing HP’s CRM socket to Microsoft, Salesforce CEO Marc Benioff doesn’t look perturbed. Speaking on the issue, Mr Benioff recently said that he still doesn’t consider Microsoft a major threat in the CRM-software business. He downplayed the loss of HP business, saying that Salesforce can’t win over everyone in the market. Benioff pointed out that unlike its rivals, Salesforce is the fastest-growing CRM-application provider. Furthermore, he said that Salesforce is the one winning the majority of CRM deals and that is what they at Salesforce consider to be most important.
In case you are wondering if Mr Benioff’s claims about Salesforce leading the pack in the CRM space in terms of market share and growth have any basis in fact, here is what you might want to know: In 2015, the CRM application market was valued at more than $29.3 billion, and Salesforce controlled 16.2 percent of the market in that year, making it the undisputed leader in the space. Salesforce’s market share grew 20 percent from 2014. Oracle controlled the second-largest share of the CRM market at 8.4 percent in 2015, but its share had dipped 7.8 percent from the prior year. SAP was third with a 7.4-percent share of the market in 2015, having improved 2.4 percent from 2014. Microsoft was significantly dwarfed by these rivals as it was ranked only 12th with a paltry 1.5 percent share of the market, but its market share had increased 6.2 percent from the previous year.
Microsoft’s raid into Salesforce’s customer base signals a collapse of what has recently seemed like a cozy relationship between the companies since Satya Nadella was appointed CEO of Microsoft. At some point last year, Benioff talked Microsoft into being more collaborative under Nadella, while suggesting that former Microsoft CEO Steve Ballmer was a “bad guy” who preferred alienating other players. The highlight of the improving relationship between Microsoft and Salesforce came in the announcement that Microsoft’s Office could now work with Salesforce’s products. That announcement was a shocker to many who had known the two companies to be fierce rivals. But it seems Benioff didn’t clearly understand what Microsoft was truly up to when Nadella acted “friendly”. As it has turned out, Microsoft seemed to have been more interested in building its CRM business than helping Salesforce gain a stronger foothold in the CRM space. It will be interesting to see what kind of exchange Benioff and Nadella have in the future.
If you listen to what HP claims caused it to migrate to Microsoft’s Dynamics, you’ll get the impression that Microsoft is steadily closing Salesforce’s competitive advantages. HP’s COO, John Flaxman, has said that Dynamics will provide them with a more efficient cloud collaboration engine. HP also considers the move to Microsoft a modernization and simplification of its sales organization.
Microsoft’s win of HP from Salesforce is also a setback for Oracle and other CRM providers that currently rank above it. The defection of HP is a huge vote of confidence in Microsoft’s CRM offering, and competitors might have a hard time convincing their customers to stay. Salesforce and Oracle have recently been active in the CRM space with new products and features aimed at deepening engagement with existing customers and wooing new ones. Microsoft has just shown that it is breathing down their necks.