Salesforce's Mergers & Acquisitions Strategy

The reason I chose to write about Salesforce.com is because I always like a good underdog story. Salesforce has always been the scrappy new kid on the enterprise software block. Of course, one way that Salesforce feels like it can increase market share is by buying up young startups that they feel can can add value to users. The problem is that as Salesforce buys up smaller companies, the more it begins to look like Oracle and Microsoft.

What users want from enterprise software is a seamless experience. They want all of their enterprise applications to play nice in the same sandbox. Therefore, the best way for an enterprise software company to scale quickly to provide that seamless experience is to buy up strategically related targets that provide the bidder with additional economies of scope.

In addition to purchasing targets that provide economies of scope, firms like Salesforce can attempt to acquire targets that provide them with a new and different customer base. In its recent purchases of Radian6 and Buddy Media, Salesforce was able to add new customers that would have been difficult to convert otherwise. Switching costs for enterprise software customers is extremely high, as such, once implemented, most customers are hesitant to switch enterprise software services.

So there are two questions that Salesforce has to ask itself when courting a target:

1. Does the target provide a value added experience to Salesforce's current customers?
2. Does the target provide Salesforce with an increased customer base?

In the cases of both the Radian6 and Buddy Media acquisitions, the answer to both of those questions was "Yes".