Editor’s note: Matthew Healey and Jillian Mirandi are analysts with research firm Technology Business Research.

HAMPTON, N.H. - On May 30, Salesforce.com and Microsoft entered into a partnership that will enable customers to connect Salesforce.com to the Microsoft Office suite. The three most important aspects of the deal are:

  • The ability to access Salesforce1 for Windows and Windows Phone 8.1: This will enable customers to use Windows device to access Salesforce.com. This feature will not be generally available until 2015.
  • Salesforce for O365: This feature will increase the interoperability between Salesforce.com and Office 365 (O365).
  • Salesforce.com will be available on Microsoft Azure.

TBR believes this partnership was essential for Microsoft and Salesforce.com. Microsoft is the dominant provider of office productivity software, and the integration of this software with Salesforce.com will reduce friction experienced by customers of both vendors.

Microsoft Perspective

The ability for customers to integrate Microsoft’s dominant office productivity tools with major applications from other vendors will be critical to Microsoft maintaining its software install base. While TBR does not expect any significant immediate threats to the dominance of Office, this does not mean Microsoft can remain static in its approach to the market.

Recent TBR Research at WRAL TechWire:

  • Inside Lenovo’s most recent earnings
  • What’s up with Red Hat in view of earnings?
  • More grim news coming from IBM
  • Be patient, Cisco investors
  • Inside NetApp’s earnings
  • How is HP progressing with reboot?
     

The enterprise software market is undergoing significant changes with migration to cloud and changing business models and processes, which can potentially disrupt ancillary models. Vendors that do not understand and react to these changes risk a slow erosion of market share, as new processes will make their products less relevant. However, by integrating with the vendors that are driving the move to the cloud, Microsoft can avoid this problem.

TBR believes Microsoft has understood this for a long time, evidenced by its partnership with SAP through Duet, which integrates SAP on Sharepoint, giving customers access to SAP and Microsoft software. Oracle and Microsoft inked a similar partnership last year, through which Oracle applications are available on Azure.

The drawback for Microsoft resides in the threat to its Dynamics business. One of the advantages that Dynamics had over Salesforce.com was that Dynamics was integrated with O365. The partnership eliminates this advantage with respect to Salesforce.com.

TBR does not believe this is a major challenge.

As was already noted, Microsoft is in a partnership with SAP that directly competes with Dynamics in the applications space. Given the migration of enterprises to cloud solutions and the need for multiple providers, TBR believes any threat to the Dynamics business is more than made up for by the benefits of further embedding O365 in customers’ environments.

Salesforce.com Perspective

The benefits for Salesforce.com far outweigh the risks. With the partnership, Salesforce.com customers can access the portfolio from Windows 8 mobile devices and out-of-the-box integrations with Microsoft O365, removing the differentiation Microsoft Dynamics CRM has over Salesforce.com and putting the two tools on an even playing field.

For Salesforce.com, access to Microsoft’s customer base and partner ecosystem will drive increased sales while decreasing direct sales and marketing (S&M) costs. Running Salesforce.com on Microsoft Azure also decreases Salesforce.com’s data-center-related overhead.

One of the messages Salesforce.com has been promoting is its ease of use. Salesforce.com has gone directly to the end users and sold them on the business benefits of its approach. However, with most employees familiar with the Office suite of products, the lack of interoperability between the two cut against this message. Integration will improve the customer experience and lead to extended cross-pollination.

While Salesforce.com and Microsoft do not directly compete in the productivity space or the IaaS space (Microsoft Azure), they are in competition in the platform space. Both companies want customers to standardize on their platform, either Salesforce1 Platform or Microsoft Azure.

Microsoft has a bigger customer base, and Salesforce.com’s integration capabilities and easy access make it easier for Microsoft customers to standardize on Microsoft Azure over the Salesforce1 Platform.

Salesforce.com’s partnership with HP and now Microsoft shows the vendor is willing play nice with incumbent vendors with which it competes (HP and Salesforce.com will compete in the platform space).

Salesforce.com is no longer a disruptive cloud company but a maturing, $3 billion-per-quarter company that will work with other massive IT vendors to shield itself from disruption by the next round of innovative players.

(C) TBR