Editor’s note: Salesforce’s rumored acquisition talks come as the end of “the end of software” era looms, writes Allan Krans, principal analyst at Technology Business Research.

HAMPTON, N.H. – After starting its marketing efforts touting traditional software would cease to exist, it’s becoming clear that black and white perspective of the IT market will not materialize.

A hybrid environment that blends traditional IT and software with various flavors of cloud-delivered services is the direction we see most customers arriving at over the next five years. The rumors of Salesforce’s acquisition are officially unrelated to this vision for the future of cloud, but it does help set the context for the cloud competitive environment. Salesforce struggled to maintain profitability even in the early days of cloud when customers were looking to move as much as possible into a lower cost and OPEX driven environment.

In the hybrid cloud environment, their position in the market becomes even more difficult as the control points in customer accounts shifts to those vendors that can provide a choice of services and the ability to manage heterogeneous environments. Now that it’s clear most customers will be hybrid, and not purely public,

Salesforce becomes more valuable as one choice in a broader toolset than as an independent pure public cloud vendor. Salesforce could finally find protection in the arms of a larger organization

Despite being the largest SaaS provider for more than 10 years, Salesforce does not lead an easy existence in the IT market. Salesforce continues to face competition that comes both from smaller startup SaaS providers and from much larger, broader, and well-funded IT vendors. The result has been a never ending focus on growing revenue through both targeting new customers and building the portfolio to increase their presence within accounts. The net result of this intense competition is a requirement to sustain growth in sales and marketing expenses that drive consistent net losses for the vendor, despite its size. Although TBR believes Salesforce could continue its growth-focused strategy for quite some time, now the subject of acquisition has been initiated with at least two potential suitors, the sale of Salesforce is a very likely outcome.

Before arriving at the conclusion that Salesforce will be acquired, it is important to step back and answer the same question both for Salesforce and the potential acquires, and that question is “why?”. For Salesforce, being acquired would finally provide true cross-selling and go to market efficiency they have struggled to achieve on their own. Although Salesforcehas built additional capabilities in PaaS, it has never truly had a second offering to complement the core CRM base. And despite achieving significant scale, it has not reached the tipping point where the investment in sales and marketing can be tapered down to drive a sustainable and profitable business model.

This issue was further highlighted by the recent earnings breakout for Amazon Web Services (AWS), which has sustained double-digit operating margins despite facing increased competition in 2014. The potential acquirer of Salesforce gets a business that may not be profitable now, but is growing quickly, has a huge installed base of CRM customers, an aggressive sales team, and great potential for growth in the PaaS space as all IT vendors target developers. One thing that trends like open source, consumerization of technology, and social media have in common is a focus on eyeballs and usage, and Salesforce fits that model quite well.

While they haven’t been able to profitably monetize that customer base, it is sizable nonetheless and the acquirer could have a lot of possibilities to drive large revenue streams with those customers as a base. Salesforce would both solidify the portfolio and setup Microsoft to create a successful partner-led cloud go to market model

Microsoft has the greatest degree of overlap from a portfolio perspective with Salesforce. Across the key Salesforce capabilities in CRM, PaaS, and collaboration the two companies pretty much compete head to head. Even with that overlap, Microsoft would get strong benefits from acquiring a market leader and competitor in areas like CRM where their own organic efforts have been slower to gain traction.

Salesforce is both larger and driving sustained double-digit growth, which would have an immediate impact on Microsoft’s position in the market. It also supplements Microsoft’s efforts in the cloud marketing area with MarketingPilot, which has been slower to develop and would benefit from the addition Salesforce Marketing Cloud. Beyond the benefits a a strong Salesforce portfolio, Microsoft would also be able to engage their partner network to both scale the sales efforts and support greater profitability in the existing Salesforce business.

No vendor has been successful in engaging a partner-based cloud model at scale. With both a leading portfolio and customer base in SaaS CRM and platform, combined with Microsoft’s legacy distribution model, this acquisition could create the first successful partner cloud sales example.

Oracle could use Salesforce to fuel a come from behind cloud effort

Oracle has emerged as one of the leading contenders to acquire Salesforce, and for good reason. Not only have they historically made large application purchases, it aligns with their goals of taking the lead in cloud despite committing to their cloud strategy late compared with pureplays and even their large IT peers. Oracle is also a strong candidate because they can make use of most all of Salesforce’s offering portfolio.

Oracle gets the leading CRM platform, but also the Salesforce PaaS platform, which is an area Oracle has invested but not achieved significant scale yet. From a funding standpoint, Oracle maintains $50 billion in cash and short term assets, in addition to issuing another $10 billion in notes that increases their liquid asset position. Beyond the technology, there is also an outside and probably secondary impact of an Oracle Salesforce acquisition by bringing Marc Benioff into the organization. With no clear single heir to Oracle’s CEO position, Benioff could emerge as an outside contender to consolidate the leadership of Oracle moving forward.

A sure plan to fix profitability would pave the way for an IBM acquisition of Salesforce

For IBM, acquiring Salesforce would double down its strategy to balance cloud growth and profitability. After missing long-stated EPS goals last year, IBM more than any other vendor is cognizant of the margin impact from the initiatives in which the company is engaged. The only way it makes sense for IBM to make this acquisition is if they can take Salesforce’s technology and customer base and make the business model adjustments needed to support profitability goals. Without sacrificing either the delivery quality or the ongoing development of new portfolio features, the key to this effort will come down to the sales and marketing strategy. From a portfolio perspective, an acquisition of Salesforce would be a great fit for IBM’s cloud portfolio. After staying out of the traditional application space, IBM has unabashedly acquired assets to deliver cloud applications targeting the CMO and head of HR within customer organizations. Core CRM was never part of the traditional IBM software portfolio, but cloud is a different market and Salesforce would provide a strong complement to the marketing and commerce assets IBM already possesses.

Google and Amazon are outside contenders both aiming to round out a pure cloud portfolio

For both Google and Amazon, the draw of a Salesforce acquisition comes from the solution selling approach the could leverage with a broader suite of cloud assets. While Microsoft has a similar portfolio of cloud productivity applications and business applications, it has not seen the full potential from selling those two areas of functionality in tandem. If Google were to acquire Salesforce, they would have a strong leading position in CRM and a secondary position in productivity applications to tie together in a more unified approach to selling. The biggest risk for a Google acquisition is the merging of cultures, as Salesforce has a distinctly different approach to the cloud market.

From a sales culture perspective, Google is very organic and passive in its sales motion, while Salesforce employs a typical aggressive field sales culture typified by traditional IT vendors like Oracle. In order for the acquisition of Salesforce by Google to have long-term benefits, it would require a merging of those two cultures. This would be difficult given Google’s overall business remains heavily weighted towards the online advertising business, cloud would likely become a more independent part of Google overall.

The upside for Google is that they bring even more ways to monetize the Salesforce base with the advertising business. Amazon faces the same type of cultural divide that Google does, but has already shown some signs of becoming more enterprise-like in their approach to the AWS business. Although we believe Amazon is the least likely acquirer for Salesforce, it would also have the greatest impact from a portfolio perspective combining leadership positions in IaaS, PaaS, and SaaS.