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Can Buddy Media Help Salesforce Overcome Oracle Threat?

 June 04, 2012 05:39 PM
 


(By Mani) Salesforce.com (NYSE:CRM) has agreed to buy Buddy Media for $689 million in cash and stock as part of its strategy to strengthen its boutique of software products that allow marketing in social networking sites such as Facebook, Inc. (NASDAQ:FB) and Twitter.

The deal comes as the proliferation of social media, and an increased demand by consumers to engage with brands across multiple social channels is driving chief marketing officers (CMOs) to look for an integrated social marketing platform. These platforms helps them to publish their ads and marketing campaigns on social networking sites but also helps in monitoring their campaigns.

[Related -Facebook Inc (FB) Q4 Earnings Preview: What To Watch?]

Last month, Salesforce rival Oracle Corp. (NASDAQ:ORCL) has agreed to buy Vitrue after considering Buddy Media. Oracle plans to add Vitrue's products to the Oracle Cloud to deliver a social relationship platform that can support social marketing, sales, commerce, service, data and analytics.

Both Buddy Media and Vitrue offers identical benefits of helping advertisers to connect with customers via Facebook, Twitter, Google+ and YouTube.

Buddy Media, whose customers include Ford, Hewlett Packard, L'Oreal and Mattel, complements Salesforce's last year buy of Radian6 and helps Salesforce Marketing Cloud to provide CMOs with the ability to optimize their social programs and deliver real business results.

[Related -Fusion-IO, Inc. (FIO): Can Fusion-IO Q2 Results Cheer Street?]

Salesforce expects the deal to add revenues by about $20 million to $25 million, while it may reduce non-GAAP earnings by approximately 14 to 15 cents a share in the second half of the year ending January 31, 2013.

California-based Salesforce expects to close the deal during its fiscal third quarter ending Oct. 31, 2012, subject to customary closing conditions.

Meanwhile, the entry of Oracle in Public cloud on June 6 is going to create serious challenges to Salesforce, and it would have to move fast to differentiate itself against Oracle. The Buddy Media deal is a strategy to offset this competitive pressure.

"We don't see this CRM acquisition of Buddy Media is something for investors to cheer. Instead, Investors may need to accept the fact that starting June 6th, with the entry of Oracle into SaaS (Software-as-a-Service), the industry structure will be altered, and CRM's market position will start to erode gradually, most likely within 1/3rd of the its customer base, which are large corporations," Global Equities Research analyst Trip Chowdhry wrote in a note to clients.

On June 6, Oracle will be launching a suite of cloud applications and platforms catering to the markets of Customer Relationship Management, Human Capital Management, and social network. These cloud applications and platform can scale from an individual user to large enterprises.

Moreover, Oracle's offering is expected to be 20 percent to 40 percent faster than Salesforce as Oracle has optimized both the software and hardware stack, with the pricing of Oracle Cloud expected to be competitive with Salesforce.

Though Oracle, with its public cloud, will openly go against SAP customer base, but a few of Salesforce.com customers will also gradually migrate into Oracle Public Cloud.

"Oracle may openly play down competition with Salesforce.com as Salesforce.com is also Oracle's major customer. However, our research is indicating that some large Salesforce.com customers are in Oracle Public Cloud Pilot," Chowdhry added.

Large companies are attracted to Oracle public cloud because of a virtual machine based architecture, which allows customer data to move easily between the public cloud, which is hosted by Oracle, and private cloud, which is on the premises of the customer.

On the other hand, Salesforce's architecture may head to obsolescence sooner than some may think, as it is based on multi-tenancy, which is implemented at the database level. This architectural limitation prohibits data to be moved seamlessly between public cloud and private cloud.

"CRM did extremely well in competing and in winning against other startups, but competing effectively against a superior technology from ORCL is going to be extremely challenging. Salesforce.com cost of doing business, both on R&D front, and sales and marketing will continue to increase moving forward, and their win-rates will start to decrease," Chowdhry noted.

Salesforce, however, is extremely optimistic on the deal and said Buddy Media doubles its Marketing Cloud and provide CMOs with the ability to manage the entire social marketing lifecycle.

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