Salesforce to Microsoft: IT’S BACK ON

Marc Benioff

About a week ago, Salesforce surprised the industry by spending over half a billion dollars to buy a startup named Quip, a productivity app founded by Facebook’s former CTO, Bret Taylor.

Salesforce reported to the SEC that it bought the company with $582 million worth of stock and some unnamed “equity awards”, while TechCrunch’s Ingrid Lunden reported that the cash component brought the total price to about $750 million.

Quip was valued by its investors at about $376 million after its last round about a year ago, according to investment tracking firm PitchBook.

So Salesforce paid a premium for this company. Talking to Wall Street analysts on Wednesday, CEO Marc Benioff explained why he thought Quip was worth the money.

First off, he wanted Taylor to work for Salesforce, Benioff said:

“I did not expect to get a call from someone who I have incredible respect for, Bret Taylor, who is the CEO of Quip. I have followed his career for many years, I try to have dinner with him once a month. Everyone knows the incredible work he did with Google Maps.

“Everyone knows he was the CTO of Facebook and he had accepted an investment from Salesforce to this company and we were talking about the possibility of Salesforce acquiring his company and him joining our team as one of our top technical leaders.

“And that’s a dream that this company has had for several years. Everyone here and many people in the industry as well covet and love Bret and when we had that opportunity, we took that.”

But Benioff also underscored what we originally reported when the deal was announced: this was a chance to take on Microsoft directly on its home turf of Office apps. This after a short-lived period where Microsoft and Salesforce were friendly. Microsoft integrated Salesforce’s products with Office 365 and even considered buying the company.

For years prior to that, the two companies were big rivals. Microsoft is a major competitor to Salesforce for its flagship customer relationship management software. And Microsoft has plans to do a lot more with its CRM software with its $26 billion purchase of LinkedIn, and snatched LinkedIn out of Benioff’s hands.

Satya Nadella
Microsoft CEO Satya Nadella Alex Wong/Getty Images

When Salesforce first bought Quip, Benioff sent a bunch of retweets about how Quip planned to take on Microsoft.

To the Street’s analysts on Wednesday he was even more straightforward.

He said that he planned to bake Salesforce’s own productivity apps like email, spreadsheets and word processors into all of Salesforce’s other apps.

“We have to have productivity built in. All of our applications need to have core productivity applications, whether it is email, like with Salesforce Inbox or spreadsheets or word processors like Quip, live documents. All of that has to be an integrated part of what we are doing. We believe that strongly. We have obviously done a lot of great work with Microsoft as well, with their products. We have now our own product in this category. And this is going to be really important for us going forward and it’s the reason that we bought Quip.”

But he also suggested that productivity apps could be its own new huge business for Salesforce, saying:

“You could even break productivity out as its own application category. I think all of you know productivity itself has a huge TAM [total addressable market], $26 billion a year TAM.”

Note that Microsoft reported that its total fiscal year 2016 revenue from its Productivity and Business Processes division, which includes Microsoft Office, was $26.5 billion.

Quip’s CEO, Taylor, said in an interview with Recode that Salesforce is going to set its very large, sophisticated salesforce up to sell Quip’s apps to more companies.

In other words, Benioff has a not-so-subtle message to Microsoft: game on.

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