Salesforce.com’s Rendezvous with Margins, Activist Investors, and a Sale to Workday?

It’s been a storied ride for Marc Benioff since the founding of Salesforce.com, and for the most part the story has been seen as all upside. Category creation, leadership, and dominance have all been Salesforce.com’s birthright in the CRM industry, and Benioff has been the chief architect of this unparalleled ride up the enterprise software market stairway to heaven.

He’s ridden longer and harder than a lot of founders – though still well short of Larry Ellison’s endless tenure by a couple of decades. This gives him the unenviable task of taking full responsibility for the company’s current problems – least of which is the activist investors like Elliott Management breathing down his neck – as well as their eventual resolution.

Here’s my sure-to-be-unpopular top three options Marc has for pulling out of the current mess, which is a toxic combination of a scuppered succession plan, the loss of other top leadership, activist investors circling in the air, an aging software platform, an expensive, customer-hostile pricing structure, and a crisis of confidence in Marc’s ability and willingness to do what needs to be done. Or even to know what it is that will put the ship back on an even keel.

Option one is to kowtow to Elliott and friends, make the necessary cuts, and bring the company’s margins in line with its peers. William Blair did a decent job of looking at the margin issue, and to their credit the peers used as comps – Microsoft, SAP, Oracle, Adobe, and Intuit (ok, four out of five) were well chosen. The report’s analysis is blunt and to the point:

In comparison, this group of five companies has a similar revenue scale to Salesforce, yet has an operating margin profile of 41%, well above Salesforce, largely due to more efficient sales and marketing spend.

Considering the continued success of the top three vendors in the comp list, and in particular SAP’s track record of having lived through an Elliott incursion by at least paying lip service to their wishes, there’s something to be said for improving margins and behaving more like a public software company than a public forum for the CEO to fiddle while the Salesforce tower burns.

But a more efficient sales and marketing spend would be a tricky pivot for Benioff. One thing you have to give Marc credit for is his marketing prowess – okay, genius. One thing you can’t say about the peers in the comp group is anything that has the words “marketing” and “genius” in the same sentence. Can Marc stop mainlining the kind of marketing spend that propelled not just Salesforce but its Trailhead community and training brand to the pinnacle of success? Can he focus instead on cost-cutting and margin improvements at the risk of resembling the mediocre marketing of his peers? I would argue that Marc simply doesn’t have it in him to do this – witness the extremely poor timing in criticizing his employees for their supposed lack of productivity and then jetting off to Davos a few weeks later to hobnob with the global elites and make performative announcements about carbon credits and “environmental capitalism” instead of rolling up his sleeves and dealing with… reality.

(Full disclosure: I find being lectured by Benioff about the role of corporations in society a little offensive. Salesforce pays big accounting firms millions of dollars in order to avoid paying many more millions in taxes, and in doing uses the company’s wealth to exempt itself from the very social contract Benioff feels the need to alter with his personal brand of self-serving capitalism. Beware of billionaires and their “social programs:” Sam Bankman-Fried’s embrace of effective altruism turned out to a smokescreen for unparalleled greed and some pretty shady business dealings as well. Anytime someone wants to use “for the good of the whole” as an excuse to become one of the richest individuals on the planet, you should be just a little wary of their true motives.)

But I digress.

Option one runs right into the succession problem at Salesforce.com. A big problem with the loss of his succession plan – in the person of Bret Taylor – is that Marc isn’t capable of not being Marc – and that means he needs a big stage for his big ideas. I’ve followed him since he (and I) were young putzes running around the software industry in the 1980s, and there’s no way you can get keep this boy on the track to an austere and pared down sales and marketing structure now that he’s basked for so long in the limelight.

If there were a competent of the likes of Taylor in charge, who could play the prince’s executioner while Marc kept on doing his Davos thing, I think Salesforce would continue to thrive. So, ironically or tragically – or both – in order to appease the wolves of Wall Street Salesforce has to fix its succession issue and then get that person in place with a solid plan to cut out the fat and pull margins up. That doesn’t seem likely to happen any time soon. With Elliott positioning to put some of its people on the board and threaten Marc’s hegemony, time is of the essence.

Option two is to tell the Elliotts of the world to go to hell and fight them in the courts and the fields of public opinion. This probably won’t happen, as the stock has fallen significantly since its peak in October, 2021, and I doubt Marc and his board have the stomach to watch it fall further, which would definitely be the case if they took on Elliott directly. And without some adult supervision to lead the way to something better than a future Salesforce in the image Elliott is looking for, the best Marc could hope for was a Pyrrhic victory of sorts.

Which brings up option three – sell the company to Workday. My candidate for the best possible buyer would be Workday, and not just because almost any other large enterprise software vendor trying to make a play for Salesforce would make the antitrusters in Brussels and Washington go apeshit. My two main reasons for promoting Workday are this: in my conversations with various insiders in the industry I’m convinced that Aneel Bhusri still wants to seal his legacy by playing in one more championship game before he retires, and a friendly take-over of Salesforce would definitely qualify.

The second reason is that both companies need to extend their reach into covering the kinds of industry-specific end-end processes that their customers are increasingly looking to deploy across their heterogeneous landscapes. Salesforce and Workday have both tried, and succeeded in various limited ways, in extending their footprint across the vertical and end-to-end process axes. But they just aren’t doing it fast enough or thoroughly enough, and it’s beginning to show. SAP and Oracle are much more credible in this regard, and they too aren’t doing nearly enough, despite the palpable threat that these critical domains for innovation will be serviced by smaller, specialized vendors or, if they ever get their act together, the hyperscalers.

In the end success in the vertical/end-to-end process imperative will take huge internal scale and a huge partner network – two things Salesforce can legitimately claim to have. But their internal scale is hampered by their focus on sales and marketing, and their end-to-end process and partner network are limited by their focus on the customer side of the value chain, which isn’t enough. Workday is making inroads into finance, but it’s a limited, old-school version of finance that doesn’t really sync with the complexity of new and emerging requirements for tracking, reporting, compliance, supply chain resiliency, and asset management – among other issues – in a wide range of industries and geographies.

No matter that the acquirer would be the smaller of the two or that the technical debt in both companies would have a multiplicative effect on customer complexity. Bhusri has a fire in the belly that Benioff lacks, and while a decent marketer, Workday and Bhusri are unencumbered by the need to play world leader on a global stage or blow the marketing budget on turning downtown San Francisco into a techy Woodstock/tent revival. (I once wrote some lyrics, to be sung to the tune of Joni Mitchell’s Woodstock¸ comparing Dreamforce to Woodstock. Thankfully I never quit my day job.) Workday is also unencumbered by profits, but if the acquisition resulted in some degree of sales and marketing synergy as well as cost-cutting on the Salesforce side, the profit hole could potentially be filled.

Will this fantasy ever come true? To be honest, I doubt it. But if I were Bhusri, I’d be seeing the likes of the William Blair report as a reminder that, however, successful it may be, Workday is definitely not in the same league as Salesforce, Microsoft, SAP, or Oracle. Buying Salesforce might not be the easiest way out of the problem, but it would solve the size and scale problem pretty quickly. Getting into this club is precisely what I think Bhusri’s goals for his swan song are, and it’s going to take a pretty dramatic move to do so. I don’t think there’s a viable acquisition option of similar size around.

As for Salesforce…. Marc knows that all good entrepreneurs must one day cede the reins to leaders more grounded than they typical founder, and Marc is neither typical nor well-grounded in the kind of day-to-day discipline Salesforce needs at the moment. One of the reasons SAP so successfully fended off Elliott is that CEO Christian Klein is a consummate money guy tutored on the knee of outgoing CFO Luka Mucic and had no problem knowing what levers to pull and how to pull them to keep the activists happy. While Marc has many talents, he’s not really known for that level of expertise.

I’ve been very wrong in the past betting on Salesforce losing its top dog status, but I do think it’s now caught in a pretty tricky position: appeasing the Elliotts will hard for Marc to handle, and fighting them head-on will be worse. Maybe it’s time for Marc to make a graceful exit, take a cozy spot as non-executive chairman and spokesman, and focus on that all-access pass to Davos and the global stage that he prefers. It may be a crazy idea, and it would certainly saddle Bhusri with the Herculean task (complete with mucking stables and a chance at nailing a golden apple or two) of merging two complex companies and customer bases. But I think it could work. And boy, if it happens, it’ll be a fun adventure to watch.