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How LinkedIn Drove a Wedge Between Microsoft and Salesforce


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Valuable business data is worth so much.

Microsoft and Salesforce are archrivals that recently battled each other to buy the social network LinkedIn — hungry for its troves of highly personalized data about businesspeople. When Microsoft won, Salesforce threw cold water on the acquisition by saying it would violate European antimonopoly laws.

But not long ago, the two software giants were tight. They even talked about merging their businesses — not once, but twice. The second round of talks hasn’t previously been reported.

A behind-the-scenes look at the fight between Salesforce, which upended business software by pioneering a rent-by-the-month model, and Microsoft, which is racing to adjust, exposes an awakening in corporate America about the value of social networks like LinkedIn and Twitter. The data stashed in their servers has elevated services like these from an amusing distraction to an essential tool that helps big businesses understand their customers.

But now that tech giants like Microsoft and Salesforce covet that data, they are finding that only a few companies have it. That’s partly why Salesforce considered bidding recently for Twitter, despite its growth struggles. Microsoft was so eager to have LinkedIn that it agreed to pay $26.2 billion in cash for it, the biggest deal in its history. Salesforce fired back, complaining that Microsoft could use LinkedIn data to increase its control of the business software market.

Microsoft sees the cloud as its future.

There are big personalities behind the battle. At Microsoft, the job of adjusting course has fallen to Satya Nadella, a poetry-quoting chief executive who is trying to aggressively remake the company in hot areas like the cloud business applications where Salesforce is a leader.

CRM is important to both Benioff and Nadella.

Though it only recently began turning a profit, Salesforce is on track to have more than $8 billion in revenue this year, representing annual growth of about 25 percent. The total market value of the company is over $50 billion. Salesforce is the largest tech employer in San Francisco, and the company will move into the city’s tallest building, Salesforce Tower, when it is completed.

Salesforce’s main products are for customer relationship management, or C.R.M., unglamorous tools that are nevertheless critical for helping businesses where it counts: by managing sales leads and client interactions that bring in revenue. Sales in the C.R.M. market totaled $26.3 billion last year, and Salesforce was in the No. 1 spot, with just under 20 percent, according to Gartner, a research firm. Microsoft was in fourth place, also behind Oracle and SAP, with just 4.3 percent.

It took Microsoft years to see the potential in what Salesforce was doing. Microsoft had its own C.R.M. product, Dynamics, but it took a back seat inside an empire that, under the former chief executive Steven A. Ballmer, was consumed with battling more prominent competitors like Apple, Google and Sony.

Mr. Nadella, a longtime Microsoft executive whose career odyssey at the company included overseeing its C.R.M. product, was less combative than his predecessor. He began reaching out to leaders of many rival companies after he became chief executive in early 2014, with a special goal of improving Microsoft’s standing in Silicon Valley.

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The two men had negotiated an agreement to make Microsoft’s Office 365 suite of applications work better with Salesforce’s online services, which they said business customers were clamoring for. They promised more collaborations to come. They began tweeting at each other like old friends.

At one point, Mr. Benioff offered to buy the Dynamics business that Salesforce competed with, but Mr. Nadella turned him down, according to two people briefed on the discussions.

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The two companies stayed close and by the spring of 2015 their conversations evolved into another deal: Microsoft would acquire Salesforce. In May 2015, CNBC reported that the talks had fallen apart because Salesforce was demanding around $70 billion, about $22 billion more than the company’s market value at the time.

Several people briefed on the talks said that account was accurate, though two of them said another factor was that Mr. Benioff thought Microsoft was not respectful enough of his accomplishments in building Salesforce. It was unclear whether Mr. Benioff would be happy in a subordinate role at Microsoft after building Salesforce from the ground up, and it was equally hard to imagine a successful Salesforce without him.

Quickly, there were signs that Microsoft planned to get its act together in the C.R.M. business. As part of a broader shake-up, Mr. Nadella moved Dynamics under Scott Guthrie, one of Microsoft’s most respected engineering leaders. This telegraphed that it intended to go after Salesforce’s business.

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