Image source: salesforce.com.
salesforce.com's (NYSE: CRM) recent interest in purchasing LinkedIn and Twitter made waves in the tech and investing world. With that talk now in the past, it's worth noting that the company has nonetheless been on a purchasing streak this year.
Since June, the customer relationship management behemoth has purchased six smaller tech companies, bringing the 2016 total to nine.
What the company is buying
At its investor day back on Oct. 4, Salesforce talked about its innovation in software over the years. Developments have included social and mobile software tools, and more recently, focus has shifted to the Internet of Things and artificial intelligence.
The purchases of smaller companies and start-ups made this year have especially focused on artificial intelligence, with six of the nine being AI companies. Demandware is a divergence from that trend. The e-commerce services platform was purchased to start a new commerce-cloud segment at Salesforce.
While most of the buyouts were for small or undisclosed amounts, the Demandware acquisition was for a cool $2.8 billion, the most Salesforce has ever forked out in a single purchase. Quip and Krux also fetched handsome sums of about $750 million and $800 million, respectively.
Data source: Crunchbase.
It's been a busy year for Salesforce. Even when excluding the lost bid for LinkedIn to rival software giant Microsoft and investors' critical view of a Twitter purchase, 2016 will set a new record for Salesforce in number of acquisitions. Why all of the activity?
How the purchases feed into business strategy
Company founder and CEO Marc Benioff has been criticized for acquisitions in the past, accused of overpaying for companies and making purchases that don't really add much in the way of growth. At a recent technology conference, though, Benioff was asked about his strategy of innovating.
Rather than doing everything organically, Benioff admitted that innovation will often come from someone other than himself or from someone within his company. As a result, Salesforce is always on the lookout for innovators in the software space that can help the company grow.
This feeds into the merger-and-acquisition strategy outlined at Salesforce's Investor Day. Some of the purchases made, such as Demandware, help start up a new product segment. Others help augment and push growth in existing segments, such as the addition of BeyondCore to Salesforce's small but growing pure analytics-cloud service. Krux, as another example, was added to the marketing cloud to help with the segment's AI-predictive capabilities.
While the business currently runs at a loss, growing profits is not at the heart of the strategy here. Salesforce is the world's fourth largest enterprise-software company, but top-line growth is still the objective here. The better than 20% revenue growth rate over the last couple of years would indicate this, and trailing one-year revenue was just under $7.5 billion at the end of the last quarter.
The company has made reaching $20 billion in annual revenue an objective. If Salesforce keeps up its recent pace of top-line growth and its acquisitions can be credited, don't expect the spending spree to let up anytime soon.
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