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Why Salesforce.com, Inc.’s (CRM) Plan to Ditch Oracle Corporation (ORCL) Is BRILLIANT

CRM shareholders should cheer this move ... for a few reasons

By John Divine, InvestorPlace Assistant Editor


Salesforce.com, Inc. (CRM) is stepping up efforts to wean itself off Oracle Corporation (ORCL) and its database technology, which helps power Salesforce’s signature business selling software.

Why Salesforce.com, Inc.'s (CRM) Plan to Ditch Oracle Corporation (ORCL) Is BRILLIANTA move like this is no piece of cake, and could reportedly take years to implement. In a dramatic shift like this, there’s no guarantee CRM won’t suffer from some tech glitches as it switches off ORCL. That could anger customers and cause them to switch their allegiances.

Screw it. Switching off ORCL tech is well worth the risk for Salesforce, for a number of reasons.

3 Reasons CRM and ORCL Don’t Fit

The potential switch from Oracle’s famous database software would see CRM turn to cheaper options — specifically PostgreSQL, which is open source and far less expensive.

CRM stock owners should obviously be interested in seeing cost reductions. Salesforce has been consistently losing money (on a non-GAAP basis) for years, and over the last three fiscal years alone it has lost over $542 million.

It’s time to break into the black, baby!

Another advantage of PostgreSQL is a more seamless ability to distribute the technology across data centers than ORCL. This is increasingly important since the European Union is forcing U.S. companies to keep customer data in the country where that data was collected. CRM understands timely compliance with these standards could mean more business with European customers.

That’d be real nice for CRM. In its last three fiscal years, revenue from Europe has remained stagnant as a percentage of revenue, languishing between 17% and 18% of total sales.

But perhaps the most visible reason for Salesforce to make the shift from ORCL is the fact that the two companies are direct competitors, with Oracle aggressively branching out into the same sort of sales pipeline software offerings that made CRM famous.

Conflict of interest anyone?

Let me step back and make clear that I’m not saying ORCL is a substandard partner or that it would ever intentionally mess with Salesforce’s business. I’m only saying there’s something about directly funding one of your staunchest competitors that doesn’t sit right.

It’s worth noting that the complicated ORCL-CRM relationship isn’t at all unique in corporate America. Uber uses Alphabet Inc‘s (GOOG, GOOGL) Google Maps software for its navigation while building out its own mapping technology and fleet of self-driving cars. Netflix, Inc. (NFLX) uses Amazon.com, Inc. (AMZN) Web Services to help handle its traffic load, despite the fact that Amazon Prime Video is literally the most direct competitor to its business.

The difficulty with that situation is that both Google Maps and AWS are the best services in their respective fields, head-and-shoulders ahead of the competition. In Salesforce’s situation, not only is PostgreSQL comparable to ORCL’s software, it offers a number of compelling advantages over Oracle’s database tech.

At the end of the day, we don’t know if and when this big switch will happen. But if I was a betting man, I’d assume it happens, and sooner rather than later.

The fact that it has its own code name (“Project Sayonara”) tells me Salesforce is paying close attention to the issue.

As of this writing, John Divine was long AMZN stock. You can follow him on Twitter at @divinebizkid or email him at [email protected]

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Article printed from InvestorPlace Media, https://investorplace.com/2016/05/salesforce-crm-oracle-orcl/.

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