Quick Thoughts on Mulesoft’s $6.5Bn Acquisition by Salesforce

Today’s news that Mulesoft had agreed to a $6.5Bn acquisition by Salesforce marks an intriguing inflection point in the world of enterprise technology.  Here are my thoughts on why this transaction is so important.

  • The Continued Inexorable Force of Multi-Cloud Computing. As I’ve detailed previously, the cloud computing battle is now the fiercest, highest-stakes battle we’ve ever seen in technology. AWS is now running at over $20Bn in run rate revenue, growing over 40% and extremely profitable, with operating margins north of 25%. Meanwhile Microsoft Azure is growing even faster that AWS, Google is investing heavily, as are IBM, Oracle, Alibaba and Tencent. They all realize the stakes are very high. Salesforce was born about 10 years too early and, despite having a remarkable franchise, doesn’t have a natural play in public cloud computing as a result. Salesforce has instead focused on building out application clouds (sales, marketing, service, etc) to capture as many business users in enterprises as possible. Despite its success, Salesforce is vulnerable in the long term to being out-maneuvered by the public cloud platforms, who are rapidly sucking in enterprise data and business logic, and becoming more central to large enterprise’s strategy with every passing day. As multi-cloud and hybrid cloud prevail, Salesforce needed to find a way to keep its defenses up. Mulesoft is a very smart answer. Mulesoft will help Salesforce access data wherever it lives, analyze and re-write it to native systems, thus keeping Salesforce in the center of the universe for its customers rather than risk being relegated to the bleacher seats as cloud vendors attempt to grab center stage.
  • The Merging of Application Software and Infrastructure. Salesforce is the ultimate business application company. They sell to business users. Mulesoft sells to IT, hence infrastructure. Sure, the end result of Mulesoft’s integrations often-times benefit end users, but Mulesoft is a technology stack built for technologists. Salesforce making a foray into infrastructure represents a bold move, and I believe shows that the game is changing in technology. Yes, business users are where the value resides, but now developers, DevOps, SecOps and other groups within technology are becoming more and more key to companies’ business strategies. As all companies become software companies and the cloud becomes ubiquitous, the demarcation between application and infrastructure is going to continue to blur.
  • The Size of the Prize. Salesforce is projected to do about $12Bn in revenue for ’18 and has a market value right about $100Bn. This isn’t your grandmother’s cute enterprise software company. Its a juggernaut. In that context, $6.5Bn isn’t much.  Given that AWS on its own is likely worth $300-400Bn right now, Salesforce has to keep thinking boldly to stay in the game, especially as data and workloads move to the public cloud. This acquisition may end up being Benioff’s version of Zuckerberg’s Instagram stratagem – it looks expensive at the time, but is brilliant from a strategic perspective longer term.
  • The Valuation. Mulesoft did about $300M in revenue in ’17 and was on track to do roughly $400M in revenue in ’18. So the $6.5Bn price represents 16x ’18 revenue. As discussed above, Mulesoft is highly strategic to Salesforce but this sets a benchmark rarely seen before in software.
  • What This Means for the Rest of Tech. I think this deal will force VCs and investors to re-think and possibly re-rate many infrastructure software companies. The cloud computing wars keep getting more interesting. The players are very serious, have extremely deep pockets and are playing for keeps. Those startups that navigate the waters successfully will enjoy similarly great outcomes to Mulesoft. But, others will get crushed if they get in the way of the cloud vendors.

Leave a Reply

Your email address will not be published. Required fields are marked *