• by Brian Wieser , May 1, 2015

This column is re-published from one of Brian Wieser's Pivotal Research Group research notes to Wall Street investors.

Many years ago (in 2007, to be precise) our curiosity was piqued by marketers who separately posed questions to us regarding why the customer data they held within their enterprises wasn’t used to improve how their brands were allocating budgets across and within different media channels. While such tactics were common in e-commerce and other businesses with direct response characteristics, they didn’t seem to be so common among large brand-centric enterprises. Surely, or so it seemed, there must be ways to tie together the structured and unstructured data related to millions of consumers who freely returned warranty cards, participated in a loyalty program, interacted with a sales force or made a call to a help-line with the hundreds of millions -- or occasionally billions -- of dollars the marketers were spending on media annually. And surely, it should also have seemed, new technologies would allow for the establishment of feedback loops that would improve the efficiency of marketing budgets to either reduce costs or enhance revenues.

From that time on, we saw companies improving how they tied their customers and their marketing channels together through the use of new technologies as an inevitable trend. Beyond the falling costs of hardware and improved data processing capabilities, software-driven solutions would be needed to automate related workflows, automating much of the work that marketers and agencies might undertake in the process of managing campaigns and customer relationships.

This perspective has largely informed our view of how media and marketing are evolving, and is core to why we added the likes of Adobe and Salesforce.com to our coverage universe. So when Bloomberg reported this week that Salesforce.com is “working with financial advisers to help it field takeover offers after being approached by a potential acquirer” according to “people with knowledge of the matter,” the company we initially assumed was behind the news was Google.

Google has, seemingly, taken off the gloves in a number of areas recently, with new and highly strategic initiatives such as the creation of a DMP and possibly a custom audiences ad targeting product. Both of these are products we would consider as falling within a broader realm of technologies we call marketing technology, rather than just ad tech: both involve the use of a marketer’s first party data. First party data and related tools are importantly distinct, because they take actual customer (or prospect) data the marketer owns. They are often integrated into the marketer’s internal decision-making systems. And, until recently, this data was not commonly shared with media owners. Even now, there are few common applications of first party data to media buying beyond Facebook’s Custom Audiences or Twitter’s Tailored Audiences. However, the use of this data has proven to be incredibly powerful and incredibly popular with marketers.

Google has refrained from working closely with first party data historically, let alone matching that data with audience profiles (even if they are anonymous). Perhaps doing so now is partially in response to recognition that some boundaries the company has set for itself won’t protect the company from regulators looking to extract an ounce of flesh from one part of the business or another. In the face of those efforts, the logic might go, why not push boundaries wherever possible in order to maximize the potential value that Google can offer advertisers and consumers alike?

The logic of Google extending its capabilities to include salesforce automation, service automation, email marketing and campaign management tools to drive its media engine has to considered in context of gains made by Facebook, which clearly has the upper-hand on Google among the small and mid-sized businesses which account for the bulk of Google’s paid search revenue and -- we think -- the bulk of its profitability. Salesforce.com’s core Sales and Service offerings dominate a similar segment of marketers, while its Marketing Cloud suite has a strong position with the upper end of the segment. It is increasingly gaining traction with larger marketers, too.

Google has few of these tools in-house, and yet we think it would be highly synergistic for them to have some, as they would help their core customers to manage end-to-end marketing actvities. All of this could conceivably center around the DMP that Google will eventually launch to identify an enterprise’s optimal customer and prospect segments. Google has significant capacity to develop a category-killer in this space.

We have no strong view about the likelihood of anything occurring, and Google might have no interest in Salesforce.com (although the presence of Google executive Susan Wojcicki on Salesforce.com’s Board of Directors might suggest there is a little). The scale of such a transaction and the cash balances that many potential acquirers have on hand or access to mean that it’s mostly a case of will and tolerance for acquisition risks, as well as Salesforce.com’s willingness to sell at a given price, all of which are difficult to opine on.

Certainly we can see rationales behind Microsoft or Oracle or others pursuing Salesforce.com (although Oracle effectively has the capabilities to do much of what Salesforce.com already does, and on many levels an acquisition by them doesn’t obviously create much incremental value). At the same time, Salesforce.com may not want to sell at any price that a potential buyer might be willing to pay, and from that perspective all of this speculation may be moot.

However, our bigger point is that Google, like other companies we are following, is undoubtedly well aware of the growing intersection of advertising, ad tech and marketing technology. Google’s existing business retains substantial capacity to capitalize on this opportunity through acquisitions or organic growth if it ever chooses to do so.