Reports that Google Inc. and Salesforce.com Inc. are discussing partnership options should come as no surprise, considering the companies have collaborated in the past and firmly believe in the market for hosted business applications.

However, the discussions, reported Monday by The Wall Street Journal, might have been prompted by concerns that they could end up facing each other as competitors in the near future if they don't synchronize their strategies now.

"It would be silly if they don't talk to each other, but hammering out the details [of a potential partnership] could be challenging," said Oliver Young, a Forrester Research Inc. analyst.

The partnership's shape is still in flux but could involve the integration of the Google Apps suite of hosted collaboration and communication applications with Salesforce.com's customer relationship management (CRM) hosted software, the Journal reported. The main motivation behind the talks is to better compete against common rival Microsoft Corp., according to the article, which said an announcement could be made in the coming weeks.

Right now, Google Apps and the Salesforce CRM applications seem very complementary: Google Apps doesn't have a native CRM component, while the Salesforce suite lacks office productivity applications. However, it's easy to see how each could soon cross over into the other's territory and end up squaring off instead of mounting a united front against Microsoft.

"There are reasons to expect both companies would want to follow what the other is doing," said Rebecca Wettemann, an analyst at Nucleus Research.

Google has the resources to develop CRM software in house and the cash to buy a CRM vendor, and Salesforce.com knows that. "This could be a way for Salesforce.com to make sure Google doesn't go out and develop or buy something comparable," said analyst Greg Sterling of Sterling Market Intelligence.

Last year, Salesforce.com collaborated with Google to build a module for Google's Search Appliance that lets that enterprise search device better index data in Salesforce.com software. Salesforce.com also has an application to analyze the effectiveness of Google AdWords advertising campaigns. Moreover, Salesforce.com uses Google Apps internally.

The companies also are betting that the hosted model is the future of application provisioning in the enterprise market, as opposed to the traditional packaged software approach. Both Google and Salesforce.com heavily promote what they perceive to be benefits of software as a service (SAAS) such as reduced cost and complexity in the delivery and maintenance of applications.

"There's clearly a lot of synergy between the companies. I wouldn't be surprised if we see them enter into more collaborations," Wettemann said.

Although Salesforce.com is widely considered as the main player in hosted CRM applications, its competitors aren't backing away from exploring opportunities with Google Apps. For example, Etelos Systems Inc. last month released its Etelos CRM for Google Apps product.

"We are getting ready to launch our developer program for Etelos CRM for Google Apps, and any developer around the world will be able to take the CRM and repurpose it, customize it, integrate and package it for resale, all for a fraction of the cost of conventional methodologies for making and distributing apps," Danny Kolke, Etelos' CEO, said in an e-mail interview.

It has been rumored in the past that Google has expressed interest in buying Salesforce.com, a move that would be consistent with Google's aggressive move into the enterprise applications space.

Forrester's Young believes that it would make more sense for Google to acquire Salesforce.com than to partner, because a partnership could unravel as the two vendors expand their aspirations and possibly knock heads in the market for hosted enterprise applications. Nucleus' Wettemann also sees a Salesforce.com acquisition by Google as a likely possibility.

However, Sterling thinks that with a market capitalization of about US$5.5 billion, Salesforce.com could be too expensive for Google. "That would be a real shocker," Sterling said.

Google and Salesforce.com declined to comment.

IDG News Service

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