Salesforce in Talks With Microsoft, Oracle and Google About Cloud Deal to Handle AI
The Takeaway
• Salesforce is in talks with Microsoft, Google Cloud and Oracle for big cloud deal
• Deal could be worth more than $1 billion over several years
• Salesforce’s primary cloud provider is now AWS
Salesforce CEO Marc Benioff has long been a vocal critic of Microsoft. A couple of years ago, he accused the company of violating antitrust laws in how it sells software bundles. More recently, he has slammed its artificial intelligence chatbot for giving inaccurate responses and being difficult to use.
But that history hasn’t stopped Salesforce from including Microsoft in negotiations it is having with several cloud providers—also including Google and Oracle—about a major new cloud agreement, said Srini Tallapragada, Salesforce’s president and chief engineering officer, in an interview earlier this week. The deal is likely to be worth more than $1 billion over several years, said a Salesforce manager with direct knowledge of the deal.
Salesforce wants to rent the servers to run its customer management, AI agents and other applications, Tallapragada said, a sign of how new AI products are expanding Salesforce’s computing needs. Salesforce already uses Amazon Web Services for much of its computing needs, in addition to Google Cloud and its own data centers.
Tallapragada declined to say if any of the cloud firms had emerged as the favorite to win the deal. He also didn’t specify the size and scope of the agreement, and a Salesforce spokesperson declined to comment. But the agreement will be in the same range as Salesforce’s past agreements with AWS, the Salesforce manager with direct knowledge of the deal said. Salesforce signed a six-year, $1.5 billion agreement with AWS in 2018.
The negotiations, which haven’t been previously reported, signal Salesforce’s shift to public cloud providers for more of its computing needs. Salesforce has told customers that eventually it will sell its applications through all major cloud providers, Tallapragada said, which could broaden the number of customers it could sign up.
An AWS spokesperson didn’t have a comment. Spokespeople from Microsoft and Google Cloud declined to comment. An Oracle spokesperson didn’t respond to requests for comment.
More Secure
Such a shift would also make Salesforce’s services more secure and less prone to outages, and make it easier to offer its applications in areas of the world where it doesn’t have enough business to justify running its own data centers, he said. Using cloud firms can be cheaper for companies over the long term than operating their own data centers.
Until now, the need to get value from its own servers and avoid writing down the value of those assets has slowed Salesforce’s progress, Tallapragada said. Data center and power leases are generally 10 years in duration, while Salesforce typically spreads out the cost of its servers over five years for accounting purposes, he added.
“It is as much a technical thing as it is a financial [challenge] to manage all of that,” said Tallapragada. “That’s why it’s like [a big] Tetris game.”
Despite its pioneering role in cloud software, Salesforce still relies on aging servers and application code in its own data centers. Since 2016 it has used AWS to run some applications, spending around $450 million in 2022, according to a person who saw the figures. (Customer spending on AWS is often above contracted amounts, which may explain why Salesforce was spending more than the 2018 agreement implied it would spend annually).
Salesforce uses both Google Cloud and Microsoft Azure on a much smaller scale, spending around $100 million in 2022 on Google and less than $10 million on Azure in 2022, the person said. The Microsoft relationship was a result of Salesforce buying firms that used the platform. The deal now under discussion would represent a much more significant shift by Salesforce to AWS’s competitors.
Hyperforce Rewrite
Salesforce has already rewritten the code for its applications, databases and other operating systems to run on AWS servers, in a project it called Hyperforce. The AWS version of Salesforce’s applications became available in 2020. Salesforce intends to make the same applications available on whichever cloud provider it picks in the current negotiations.
While Salesforce incurred a significant up-front expense in developing Hyperforce, making it available on another cloud wouldn’t be as costly, since roughly 80% to 90% of its code built for AWS could run on other providers, said Tallapragada.
Developing Hyperforce was necessary because many of Salesforce’s customers live in countries with laws that require software providers to store data about their citizens on servers situated in those countries, said Tallapragada. Bringing Hyperforce to other cloud providers can also let Salesforce compete for business in new geographical regions without incurring the expenses of servers and data center leases, he added.
Doing so would also broaden the potential customer base for Salesforce. Some retailers, for instance, prefer not to store their data on servers owned by Amazon for competitive reasons, said a current Salesforce manager. Adding a second major cloud provider could also give Salesforce more leverage in future pricing negotiations with AWS.
