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Microsoft-Salesforce Deal About Protecting IP, Not Quashing CRM Rival: Experts

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Posted August 6, 2010 By Stuart J. Johnston     Feedback

The software giant may have come out on top when it agreed to settle with Salesforce this week, but analysts say any victory is more about protecting the company's patents than dominating a competitor.

Microsoft and (NYSE: CRM) settled their competing patent infringement lawsuits out of court on Wednesday, and while little is known about the deal itself, industry observers see the agreement as more about Microsoft notching a victory in safeguarding its intellectual property, and less about the software behemoth quashing a fast-moving rival.

In the deal, Salesforce paid Microsoft an undisclosed sum and the two bitter rivals agreed to cross-license some of each others' patents, according to a Microsoft (NASDAQ: MSFT) statement. Furthermore, the statement refers to a contract "term" — indicating that the deal is not perpetual and may need to be renegotiated at some future point.

With much left murky, the full impact of the settlement remains anybody's guess. Some observers have opined that Microsoft's victory over the smaller company boosts the fortunes of its core software businesses — already challenged by the likes of cloud-based software-as-a-service (SaaS) players like CRM specialist Salesforce — and its own fledgling cloud computing initiatives. But a number of technology analysts contacted by suggest that any gain for Microsoft is primarily a public relations victory, more about chest-pounding than landing a knockout blow.

Meanwhile, Salesforce was likely being pragmatic when it agreed to settle with its larger rival, they said.

"Marc [Benioff, Salesforce's CEO,] could have tried to fight this, but given that he needs his products to work with Microsoft's products, especially in enterprise accounts, it [the settlement] makes the best of the situation," Tim Bajarin, president and principal analyst for corporate advisory firm Creative Strategies, told

The case began in mid-May when Microsoft sued Salesforce for what it claimed were violations of nine of its patents related to "operating systems, cloud services and customer relationship management software."

In turn, Salesforce sued Microsoft in late June, alleging that the software publisher was violating five of its own patents.

Additionally, there is the question of whether Salesforce could have prevailed in its countersuit, analysts said.

"The outcome was preordained [because] they [Salesforce] stepped in Microsoft's soup in an area where Microsoft was very sensitive — its intellectual property," Rob Enderle, principal analyst at the Enderle Group, told

Microsoft essentially needed to put the rest of the technology industry on notice that it is not timid when it comes to protecting its patents, Enderle added. "No company wants to look like they can't defend their intellectual property."

The other analysts agreed.

"They [Microsoft] want to get the word out about their intellectual property," Charles King, principal analyst at researcher Pund-IT, told

However, the fact that the two firms were able to settle also means that the software giant wants to breed comity in the marketplace, as long as it doesn't threaten the sanctity of its patents.

"Microsoft doesn't want to get the image of killing smaller companies," Enderle said.

Still, the question of whether the settlement bodes well for Microsoft's cloud plans or not remains unresolved, largely because so much of the deal itself is secret. Until further deals leak out, the general consensus among the three analysts remains that the settlement — and Microsoft's initial lawsuit — had much more to do with protecting its investments in patents than in staving off a rival in the cloud.


Stuart J. Johnston is a contributing writer at, the news service of, the network for technology professionals. Follow him on Twitter @stuartj1000.

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