The two main acquisitions by Salesforce that give me pause are its puzzling $250m+ acquisition of hobbyist Ruby platform Heroku that no one was actually paying to use in production. Now, Benioff and Co. are shelling out $276m or so to acquire Radian6, a social media monitoring and analytics company.

What the #$%& is going on here?

Salesforce.com has spent more than half a BILLION dollars on a) platform tools that no one really cares about and b) a “cool” set of tools that really doesn’t add anything major to its core offerings (where, I should point out – Salesforce.com makes all of its money).

I think Radian6 does some cool stuff, really I do. But this multiple is ridiculous – and dangerous for the industry. It was bad enough hearing everyone freak out about Color getting a trillion dollars in funding (OK, maybe I’m off by a hair or two here) – but this type of overspending makes those shouting “BUBBLE!” seem like wise sages right now.

Salesforce paid a ridiculous multiple for a company probably struggling to grow profitably in a space that has not matured into a “must have” portion of the app stack for small and mid-sized businesses and may not for several years. While it is great to get insightful data from social channels, what companies have proven to have the right actionable processes in place to leverage this data in any valuable way?

Agin, social media monitoring is a useful tool – BUT – Radian6 was already tightly integrated into Salesforce.com. AND – I imagine that only about 15% TOPS of Salesforce.com’s user base really gives a damn about the kind of social media intelligence that Radian6 provides. Remember, Salesforce’s bread and butter is still the SMB and midmarket – areas where “brand monitoring” are not as critical as in, say, the Global 2000 (where Salesforce.com pretends to be a big player).

So, to recap, Salesforce.com has spent upwards of $500m+ to bulk up a platform that does not serve its core user base, and for a social media monitoring tool that its core user base has no desire or need to use.

Wow.

Just imagine, if Salesforce.com spent that money making its core CRM product actually easier to use, contain a less “Siebel in a browser” look and more of a modern web app feel, more reliable and less vulnerable to universal outages, etc. Imagine if they kept their actual core user base happy and actually still built CRM tools?

I guess we’ll never know…

Many have probably seen that Salesforce.com has acquired web conferencing tools provider DimDim for $31m. (The rumors of this deal had been percolating since before Dreamforce so for many this was no surprise at all.)

The deal pits Salesforce.com in many ways against some big companies and very popular products – Citrix’s GoToMeeting and Cisco’s Webex, in addition to IBM’s Lotus Live set of offerings. With its recent platform buy in Heroku, and this new move, it is funny to see Salesforce continue to add competitive concerns and look to enter in large markets where it has no clout, rather than look to live above the competition in one market where it already does well. Confident move?  Yes. Smart move?  Well, we’ll just have to wait…

And while the DimDim acquisition clearly places SFDC in competition with the likes of WebEx and GoToMeeting, Salesforce would like to look at this differently. Salesforce instead sees this as a pocket acquisition to bolster its Chatter functionality – a tool it is already basically just giving away to gain some stickiness for its actual paid apps. So, if SFDC does not really see much future for DimDim save for part of what is now a free add-on, then the $31m price was not a huge price to pay to make a cool new collaboration feature a little more robust.

But again, if Chatter is basically free at this point, why buy DimDim? The product was open source under the GPL. Couldn’t SFDC simply create an integration to the free tool and offer up that integration along with a simple installer to add video and screen sharing tools to Chatter?

I think the answer here is two-fold. One, I have not yet seen SFDC do anything that resembles open source. Yes, they have opened up their toolkits and platforms for developers, but everyone does that. There is just not that type of culture alive at SFDC in my opinion. This is a company steeped in the grand history of proprietary software.

The second reason (which is definitely intertwined with the first) is that due to SFDC’s multi-tenant model, adding DimDim-like resources without wholly owning the code would be problematic. As we know, in order for SFDC to really have a tight handle on anything its users touch, it has to run on its monolithic platform. This makes upgrades and other things easy, but does set limitations on how SFDC can go to market with technology it doesn’t own.

It will be interesting to see if the nature of a GPL licensed piece of software sitting inside a huge multi-tenant database has any effect on the way in which Chatter users are empowered to make, own and redistribute changes.

All in all, this is chump change for SFDC, and while it plots them theoretically against big names like Webex, I can’t see Salesforce actually making any huge headway into standalone video conferencing with the DimDim technology (After all, Cisco’s Unified Communications suites are pretty awesome and light years ahead of where a DimDim-powered Chatter tool is today). Most likely, Salesforce.com will only relegate the functionality as a nice add-on to Chatter.

Today Salesforce.com announced it will acquire business contacts data service Jigsaw for $142m. The move leaves Salesforce.com with the ability to pre-load CRM accounts with data – OR – which is more likely, charge a premium for that type of data service. Whether it is pre-loaded leads, or data quality, Salesforce.com adds a nice service, with a ton of great data in its service base, to its arsenal.

::Golf clap::

Why such muted applause? Well, on the one hand I agree totally in terms of what Salesforce is doing here. End users could LOVE the idea of not having to add a lot of data – simply having it pre-loaded on their accounts could be huge. The ability for marketing to have lads and other targets in the system without a lot of demand gen work could be a great asset as well. Biz Dev types will love this – and this adds stickiness to the Salesforce app. Good thinking by Benioff and Co.

But, this deal reeks of old style, proprietary computing and business.  Why buy one data service, when if your product is open enough (as Salesforce always claims it is) you can consume any data service? I guess the answer here is – Salesforce has the size and influence to make people think that paying for Jigsaw services is worth whatever they decide to charge, versus simply doing a little tweaking to consume Hoover’s data right in your CRM, for example.

But, I guess that is why Salesforce is so impressive. Only Salesforce can take a proprietary road in the midst of an open, social revolution, and probably do a good job of making this seem innovative and user-focused – not a money grabbing plan. It’s an amazing feat. I mean, Salesforce took simple RSS tools and turned it into Chatter and claimed to change the CRM world…and chatter isn’t even cross platform nor can it be used to leverage customer conversations.

I am always of the notion that “more is better,” especially when it comes to social media, data feeds, etc. I won’t make assumptions as to how Salesforce.com will play out its total social and data services strategy – but $100+m acquisitions are not the best way to aggregate content in my mind.

All in all, the Jigsaw deal will probably be a net positive for Salesforce.com. After all, they do a great job of marketing to business users – those people who are either too time constrained or inexperienced to set up their own data feeds into a CRM. So, instead of doing it for free, the nominal fee just might be worth it to them, and it just might not. We’ll see.

If I had more time and moxie, I’d write about how this potentially screws long time Salesforce.com partners like InsideView (even though what they do is vastly different in terms of value and scale from Jigsaw) – but perhaps I’ll save that for another post…

With legacy vendors in particular you see this still being a common problem, or with companies that are acquisition happy and simply repackaging a newly acquired offering under fresh branding. Here’s a common dilemma: the functionality in a product you already own ends up in a “new” product, with the vendor trying to sell you a product that you essentially already have and only 20% in new capabilities.

We’re finding more and more customers who are frustrated with the dollars invested for limited returns and are thus considering migrating to the cloud. I think a lot of vendors are still making the mistake of running off an outdated business model: living off an installed client base and spending maintenance fees on exploring new markets or acquiring the competition, and in the process pushing their existing customers to the breaking point.

In that sense, I see the concept of open source and cloud computing, in all its hosted formats, addressing many of these old-school issues via more open architectures, and taking some of the financial weight off their own shoulders by giving customers more freedom.

On-premise vendors will look to expand their product portfolio or enter the SaaS market entirely via an acquisition while others, such as the IBMs of the world, will look to enter the application side of the market via a purchase.

But now that the SaaS market has achieved widespread market penetration and the idea of cloud computing has become popularized in the business world, the discussion in 2009 has begun to shift to why organizations should adapt SaaS/cloud computing and how to do so effectively. In other words, cloud computing is going through the same hype cycle – to quote Gartner – that every technology inevitably experiences.

Along the same lines of Martin’s recent comments on SaaS, businesses have discovered there’s a big difference between what vendors guarantee and what the software actually delivers. A year or two ago, the concept of hybrid, on-demand and on-site deployments, along with private clouds, was irrelevant. That’s changed in the past 12 months thanks largely to the kickback from customers, as businesses have discovered that letting your vendor host everything doesn’t provide an answer to anything and everything.

So back to all the M&A, I agree with Mitra when she states that we’ll see a shakedown in the market through this year and into next, the benefits of which will be fruitful, but short-lived as the buzz, definition, and expectations around cloud computing and SaaS also shakedown over the coming year as well.

But you’re starting to see M&A activity reflect the blurring boundaries between hardware and software as hardware makers and software providers look for closer cohesion. Intel’s purchase of Wind River Systems is one example within the consumer electronics market.

Cloud computing is proving another big driver. Oracle’s purchase of Sun Microsystems gives the company access to Sun’s high-end servers, which it can bundle with database and business software products. I’ve also read that EMC has made moves to acquire Data Domain, which I imagine is partly driven by the attraction of Data Domain’s data duplication filtering; useful for data centers powering cloud computing.

I think the industry-wide push towards cloud computing will continue to prompt bigger companies to look for smaller acquisitions to fill in niche gaps within their product portfolio’s or to help lay the foundation for future cloud offerings. In addition, the economy and indexes such as the S&P 500 help, as growing belief that valuations are as low as they’re likely to get will help fuel further acquisitions.

The CRM Magazine blog recently posted some real chestnuts from this interview. Obviously, the biggest “wow” is Tom Siebel dismissing the nascent SaaS providers out there. The money quote:

CRM: Do you believe the hosting model for CRM like the one promoted by Salesforce.com is a threat to vendors like Siebel?

Siebel: They’re not in my consideration as a competitor. I believe I have never encountered them competitively in nine years. And I am absolutely satisfied that they do not have a viable business model.

So, did Salesforce.com bring down Siebel? Not really. I would argue the company’s inability to scale down was its main undoing as an independent entity. But, yeah, the kind of competition SaaS providers offered was major.

And we can not forget the irony in this interview as Siebel made a somewhat significant acquisition in the SaaS space soon after in buying UpShot.

So, what can we learn from all this today? I think that SaaS vendors (even the ones claiming to be cloud computing companies) should be looking out for true cloud providers and how they might steal their momentum. The greater flexibility, and ideally lack of lock-in risk makes a true open cloud offering far more compelling than monolithic SaaS products re-branded as cloud software.

I do think a lot of SaaS companies are innovating (or at least marketing innovation) and moving towards easier integration, platform plays, etc. But as the cloud creates more transparency, winners will emerge base don quality product and customer enablement – not fancy marketing or even price.

As noted in his recent blog post – April was a banner month for deals, even in this economy. Total deals in the sector were valued at $21 billion. Of course, this is buoyed by the Oracle/Sun transaction. But the big deals, and smatterings of smaller tech M&A might be a good omen for the economy.

The flow of cash and stock is always a good thing…next up – fingers crossed – some non-M&A based exits to really get the fires going in the tech industry and economy at large.