Microsoft (MSFT -0.68%) and (CRM 2.59%) are two of the largest enterprise software companies in the world. And they were fairly friendly until Microsoft won a bidding war for LinkedIn in 2016. Salesforce promptly asked regulators to review the deal, citing concerns about its anticompetitive effects.

Since then, Microsoft has fueled the enmity by enhancing its customer relationship management (CRM) platform, encroaching on a market that has long been dominated by Salesforce.

But Salesforce has also taken a few swipes at Microsoft. In December, the company announced its intention to acquire Slack, a communications platform that competes with Microsoft Teams. Given the growing rivalry here, should Salesforce investors be worried about Microsoft? Let's take a look.

Man in suit holding papers with a thoughtful look on his face.

Image source: Getty Images.

The CRM industry

In 1999, Mark Benioff founded Salesforce, the world's first software-as-a-service (SaaS) company. Initially, its cloud platform focused on sales force automation, but over the years it has become a robust suite of CRM software, targeted at improving sales, customer service, marketing, and commerce.

In 2016, Microsoft introduced Dynamics 365, a cloud-based platform that unified its CRM and enterprise resource planning (ERP) products. The goal here was to eliminate the cost and complexity of managing multiple different databases. To that end, Dynamics 365 blends CRM software with ERP applications aimed at managing finances, operations, and human resources.

Notably, both Dynamics 365 and Customer 360 offer low-code platforms, enabling anyone to build custom applications and automate business processes. But once again, Salesforce was first to market, launching its low-code tools several years ahead of Microsoft.

Over time, both companies have invested in expanding their platforms, each trying to outdo the other. For instance, to keep pace with Salesforce Einstein, a tool that infuses Customer 360 with artificial intelligence, Microsoft added AI-powered insights to Dynamics 365. And to keep pace with Microsoft Power BI, a data visualization and analytics tool, Salesforce acquired analytics specialist Tableau in 2019.

Clearly, these two companies have a complicated past -- but who is winning today?

Salesforce is winning

Microsoft's titanic size is certainly an advantage. Over the last 12 months the software giant generated $160 billion in revenue, while Salesforce earned only $21 billion. That means Microsoft can afford to outspend Salesforce in a big way.

Microsoft's decision to blend CRM and ERP was a smart move. CRM software is a crucial tool, as it helps businesses better engage with customers. But ERP applications are just as critical, since they tie disparate departments together, allowing enterprises to manage their entire business more efficiently.

Salesforce took a different approach. In 2018, it acquired MuleSoft, a platform that simplifies data integration. This allows clients to easily connect Salesforce CRM data with any ERP platform.

Entryway to Salesforce Tower in Indianapolis.

Image source: Salesforce

Alternatively, the Salesforce AppExchange is a marketplace where clients can buy software -- including ERP solutions -- custom-built for Salesforce. It's worth noting that, according to research firm Forrester, the Salesforce AppExchange is the top-ranked SaaS marketplace in the world, beating much larger cloud providers like Amazon Web Services and Microsoft Azure.

More to the point, Salesforce has benefited significantly from its first-mover status. Its cloud-based CRM software went live roughly 15 years before Dynamics 365. During that time, Salesforce built a sizable customer base and captured substantial market share. Moreover, the value created by its CRM platform has led to strong customer retention -- typically greater than 90%.

Today, over 150,000 businesses rely on the Customer 360 platform.

CRM Market Share












Data source: International Data Corporation (IDC).

Notably, Salesforce has continued to grow more quickly than Microsoft, as evidenced by its greater market share gains in recent years.

Looking ahead

Salesforce is still No. 1 in CRM. Its best-in-class software, strong competitive position, and innovative culture give the company a considerable advantage. That's why, despite Microsoft's efforts, Salesforce has continued to gain ground in the CRM industry -- I don't expect that to change.

Moreover, the Slack acquisition could be transformative. Salesforce plans to make Slack the new user interface for Customer 360, fusing its own CRM software with Slack's collaborative qualities. That could create substantial value for clients, helping them better engage with their own customers.

As evidence, Salesforce itself is already using Slack with its Service Cloud. And during the most recent earnings call, Benioff noted a 26% improvement in service case time and a 19% improvement in same-day resolutions. That's a good indicator of the type of benefits clients might see.

Finally, Benioff has also noted that 90% of Slack's customer base -- which hit 156,000 at the end of 2020 -- also uses Salesforce. That means most clients shouldn't having any trouble adapting when Slack is more deeply integrated with Customer 360.