Protocol | Enterprise

Partners, frenemies and 'co-opetition': Inside the new enterprise cold war

There's a rush of new partnerships within enterprise tech as vendors try to make software that plays nicely with others. But not all partnerships are created equal.

AWS and Salesforce logos

AWS and Salesforce have entered a major partnership.

Image: Protocol

If AWS and Salesforce labeled their relationship on Facebook, they'd probably choose "it's complicated."

In June, the two companies announced a major partnership, one that AWS says is the most comprehensive of all its joint initiatives. For example, customers will have a single login that gets them into both systems, which means users can create blanket data-access policies as well as seamlessly move information across the two platforms. The companies will also jointly build products.

And in a notable difference between this and the usual enterprise-tech collaborations, AWS doesn't see itself striking any other partnership as deep as the one with Salesforce.

"There is nothing in the language that says it was exclusive," Peder Ulander, the director of solutions marketing at AWS, told Protocol. But "it's not something that we would do elsewhere … [and] the reality is we don't do a lot of these types of deals," he added.

But that's not true for Salesforce, which clearly envisions itself as a multicloud player. In December, the company rolled out Hyperforce, which will enable its software to work with any cloud provider. And it's had an evolving joint initiative with Google Cloud for years. Still, the partnership with AWS has a key goal: undermining Microsoft, a fierce and growing competitor to both Salesforce and AWS. Salesforce did not respond to an interview request.

"We probably would never make a statement as bold as: 'Here's the only partner we'll do this with,'" said Casey McGee, Microsoft's vice president of global independent software vendor (ISV) sales.

The divide is an example of the rush within enterprise tech right now to strike new partnerships — sometimes with potential competitors — that enable customers to more seamlessly integrate data and systems across various providers. It's creating something of a cold war within the industry as cloud providers try to court major software vendors behind the scenes to build more exclusive arrangements.

Companies like SAP and Databricks see the value in bundling products with those hyperscalers, particularly as a quick way to grow their user base or outshine a rival. Ultimately, however, most want to sell their services across all the key infrastructure players.

"The cloud vendors are in fierce competition, and it makes sense they are trying to get advantages through partnerships," said Databricks CEO Ali Ghodsi. "All cloud vendors want to offer deeper integrations. They want to give us access to APIs that might not be available to others and deepen the partnership."

Not all partnerships are created equal

Ghodsi knows firsthand the trade-offs that software vendors have to make when striking those types of deals. Databricks has a co-branded product with Microsoft called Azure Databricks that launched in 2017. Now, however, it also works with AWS and Google Cloud — a sign of the increasing effort by end customers to avoid being locked in to one cloud vendor.

And Ghodsi is not the only enterprise tech executive casting a wide net. Across the sector, companies like SAP have to weigh the disadvantages of aligning too closely with just one of the hyperscalers. It's a key reason why SAP ended its preferred partnership with Microsoft: Its customers ultimately wanted choice. Still, despite a growing focus on competitors like Google Cloud, Microsoft remains SAP's deepest partner, per Stefan Goebel, the firm's head of strategic engineering partnerships.

It's an acknowledgment that despite the attention on multicloud, engineering resources even at the largest tech companies are limited. To put it simply: Not all partnerships are created equally.

"We cannot do the same degree of partnership with every partner," Goebel told Protocol. "At the end of the day, not everybody will be able to partner with everybody … [and] at some point in time you have to focus on those applications that you can make a difference with."

SAP, for example, is developing integrations with Microsoft Teams that Goebel labeled as "unique." But when it comes to working with rivals, there are limits as to how far the company is willing to go.

"There is a natural element of co-opetition," said Goebel. But "a partnership between SAP and Oracle … is very unlikely."

Finding the sweet spot

Partnerships among tech vendors aren't new. Microsoft and Red Hat, for example, have worked together for years despite their previous history of direct competition.

What is new, however, and brought on by the cloud transition, are new integration capabilities between different enterprise software packages. And the advantages for end customers are numerous. When considering a new piece of software, one of the first things CIOs will examine is whether it fits into their current IT strategy. While not the only factor, tighter integrations can ultimately persuade purchasers to shun a best-of-breed application in favor of one that works better with its existing tech stack, according to technology chiefs and industry analysts.

"If you simply went by best of breed, you often may end up with [thousands of] products and vendors in your stack," Ravi Radhakrishnan, CIO and head of commercial and corporate & investment banking technology at Wells Fargo, told Protocol. "There's a sweet spot where you can have a small number of products that only work well together … but it has to be something that's meaningful for us."

But the term "integration" is thrown around today almost as much as perennial buzzwords like "innovation," which means corporate tech buyers have to probe deeper to understand whether the "integration" is something as basic as the ability to change to different file formats or something deeper — like an API-based connection between programs.

And it also goes beyond just weighing the promised capabilities offered by the integration. End purchasers also have to consider the longer-term cost of ownership of maintaining those connections.

"A lot of these tools, they don't do much standalone. They have to be integrated into other tools to show their value. And that can get cumbersome," said Linh Lam, the CIO for mortgage tech at the Intercontinental Exchange. And "it's not just from a dollars standpoint. It's a resourcing standpoint … to keep them up and running," she added.

'Trial run' partnerships

That decision — whether to go with a best-of-breed provider or an enterprise platform provider — is becoming trickier for corporate tech leaders.

The number of independent software applications is exploding. Meanwhile, the large vendors are rushing to expand their product suites to go well beyond the core capabilities and offer more industry-specific tools. That increasingly means more competing services — and with it, a more complex tech stack.

"When you have so much in your [IT] footprint, you see overlaps in capabilities. And so there is overall hygiene and rationalization that needs to be put in place over time," said Lam.

But the larger enterprise tech vendors are also moving aggressively to strike partnerships with those smaller providers that are either gaining prominence among their customer base or provide a capability that is missing from their own suite. SAP, for example, resells BlackLine's accounting and finance products. And Microsoft has built many, including with startups like Troops.ai.

"What customers are looking for now is a much deeper level of partnership," said McGee. "They're looking for us to deeply integrate the technology … and the expectation from customers is that we are much closer to the ISV ecosystem."

For CIOs, those types of deals can also signal something more prominent: a potential acquisition.

"A bunch of these partnerships seem to be a trial run to see whether the larger software provider should be acquiring the smaller one," said Radhakrishnan.

While valuations for software companies remain high, the surging share price for many of the top providers means all-stock deals like Zoom's bid for Five9 could become more common. And even the most aggressive deal-makers continue to find targets. Salesforce, for example, just announced it would buy RPA provider Servicetrace shortly after its $27.7 billion deal for Slack closed.

As the giants expand, CIOs could suddenly find themselves quickly moving deeper into one ecosystem. Until then, the cold war persists, which means the alliances could get even more complicated.

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