NEW YORK ( TheStreet) -- As Facebook ( FB) shares hit new all-time lows, old guard technology giants and new high flyers like Salesforce.com ( CRM) are doubling down on a long-term bet that corporate advertising campaigns and tech spending will move toward social networks. It may seem as if the market has already judged Facebook's potential earning power to be nowhere near the $38 shares price and $104 billion valuation at which the social media company went public. However, in acquiring privately held Buddy Media for $689 million in cash and stock on Monday, Salesforce.com is casting a vote of confidence in Facebook's advertising market just weeks after General Motors ( GM) ditched a $10 million a year ad campaign that raised investor alarm ahead of Facebook's weaker than anticipated May IPO.
Salesforce.com -- a leader in cloud based sales platforms that has pushed the likes of Oracle ( ORCL), IBM ( IBM) and SAP ( SAP) to retool their enterprise software divisions -- said it is cutting the Buddy Media deal because it's bracing for a time when marketing efforts on social networks will represent the lion's share of all corporate technology spending. The Buddy Media acquisition is not the only major tech deal since Facebook's May 18 IPO. As investors and analysts question Facebook's valuation, some of the sector's most notable names are spending hundreds of millions of dollars to gain a long-term footing in the potential revenue streams to be opened by Facebook's near 1 billion user social network. On May 23, Oracle spent $300 million to buy Virtue, a competitor of Buddy Media that offers services to manage and publish social marketing campaigns. Oracle CEO Larry Ellison said that, prior to the deal, he considered buying Buddy Media. IT giants like IBM and SAP have recently defined multi-year M&A and spending targets to grow their social network-based analytics and services. As part of a digital marketing-based turnaround effort that will also leverage traffic on social networks, Adobe ( ADBE) bought Web analytics specialist Omniture for $1.8 billion in 2009, in a move that gave the publisher of Acrobat software its " crown jewel," according to a top shareholder. In fact, the tech bellwethers' bets on social media-based spending may be Facebook's most notable vote of confidence amid a near 30% post-IPO slump and a flurry of newly-issued sell recommendations from analysts, highlighted by a $25 a share Facebook price target initiated by Bernstein on Monday. In Monday afternoon trading, Facebook shares were off over 2% at $27.07. Buying Buddy Media furthers Salesforce.com's "marketing cloud," which seeks to capitalize on a shift in corporate tech spending away from server-based information. The deal bolsters Saleforce.com's analytics offerings that provide companies with a way to measure the effectiveness of their spending on social media marketing campaigns.
chief marketing officers surpassing CIOs chief information officers in spend on technology within the next five years, our Marketing Cloud leadership will allow us to capitalize on this massive opportunity," said Salesforce.com CEO Marc Benioff in a statement announcing the deal. Salesforce.com was early to recognize a shift in IT spending from in-house servers and databases to Web-based cloud applications that can be accessed in an increasingly mobile business world. In announcing Monday's deal, Salesforce.com cited Forrester Research data that shows social media marketing is expected to grow at a 26% compound annual rate from 2011 to 2016 -- figures that were also a key basis for Facebook's IPO valuation. Buddy Media offers advertisers the tools to determine which marketing content is driving the most engagement and return on investment in social networks run by Facebook, Google ( GOOG), LinkedIn ( LNKD) and Twitter. Already, the San Francisco-based company founded in 2007 has nearly 1,000 customers for its services, including brands like Ford ( F), Hewlett Packard ( HPQ) and L'Oreal, and marketing agencies like Interpublic Group, Omnicom, Publicis and WPP. In March 2011, Salesforce.com bought Radian6, a social media monitoring platform to bolster its sales cloud, service cloud and previous social-based acquisitions Chatter and Force.com. That acquisition and Monday's deal comprise the latest pieces in Salesforce.com's newly identified "marketing cloud," which complements the sales-based cloud applications that have made it one of the fastest growing and highly valued companies in the tech sector. "By bringing together market leaders Radian6 and Buddy Media, we are doubling down on the Salesforce Marketing Cloud to provide CMOs with the ability to manage the entire social marketing lifecycle," said Marcel LeBrun, a senior vice president of Salesforce Radian6. In tweaking its image toward "social enterprise," Salesforce.com is arguing that services to identify popular marketing on social networks will be just as important -- if not more important -- in connecting businesses with customers than its previous cloud innovations, which seamlessly connected salespeople and customer service representatives to customers.
Positive analyst reactions to the deal signal that any short-term earnings drain -- Salesforce expects the deal to cut into earnings per share by 14 cents to 15 cents in the second half of fiscal 2013-- from investments in the social networking ad market are a long-term must for those looking to round out their services for businesses. "Our view is that CMOs are increasingly gaining control over digital strategy and the digital purse. As technology becomes an integral part of customer acquisition and retention, it will fuel demand for tools that identify, monitor, engage, analyze and interact with customers via the mobile/social web, in our opinion," writes Wells Fargo analyst Jayson Maynard in a Monday note to clients reacting to the deal. Maynard points to Buddy Media's fast growth, its complementary role to existing acquisitions such as Radian6, and how the deal moves Salesforce.com's marketing cloud initiative forward as key benefits. "We continue to believe that this niche will consolidate around a full suite of CMO tools," notes Maynard. "The acquisition of Buddy Media enhances salesforce.com's Marketing Cloud offering and is yet another example of the company's diversification efforts, which our Outperform thesis is predicated on," writes FBR Capital Markets analyst David Hilal in a Monday note. Those comments contrast the lukewarm investor reaction to the deal, which pushed Salesforce.com shares down almost 1% to $129.92 in Monday afternoon trading, and a still hazy outlook on Facebook's appeal to advertisers that has made it hard to quantify the company's earnings prospects and valuation. Investors who are still uncertain about Facebook's appeal as a marketing platform may do well to watch whether a cloud land grab continues to shift to digital marketing startups and specialists. Further deal-making by large-cap tech companies could signal a consensus that social network-based marketing is, in fact, the future of corporate tech spending. Meanwhile, Salesforce.com is one of TheStreet's top tech stocks for 2012 as it ramps up its efforts against cloud rivals and targets what it calls a "social enterprise" strategy to harness the power of social networking for the corporate world. For more on Tech M&A, see five tough sells in the sector, and why cloud deal premiums are falling. -- Written by Antoine Gara in New York.