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HubSpot Acquisition By Google Would Strengthen Effort To Take On Microsoft

HubSpot Acquisition By Google Would Strengthen Effort To Take On Microsoft
The $31 billion market valuation of HubSpot, a U.S. provider of marketing software, might enable Google parent Alphabet to more effectively compete with Microsoft in the business cloud application market.
According to Reuters last month, Google was considering making a deal for HubSpot. According to analysts and investment bankers cited in interviews, this would be Google's largest transaction to date, boosting its offerings in terms of business-serving apps and goods.
Google is already posing a threat to Microsoft Office's hegemony with its collaborative tools, Google Workspace. According to Cowen analyst Derrick Wood, Google would become a rival in the "customer relationship management" space, which Microsoft serves with its Dynamics 365 products, if it were to acquire HubSpot.
"It does appear that Google has aspirations to try to take market share from Microsoft in the productivity suite, and they can use HubSpot to bundle applications together for clients," Wood said.
Requests for comments from Google, HubSpot, and Microsoft representatives went unanswered.
Amidst a broader economic downturn, HubSpot, a company that provides marketing tools for small and medium-sized enterprises, is looking for strategies to sustain its sales growth.
During this month's first-quarter earnings call, HubSpot CEO Yamini Rangan stated that customer demand has decreased as small businesses worried about the financial effects of rising interest rates.
Despite customers cutting down on their spending, HubSpot has continued to thrive, announcing a 23% increase in sales and a 15% operating profit in the first quarter. Equity experts have cautioned, meanwhile, that if Google hadn't expressed interest in acquiring the company, its shares would have suffered.
After HubSpot's most recent earnings release, the majority of analysts that follow the company cut their price targets for the shares. Some have cautioned that if a downturn makes it more difficult for those clients to acquire funding, the company's specialty in serving smaller businesses—which distinguishes it from larger corporate competitors like Salesforce and Oracle—could turn into a liability.
Goldman Sachs analysts stated in a report on May 9 that "tighter lending standards could have an outsized negative impact on access to funding for small and medium-sized businesses (that are HubSpot's clients)".
HubSpot focuses on "inbound marketing," which is when a customer approaches a business on their own initiative. Customers of HubSpot utilise its tools to create online advertising material that people click on or read further.
Inbound marketing offers several synergies with Google, whose parent Alphabet also owns the well-known video streaming site YouTube. Inbound marketing mostly depends on search engines and social media to acquire clients and turn them into leads.
While Microsoft has concentrated on drawing in large corporate clients, Google has made an effort to win over smaller businesses, which account for the majority of HubSpot's customer base.
According to Stifel analyst Parker Lane, Google would fill a need when it removes monitoring programmes, or "cookies," from its Chrome browser in the second half of 2024 by acquiring HubSpot, which would provide a wealth of important sales leads.
"Purging third-party cookies from Chrome ... places a greater emphasis on first-party data, which HubSpot bring an abundance of to the table," Lane stated.
According to Sundar Pichai, CEO of Alphabet, and other executives, Google sees advertising as a crucial avenue for monetizing its advancements in artificial intelligence.
"AI innovation throughout our advertising ecosystem is fundamental to all facets of our product portfolio, encompassing targeting, bidding, creative, measurement, and all campaign kinds," stated Philipp Schindler, Google's Chief Business Officer, during the business's Q4 earnings call earlier this month.
Despite the fact that many analysts concur that the merger would not reduce competition given the absence of business overlap between the two businesses, Google's acquisition of HubSpot would put it at danger of facing legal action from antitrust regulators. This can be attributed to regulators' increasing distaste for technology companies expanding through acquisitions.
MorningStar analyst Dan Romanoff said Google could decide the potential deal's benefits outweigh the possibility of a regulatory challenge.
"Amazon is the clear leader in the cloud, Microsoft is No. 2 and Google is kind of distant third. One can imagine Google saying, 'If we buy HubSpot, that'd be like having Microsoft Dynamics 365, so it'll make us more competitive there,'" Romanoff said.

Christopher J. Mitchell

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