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Microsoft and Salesforce are getting real cozy

John Thompson Chairman of Microsoft (L) and Marc Benioff speak at the Salesforce keynote during Dreamforce 2015 at Moscone Center on September 16, 2015 in San Francisco.
Tim Mosenfelder | Getty Images
John Thompson Chairman of Microsoft (L) and Marc Benioff speak at the Salesforce keynote during Dreamforce 2015 at Moscone Center on September 16, 2015 in San Francisco.

Four months ago Microsoft was reportedly in talks to buy Salesforce.com, in what would have been one of the biggest tech deals on record.

The acquisition never happened, but there are clearly no hard feelings.

Microsoft has taken center stage at Salesforce's annual Dreamforce conference in San Francisco. In addition to a keynote speech from Microsoft CEO Satya Nadella, the software giant's chairman John Thompson was interviewed by Salesforce CEO Marc Benioff during a prime-time session on Wednesday.

None of this was by accident.

"It's an aggressive move but it's worth it," Benioff told a small group of reporters in an informal press conference after his presentation. "We're not afraid of Microsoft. We want to embrace it."

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The relationship between Microsoft and Salesforce has blossomed since Nadella replaced Steve Ballmer early last year. In May 2014, the companies announced a strategic partnership to link Salesforce's cloud-based customer relationship management (CRM) software with Microsoft Office and Windows. It was a particularly notable agreement because the companies are fierce rivals in the CRM market.

Under Ballmer, Microsoft took a notoriously go-it-alone strategy, focused on selling more Microsoft products, rather than making it easy for customers to plug in other tools. Nadella has taken the opposite approach, emphasizing partnerships and compatibility, even if it means supporting rivals.

"Ballmer was just anti-partnership," Benioff said. "Satya flipping that switch has really been super powerful for us."

So powerful that reports of a potential Microsoft-Salesforce tie-up lasted a full month before talks fell apart over price. CNBC reported in May that Benioff wanted up to $70 billion, but Microsoft was only willing to pay $55 billion. The stock market value is currently $47.5 billion.

The two companies put out a joint press release on Wednesday announcing the tighter integration of Salesforce's customer success platform and Microsoft's Office productivity apps. Benioff highlighted the agreement in his on-stage talk and thanked Thompson for helping push Microsoft in a friendlier direction.

In response, Thompson acknowledged that this was his first Dreamforce "but it won't be my last."

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Microsoft's cloud business is driving overall growth. The company is generating $8 billion in annual cloud revenue currently, from its Office 365 apps and Azure infrastructure, and expects to reach $20 billion by 2018.

Nadella, in his keynote, talked at length about the importance of working with other technology companies to push Microsoft's mobile apps and cloud platform into a wider swath of businesses.

"Our customers are going to make choices that make the most sense for them and they're not going to be homogeneous choices," he said. "I don't think of it as zero sum with any one competitor.