Google is eyeing an acquisition of HubSpot to challenge Microsoft

The deal, if completed, will be the largest in Alphabet’s history and a strategic move aimed at strengthening its competitiveness in the cloud applications market.

Reports of Google’s interest in HubSpot first surfaced last month, leading to an 11% gain in HubSpot’s shares. Reuters said at the time that Alphabet had met with investment bankers to explore the possibility of making a bid for the software company.

Earlier this month Bloomberg stated that negotiations between the two sides were still ongoing and no official agreement had been reached.

SOurces said the likelihood of a deal being concluded is high, although he cautioned that negotiations may still be completed and other potential buyers may emerge.

The potential acquisition of HubSpot is part of Google’s broader strategy to challenge Microsoft’s dominance.

“Google appears to have aspirations to take away Microsoft’s productivity suite market share and may use HubSpot to connect applications for customers,” wrote Derrick Wood, an analyst at Cowen, in a research note shared by Reuters.

Even though Google is the third largest cloud provider, it has less than half of Microsoft’s market share, and Amazon has a third of the market.

The acquisition of HubSpot could help the company narrow this gap and improve its offerings in the cloud sector.

The transaction will also give Google a position in the customer relationship management (CRM) sector, currently dominated by Microsoft Dynamics 365 products.

Financially, HubSpot showed strong performance, achieving 20% ​​year-over-year sales growth in the first quarter of 2024, resulting in a profit of $6 million. However, some analysts remain skeptical due to concerns about weakening demand.

HubSpot is known for its inbound marketing software designed for small and medium-sized businesses. Analysts have warned that the company’s growth could be unsustainable as high interest rates make it difficult for SMEs to obtain financing.

Still, HubSpot’s focus on inbound marketing – attracting customers through search engines and social media – is a strategic advantage for Google. It’s a perfect fit for Google’s core search business and YouTube, another Alphabet service.

Google is also trying to expand its reach beyond the large enterprises that are Microsoft’s primary target, making HubSpot’s existing customer base even more attractive.

In addition to immediate customer acquisition, the HubSpot acquisition will provide Google with valuable first-party data; crucial as the search giant phases out third-party cookies from Chrome later this year. This data would play a fundamental role in Google’s advertising business, a key area of ​​application of artificial intelligence achievements.

Although Google lags behind Microsoft in the cloud market, it has equal opportunities with the Windows maker in the rapidly growing artificial intelligence space.

Both companies, along with Meta and Amazon, have announced significant advances in artificial intelligence over the past year, including the development of custom AI chips and new AI applications.

At the recent I/O Developer Conference, Google unveiled a comprehensive set of AI tools called Gemini, solidifying its position as a power player in the AI ​​arena.

Microsoft then rolled out its own AI updates.