I saw an interesting post yesterday from Dennis Howlett: Google and Salesforce.com: does it make sense?. The post was driven by fresh rumors this week about more ties developing between these two companies, and the vision of an end-game in which Google uplifts its online business applications and services offerings by acquiring Salesforce. [We first talked about Google as a business applications and services platform in 2005, and talked about the wisdom of a Google/Salesforce marriage in 2006, again in 2007, and most recently in IDC Predictions 2008.]

The main reason I think this pairing makes sense has nothing to do with terms of service or functionality – it has to do with Google positioning for the explosion of SMB opportunityDennis’ post reasonably questions the sense of this match, in part because of information privacy worries tied to Google’s Terms of Service (does Google really lay claim to ownership of all content produced with its apps?), as well as his assessment that Google’s current software is still functionally primitive compared to the best packaged software out there. Put both of these together, he argues, and why would a business choose Google as its business software and services provider (with or without Salesforce in the Google fold)?

The former concern was credibly shot down in a comment from one of the Google Doc/Writely founders – Google cannot legally, and doesn’t want to, make public your private data. [Upon looking at the Google Terms, it also appears to me that Google has revised its terms to more clearly point this out.]

The objection over functionality, in my mind, is short-sighted, given the track record of success by “good-enough” disruptors throughout the history of the IT industry. Google Apps may be somewhat less stuffed with functionality than those from Microsoft, but they are free – and for many organizations (not all, of course) that will be “good enough”. And does anyone doubt that Google Apps will get better and better, as adoption goes up, and funding goes up? Through incremental improvements, such as the roll-out of Google Gears (for offline use of Google software), Google’s steadily moving up the functionality ladder. And certainly, Salesforce’s apps would add a lot of capability and credibility to a Google portfolio.

Google must strengthen its position as a key online destination for SMBs, so that it can sell advertising to the thousands and thousands of companies that want to reach SMBs around the worldBut the main reason I think this pairing makes sense has nothing to do with terms of service or functionality – it has to do with Google positioning for the explosion of opportunity for products and services designed for the Small and Medium Businesses (SMBs) sector – what we’ve called the SMB Long Tail. Virtually all industries on the planet – not just IT vendors – are falling over themselves to find ways to profitably reach SMBs, many of them in emerging markets (BRIC and beyond), because that’s where the greatest spending growth will be in the business sector during the next 5-10 years.

Google must strengthen its position as a key online destination for SMBs, so that it can sell advertising to the thousands and thousands of companies that want to reach SMBs around the world. Buying Salesforce – with its expanding portfolio of online business applications, services and partners – would immeasurably strengthen Google’s ability to attract a huge and global SMB community.