Google parent Alphabet Inc. (NASDAQ:GOOGL) is exploring the acquisition of HubSpot Inc. (NYSE:HUBS), a U.S. marketing software maker valued at $31 billion. The acquisition would significantly enhance Google’s ability to compete with Microsoft Corp. (NASDAQ:MSFT) in the cloud-based applications market,

What Happened: Analysts and investment bankers have noted that this would be Google’s largest deal, expanding its business-oriented products and applications, Reuters reported on Thursday.

Google is already challenging Microsoft’s Office platform with its Google Workspace offerings. Acquiring HubSpot would position Google as a competitor in the customer relationship management sector, where Microsoft offers Dynamics 365 products, according to Cowen analyst Derrick Wood.

“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.

HubSpot, which provides marketing software for small and medium-sized businesses, is seeking ways to sustain sales growth amid an economic slowdown. CEO Yamini Rangan mentioned weakened client demand due to high interest rates during the company’s first-quarter earnings call.

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Despite reporting a 23% rise in sales and a 15% operating margin in the first quarter, HubSpot’s shares might have suffered without Google’s acquisition interest. Analysts have lowered their price targets on HubSpot’s stock, citing potential challenges for its niche market if economic conditions worsen.

Acquiring HubSpot would offer Google valuable sales leads, especially as it plans to remove tracking cookies from its Chrome browser in late 2024, said Stifel analyst Parker Lane.

“Purging third-party cookies from Chrome … places a greater emphasis on first-party data, which HubSpot bring an abundance of to the table,” Lane said.

Why It Matters: Alphabet has been in advanced talks with HubSpot. However, no definitive agreement has been reached, leaving room for potential changes or other interested buyers to emerge.

The potential acquisition of HubSpot by Google is not just a standalone event but part of a broader strategy to counter Microsoft’s dominance in the cloud computing sector. Earlier this year, Google Cloud raised concerns about Microsoft’s monopolistic practices in cloud computing, highlighting the competitive tension between the two tech giants.

Furthermore, the ongoing rivalry between Google and Microsoft has been intensifying. In December, Google and Amazon made allegations that could potentially reshape Microsoft’s strategy in the cloud market. These moves underscore the high stakes involved in the cloud computing arena.

Price Action: On Thursday, GOOGL closed 0.86% lower at $178 while GOOG closed 0.86% lower at $178. Microsoft closed 0.34% higher at $430.52 while Hubspot closed at $612.82, 0.31% higher than its previous close, according to Benzinga Pro.

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This story was generated using Benzinga Neuro and edited by Pooja Rajkumari