What Salesforce + Slack means for Microsoft
The threat to Microsoft from the Salesforce and Slack combination is much less than meets the eye
Last week, Salesforce officially announced the expected acquisition of Slack for $28B. This is an extremely powerful transaction, and I think it is transformative for Salesforce. However, the negative impact for Microsoft is far less than what many are calling for.
Implications for the ecosystem
First, let’s dig into the implications for the ecosystem and the transaction itself. While the transaction helps Slack move up into the enterprise, an area where it has struggled historically, it may also be indicative of Slack struggling to grow the way many expected during the pandemic and shift to remote work. Teams appears to be the winner of the remote working shift, adding 40 million daily active users since May (vs. Slack adding 20 million). Slack may have seen the plateau in its ability to work through its viral adoption motion and needed to shift to a more ‘top-down’ motion, which it should be able to do under Salesforce.
Further, many SaaS companies struggle to make the leap from $1B in revenue to $10B in revenue by being a single product company, and while I think that Slack probably could have figured this out over time, it would have required a significant investment cycle of its own (not to mention a massive culture shift). As part of Salesforce, Slack can potentially become a communication hub of its own for customer facing interactions with the hundreds of applications that plug into it.
With the acquisition, Salesforce will now own the customer in my view, while Microsoft will effectively own the employee. Salesforce will ultimately own the customer persona and now the interaction that sales teams everywhere are looking for. Many thought Microsoft would capture this after the LinkedIn acquisition, but they have largely failed to capitalize on integrating LinkedIn into Microsoft and Dynamics solutions to really gain an advantage on Salesforce.
While the timing and price paid (EV/S multiple) for the acquisition are receiving pushback, it is difficult to discern what the ‘right’ multiple should be for the massive impact of distribution for Slack’s product within Salesforce (Slack’s CAC was already low relative to LTV, and this just got cut significantly). Salesforce has historically done a tremendous job driving further value out of large acquisitions (see MuleSoft, Tableau), and it takes more to move the needle than it used to for Salesforce.
Next, and notably, here is why Salesforce + Slack isn’t negative for Microsoft:
· Microsoft Teams is racing to compete against Zoom more than it is with Slack. Microsoft has made it clear this year that its push is to make its video features comparable to that of Slack. While the acquisition bolsters Salesforce’s collaboration offerings (Chatter, Quip), the intent behind the communication and how the platforms are utilized is often quite different.
· Enterprises will standardize on Microsoft. The enterprise is pushing to use Teams as the administration controls and data security are superior to that of Slack and are familiar to the IT admin from the 365 suite. While there is still room for bulked up IT admin control in Teams, out of the box it is a better product for the compliant enterprise buyer.
· It’s essentially free(mium) for the enterprise. Most enterprises in the world still use Microsoft’s Office suite (On-premise, Office 365, or Microsoft 365), and the reality is that Teams comes free with the standard enterprise license. Why would you adopt an adjacent product that isn’t natively integrated with your company’s repository and is difficult to apply proper compliance procedures to? This is why I think Teams wins in the long-term, but that could be a post on its own.
· Validation of chat as a communication channel. Microsoft Teams is becoming the core communication hub for the enterprise. Slack is fighting to just be a communication channel for the enterprise. The acquisition validates the belief in chat being a core communication medium over the long-term, and not just for the remote working period brought on by the pandemic. There is still so much runway for these two collaboration products to go, and it is now top of mind for almost every CIO/CTO out there. The adoption even vs. broader SharePoint and O365 penetration still pales in comparison.
In any event, while I think the transaction from a product and vision perspective is positive for Salesforce, the implications for Microsoft are more mundane than many are making them out to be. Positive for Slack and Salesforce, but not necessarily a negative for Microsoft and Teams. While many are quick to call for the end of email, email is still responsible for the majority of communication, particularly in external communications, and over 70% of records are still generated via email… even after the shift to remote work. What is certain is that the pandemic and shift to remote work has significantly pulled forward cloud adoption and modern work.