Wednesday, October 16, 2024

Tech News, analysis, updates, comments, reviews

Buying Slack for over $17 billion would be a steal for Salesforce

On Wednesday, The Wall Street Journal reported that Salesforce was in talks to acquire Slack, saying that any deal would likely come at a premium to the $17 billion market cap the smaller company commanded ahead of the report.

With CNBC now reporting that the deal could be announced as soon as Tuesday, it’s worth considering that it probably won’t be cheap, but it’s exactly the kind of deal that makes sense for both companies. 

The reason it makes sense happens to be the same for both companies: competing with Microsoft. Business Insider’s Paayal Zaveri wrote, “By teaming up with Slack, Salesforce would be better-positioned to compete directly with Microsoft Teams and the larger Office 365 suite of which it’s a part, while Slack would get the resources it needs to build momentum in the marketplace.”

I don’t think there’s any question that Salesforce’s founder and CEO, Marc Benioff, is interested in turning his company into the next Microsoft — or, more specifically, to turn his company from more than simply a sales-management software company into a full enterprise software provider. The goal is to create a bundle of services that address all of a business’s needs.

Historically, the ultimate software bundle has been Microsoft Office, which combined word processing, presentation software, and spreadsheets. Over time, Microsoft has expanded that to include email services, cloud storage, and team collaboration, making the Office suite the most popular collection of business software tools, especially among large corporations.

On the other hand, Salesforce is the most popular sales-management software tool, commanding roughly 20% of the market for customer-relationship management. Over the past few years, Salesforce hasn’t been shy about making deals that expand the company beyond those roots, including $15.7 billion last year for the data-analytics and -visualization company Tableau and $6.5 billion in 2018 for MuleSoft, which helps integrate different software tools.

But both of those deals could pale in comparison to what Salesforce might be willing to pay for Slack. 

Microsoft mulled a bid for Slack in 2016, when it was worth roughly $4 billion, though it backed off after pushback from Microsoft founder Bill Gates. Instead, Microsoft later introduced its own collaboration and messaging tool, Teams, as a competitor. That move has proved extremely beneficial for Microsoft over the past eight months.

Slack, on the other hand, hasn’t experienced quite the same surge of growth that other companies experienced during the pandemic. Zoom, for example, exploded in use as people took many aspects of their lives into the virtual realm. Zoom is now where we do everything, from sales consultations to team meetings to piano lessons and even Thanksgiving. 

As companies have raced to adopt technology that can help them navigate the uncharted terrain of having most of their team working remotely, they’ve flocked to tools like Slack and Teams. Even though Slack set a record of 12.5 million daily active users when it last disclosed those numbers in 2019, that pales in comparison to the more than 115 million daily active users of Microsoft Teams the company reported recently. Slack has even acknowledged that its biggest competitive threat is Microsoft.

Microsoft has an edge that Slack hasn’t been able to match

Much of that difference is because of the fact that most of Microsoft’s productivity-suite customers already have Teams. They don’t have to sign up for anything new — it’s a part of the bundle. That convenience creates a powerful tie-in.  

One of the biggest problems for Slack is that while it may be the tool most people can name when they think of team-chat software, Slack doesn’t have that kind of tie-in. Sure, there are lots of integrations with other software tools, but it isn’t a part of a bundle.

That turns out to be an important point. Teams didn’t necessarily grow because it was a better option than Slack but because it was the default for Microsoft customers (or, at least, that’s what Slack has alleged).

Slack has even filed antitrust complaints with the European Union accusing Microsoft of tying its Teams product with its productivity suite, now known as Microsoft 365. In a statement responding to Slack’s complaint, Microsoft said it attributed Teams success during the COVID-19 pandemic to its focus on video capabilities and that the company looked forward to “providing additional information to the European Commission and answering any questions they may have.”

That gives Teams quite the edge in terms of larger corporate and enterprise customers. At the same time, Salesforce has plenty of experience selling to those customers. It just needs more ways to meet their needs to keep them from turning to Microsoft.

Microsoft even tried to buy Salesforce in 2015 for $55 billion, but Benioff felt the company was worth more. Today Salesforce is worth $225 billion. That market cap gives Salesforce the ability to pull off a purchase like this, assuming it’s willing to use its stock or take on debt to cover the price. 

Slack had a market value of $17 billion before reports of the talks. Even if it were to go for a premium, which seems likely, Salesforce could afford to spend $25 billion or so on the company. That’s within the range of what analysts think it would take to make a deal and reflects the recent increase in Slack’s stock price. 

And it should if it wants to become the next Microsoft. That probably sounds absurd when you consider Microsoft is more than seven times the size of Salesforce by market cap and eight times larger by revenue ($143 billion to $17 billion).

Slack could give Salesforce a new way to sell to existing customers

Making up that gap isn’t just about growing the stock price but also increasing the number of services a customer buys. Each of those services helps Salesforce grow its ability to meet more of its customers’ needs. That’s an important tool for keeping those customers hooked into Salesforce’s ecosystem. The more solutions it provides in its bundle, the less there’s any reason for a customer to look elsewhere.

For Salesforce, buying Slack gives it a tool that’s already used by more than 12 million users. While Slack’s total revenue for 2019 was only about $400 million, that means that there’s a huge amount of opportunity for Salesforce to incorporate Slack into a services bundle for its customers. 

Even more importantly, it gives both companies a needed boost in their common battle against Microsoft. Slack benefits from Salesforce’s ability to sell into its customer base, many of whom are also likely Microsoft customers. Salesforce benefits from another tool to add into the bundle, and one that has not only a huge opportunity to grow but also gives customers fewer reasons to look at Microsoft’s bundle of services that continues to encroach on any competition. 

Ultimately, though, that’s really the biggest reason Salesforce should buy Slack. If it doesn’t, there’s a good chance that Microsoft will eventually overtake Salesforce in its primary business. While Microsoft’s Dynamics suite doesn’t have nearly the market share of Salesforce right now, analysts expect that could easily change for the same reason Teams overtook Slack. It’s all about the convenience of the entire ecosystem.

Of course, before either Salesforce or Slack can worry about convenience, they have to worry about survival. Microsoft poses a much more immediate threat to Slack, but if Salesforce is ever going to become a peer to the Redmond, Washington, tech giant, it’s going to need all the help it can get — or at least buy.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Get notified whenever we post something new!

spot_img

Migrate to the cloud

Make yourself future-proof by migrating your infrastructure and services to the cloud. Become resilient, efficient and distributed.

Continue reading

The Tor Project + Tails, A Game-Changing Merger for Privacy Advocates

In a significant development for digital privacy enthusiasts, the Tor Project and Tails have merged their operations, uniting two of the most trusted tools in the fight against online surveillance. This merger, announced this month, combines the power of...

Concerns about the ICT Bill 2024 in Kenya

Kenya's tech industry has been a beacon of innovation and growth, thanks in part to a regulatory environment that has allowed startups and innovators to thrive. However, the proposed ICT Bill 2024 raises concerns about the future of this...

AI Overlords are no longer an Internet meme

The AI boom might be slowing down finally, and a few companies have cemented themselves as the go-to defacto owners of the space. OpenAI is leading the race, backed my #Microsoft and Google follows closely behind. Nvidia is the...

Enjoy exclusive discounts

Use the promo code SDBR002 to get amazing discounts to our software development services.