Slack could quickly become Salesforce’s golden goose

Slack could quickly become Salesforce’s golden goose

It was revealed last week that Salesforce is believed to be in advanced talks to acquire Slack. This has inevitably generated a lot of excitement and debate, not least because of the size of the potential acquisition. Slack’s market cap was about $ 17 billion before the news broke and rose to nearly $ 23 billion soon after.

And since Saleforce’s call for earnings is scheduled for tomorrow, we could get an official announcement soon.

There is no doubt that this would be a significant acquisition for Salesforce. It wouldn’t be the first time on this scale – Salesforce acquired Tableau in 2019 for over $ 15 billion in an all-stock deal – but there should be a solid case for such a decision.

Why should Salesforce buy Slack?

In order to maintain the high growth rate of the past few years, Salesforce has invested in various initiatives that enable it to expand its reach in customer organizations. Some of this has happened organically, like improving cross-selling and upselling for each customer. However, acquisitions have also played an important role here.

With the recent acquisitions of Salesforce, MuleSoft and Tableau, the Salesforce platform has been expanded so that it can not only be embedded in CRM processes, but extends across the customer’s entire operations. Despite these growth efforts, the majority of Salesforce’s current application portfolio does not offer significant reach beyond sales and marketing teams.

The company wants its applications to be vital to every employee in a company. to be the place they go to do their job. And it has long kept an eye on the collaboration software space to achieve this.

Salesforce Chatter was launched in 2010, followed a few years later by Community Cloud, but none of them really offered the extended reach outside of sales. Salesforce’s acquisition of real-time document creation company Quip for $ 750 million in 2016 was another step in that direction. While the product found a strong purpose in making it possible to work in the CRM environment, Quip did not significantly expand the reach of Salesforce.

The acquisition of Slack would finally give Salesforce the boost it wanted. Although Slack was initially successful in tech-savvy IT teams, its usage has expanded significantly in recent years – which has accelerated dramatically with the increase in remote working due to the pandemic. The Slack team also has a good understanding of how to drive customer adoption and business switching to improve Salesforce’s customer success organization.

Plus Slack has invested in areas that Salesforce would be interested in. It has a large developer community and is strong at developing bots and apps. And just like Salesforce, Slack has invested in low-code technology with its Workflow Builder tool that enables individual, non-technical employees to automate their daily tasks. Finally, Slack Connect enables B2B collaboration and is preparing to create a B2B business network, which would be another great opportunity for Salesforce. In addition to Slack’s extensive list of customers, each of these areas offers differentiation and growth opportunities that could support a potential acquisition.

Why should Slack agree to a deal?

There are rumors of tech companies that have been looking to acquire Slack for several years – arch-rival Microsoft reportedly considered buying it back in 2016 – at a much cheaper price. However, the deal never came to anything. Microsoft decided to develop its own competing solution, and Slack continued to grow at an amazing rate.

Things are a little different now.

Slack’s sales growth has gradually slowed over the past 18 months. For fiscal year 2021 (which ends on January 31st), growth of around 38% is expected, compared to 82% in fiscal year 2019. In 2020, a significant increase was recorded It’s up 20,000 in six months, compared to an increase of 15,000 for all of 2019. Slack also saw a number of customers with large tickets (with sales in excess of $ 100,000 after twelve months) double since 2019.

Even so, Slack has disappointed investors hoping for zoom-like sales growth in response to the pandemic. Although Slack and Zoom were the same size a year ago, Zoom believes they’ve grown 280% this year, dwarfing Slack’s forecast of 38%.

Slack is also facing increasing competition from Microsoft teams. Slack still has some key differentiators from teams, not least the two areas I highlighted above. However, the impact of the pandemic and the move to remote working have exacerbated competition with Microsoft, especially given Microsoft Teams’ strength in video conferencing, an area that has become business critical this year.

With strong ambitions, Slack now needs a way to increase its market reach and product investment, but doing so as an independent company can be a huge challenge. Salesforce could make a great platform for Slack, and has a lot of experience and success integrating major acquisitions, which would give Slack customers confidence if the purchase continues.

If it did acquire Slack, Saleforce would likely continue to operate Slack as an independent business unit, just as it did with Tableau or MuleSoft. An acquisition would inevitably mean a much deeper integration into the full breadth of the Salesforce portfolio, which will only be positive for the many Slack customers who are already Salesforce customers. Slack can already be integrated into Salesforce in a number of ways, including Sales Cloud and Service Cloud via Chatter and Quip for document collaboration. However, there is an option to blend in with the rest of the portfolio, and the Chatter features could even be completely replaced with Slack.

An opportunity to team up with Microsoft

If they can agree on a deal, it could be a very positive and exciting move for both Slack and Salesforce, where they would team up against Microsoft – not just in business applications where Microsoft is increasingly challenging Salesforce’s Dynamics 365 business , but also in terms of employee productivity and collaboration. One thing is for sure, at such a high price, there is pressure to make sure the impact on growth meets investor expectations.

Angela Ashenden is Principal Analyst for Workplace Transformation at CCS Insight.