Why a Slack acquisition would make sense for Salesforce

Why a Slack acquisition would make sense for Salesforce

A rumoured deal between the two tech companies could come as soon as next week. Analysts say it could help Slack fight back against rival Microsoft

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Salesforce is reportedly in “advanced talks” with Slack over a potential acquisition — a deal that would be a good fit for both organisations, according to analysts.

The collaboration software vendor has been the subject of numerous acquisition rumours since its remarkable rise to prominence in recent years.

Among other reported suitors over the years was Slack’s rival Microsoft — which opted to build its own platform instead — as well as other large tech vendors including Google and Amazon. None of those putative deals came to fruition, and Slack instead completed its direct listing in 2019.

Despite continued growth (the company had more than 10 million daily active users, according to 2019 stats) and an increase in use among larger enterprises, Slack has struggled against Microsoft’s collaboration platform, Teams; the latter has benefitted from the sharp increase in video usage during the current pandemic and is packaged as part of Microsoft 365 subscriptions.

Initial market reactions to the rumours — reported Wednesday in the Financial Times and Wall Street Journal, among others — have been positive for Slack. The company's share price jumped almost 38 per cent yesterday, giving it at valuation of around $20 billion. Meanwhile, Salesforce’s stock value fell over five per cent.

Neither Salesforce or Slack could be reached for comment on the reports ahead of the Thanksgiving holiday in the U.S.

“If these rumours prove to be true, I think this would be a very positive move for both companies,” said Angela Ashenden, a principal analyst at CCS Insights.

Employee engagement: Why a deal makes sense for Salesforce

At first glance, Salesforce seems like a slightly awkward fit for a suitor, given its core focus on software that supports business-to-customer relationships.

“The first question that comes to mind with these reports is why would Salesforce be interested in acquiring Slack, given that — despite its acquisition of Quip four years ago — employee productivity and collaboration is outside its core domain,” said Raul Castanon a senior analyst at 451 Research/S&P Global Market Intelligence.

In addition to acquiring collaborative productivity app Quip in 2016, Salesforce previously made forays into employee collaboration with enterprise social network Chatter and social portal Community Cloud. Neither was particularly successful in expanding the company’s reach outside of sales, said Ashenden.

An acquisition now of Slack would provide Salesforce with an immediate route to expand its focus on customer-facing tools and address the market for employee engagement.

“Technology vendors have typically gravitated to one or the other, however, the customer journey cuts across both,” said Castanon. “Combining their core capabilities could enable a comprehensive approach that could significantly impact the customer experience.”

“Acquiring Slack would be a major boost here, and Slack's integration and app story would also play well with Salesforce's strategy,” said Ashenden.

Bridging the gap between employee and customer communications is not entirely a novel concept, said Castanon. He cited Twilio’s recent frontline worker product announcement as one example. “But the intersection of customer care with internal communications is still a white space full of opportunities.”

At the same time, Slack has been creating a more open collaboration space, with the launch of Slack Connect this year making it easier for a business using Slack to interact with external organisations, including partners and clients.

“The potential of Slack Connect and creating a B2B collaboration network would also jive well with Salesforce's business enablement story,” said Ashenden.

A boost for Slack's battle with Microsoft

A key benefit for both parties would be bolstering competition with Microsoft, which sells a rival CRM platform to Salesforce.

Slack would have plenty to gain with an acquisition, too, with ownership by Salesforce putting it on a firmer footing against the dominant player in the collaboration and productivity software industry.

Since launching Teams in 2017, Microsoft has invested heavily in its collaboration platform, moving users over from Skype for Business and rapidly developing a large breadth of features. Teams — which has 115 million daily active users — also benefits substantially from its availability at no extra cost within Microsoft 365 subscriptions. That gives it a large footprint among enterprise users.

“From Slack’s viewpoint, it is clear it faces a formidable challenge from Microsoft and could benefit from being part of a larger entity,” said Castanon.

Salesforce could help reignite user adoption, too. The rapid growth Slack saw in its initial years appears to have slowed in the past 18 months, said Ashenden, and it has seen a more muted benefit from the rapid shift to remote work during the Covid-19 outbreak compared to other vendors.

“With strong ambitions as to where it could take the business next, Slack needs a way to step up its market reach and product investment opportunities, and doing that as an independent can be very challenging,” she said.

Ownership by Salesforce, a highly acquisitive company with substantial experience integrating large acquisitions such as data visualisation tool Tableau (in 2019 for  $15.3 billion) and integration platform Mulesoft (in 2018, for $6.5 billion), would likely give customers confidence. That said, a deal to acquire Slack would likely dwarf previous acquisitions in terms of value.

Integrating Slack into its operations would also be a challenge for Salesforce and possibilities include allowing it to operate at arms-length as a standalone unit for some time, as has been the case with its previous multi-billion deals.

Should such a deal get the go-ahead, it would have benefits for end users, too.

“It would inevitably mean much deeper integration across the breadth of Salesforce's portfolio, but there will be many Slack customers that are already Salesforce customers, and they'll only benefit from tighter connections there,” said Ashenden.

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