Analysis of a megadeal: Salesforce takes the fight to Microsoft

Salesforce has acquired Slack for $27.7 billion, making this the biggest acquisition in Salesforce’s history, and depending on how you categorize it, the biggest tech acquisition of this year. In this post, we analyze every angle of this deal from the perspective of the three companies it impacts most of all — Salesforce, Slack, and most of all, Microsoft.

Slack can now take on Microsoft Teams

salesforce slack acquisition
The first thing that comes to mind with this acquisition is what it means for Slack’s rivalry with Microsoft Teams (something I’ve written about a lot). Slack had an early start and strong adoption among tech startups and DevOps teams in enterprise companies. However, Microsoft Teams, though late to the party, has had a remarkable run in the recent year. Especially with the pandemic, organizations flocked to adopt Teams by the hordes. Slack and Teams have been releasing similar features and have been fierce rivals to capture the market for internal collaboration.
One key difference is that Teams is more likely to be adopted by enterprises that are looking for more than chat and are already Microsoft loyalists. (It’s a free add-on for Microsoft 365 users.) Slack, on the other hand, is the upstart Silicon Valley hotshot that every startup championed. This acquisition pretty much negates that difference as Salesforce has an equally large enterprise footprint as Microsoft. Salesforce can pith Slack to the same organizations that would consider Microsoft 365.
Salesforce has had a rough relationship with Microsoft in recent years, even going to the extent of filing an antitrust lawsuit in Europe against Microsoft. They have competing products in the CRM space and in the analytics and business intelligence space. This acquisition makes them direct rivals on yet another front — enterprise collaboration.

A well-timed exit for Slack

For Slack, this deal comes at the perfect time. The company went public last year, but its stock has traded sideways, unable to generate the kind of revenues that would please Wall Street. This is not a clear indicator of Slack’s potential as Wall Street can be impatient. In fact, after the announcement of this acquisition, Salesforce stock fell by 11 percent due to lowered expected returns in the coming quarters. Some investors are unhappy about the deal as it cost Salesforce 30 times the annual revenue of Slack. For this to work, Salesforce will need to find ways to increase revenue from slack drastically.
Slack faces stiff competition from Microsoft Teams, which has gotten a boost during the pandemic. Slack has tried hard to compete by adding new features like video conferencing, improving its UI, and creating deeper integrations with specific products like Zoom, Splunk, and Jira. However, Microsoft Teams has come out on top in terms of the number of features.

Microsoft’s large enterprise footprint gave Teams a ready market for expansion, something that Slack didn’t have — until now, that is. The entry of Salesforce changes this because Slack now has an equally large market to target — Salesforce’s enterprise customers. Additionally, with the financial clout of Salesforce, and a large talent pool available, Slack will now be able to scale its platform and take the fight to Microsoft Teams.

What the Salesforce acquisition means for Slack users

Slack users have come to rely on ChatOps as a way of getting work done. The only other alternative out there is Microsoft Teams, which is much more than a ChatOps tool. Organizations that choose Slack aren’t interested in an all-in-one suite and are happy with just the chat solution that Slack provides. For them, what would be concerning is if Slack becomes absorbed into the Salesforce platform. This would be akin to Salesforce killing off Slack, which is highly unlikely considering Slack only complements Salesforce’s offerings. Also, Salesforce would want to drive revenue from a product they just dropped $27.7 billion on.

Considering that the Slack acquisition is the biggest in Salesforce’s history, it is most likely that Salesforce would make Slack a central part of Salesforce’s cloud platform. This is similar to IBM’s handling of Red Hat — there is overlap, but Red Hat continues to function independent of its parent company. Salesforce has taken this approach with another of its acquisitions, Tableau, which is run independently by its CEO.

All signs show that Slack would continue to be operated as a standalone product by Salesforce while simultaneously being integrated into the Salesforce universe. These two efforts are not contradictory and will benefit users of both companies.

Salesforce is now DevOps-friendly

Salesforce has been on a drive to adopt broader DevOps principles into its platform in recent years. Custom applications built on top of Salesforce are a key component of an organization’s Salesforce strategy. Organizations used to hire Salesforce consultancy companies to develop these applications, but now they’re building internal development teams to build their own applications. One problem with this is that Salesforce functions differently from regular application development. The broader world of development is driven by DevOps principles. Salesforce realizes that it too needs to adopt these DevOps practices to be truly successful as an application development platform.

There are vendors like AutoRABIT that take their own route to create Salesforce DevOps solutions. These are end-to-end CI/CD (continuous integration and continuous delivery) solutions built on top of Salesforce. They can be integrated with core DevOps tools like GitHub and Jenkins to provide a modern application delivery solution.

Slack fits perfectly into this narrative as it’s the most widely used collaboration tool by DevOps teams. Developers love the ability to collaborate on code from within Slack, thanks to its many integrations with common developer tools. For IT and Ops teams, Slack can integrate with any monitoring tool such as Splunk, PagerDuty, Prometheus, and pull in alerts and notifications in real-time from these tools. This is invaluable when troubleshooting an incident in production. As soon as a team sees an emergency alert, they can start a discussion around it in Slack. This brings everyone on the same page and is especially important during these times of remote work.

Salesforce’s Chatter dreams come true

salesforce slack acquisition

Salesforce saw the potential in ChatOps way back in 2009, even before Slack became a phenomenon in the space. They launched a product called Chatter, which was all about real-time communication and collaboration for organizations. Today, that product has evolved to become part of a broader Community Cloud offering. Though the product names and capabilities have evolved, the goal of these efforts has not changed for Salesforce. They still want to innovate in the areas of collaboration and productivity. In Slack, Salesforce likely saw ChatOps the way it should be done, and the way they had always aspired for it to be.

Salesforce-Slack acquisition: Managing to make it work

Salesforce is an aggressive, fast-growing company with big dreams of hitting $28 billion in annual revenue by 2023. This is a big jump from its current $17 billion mark. The way it will get there is by expanding its offerings and not relying on its CRM alone. This is the reason for Salesforce betting big on acquisitions in recent years. It started with the Mulesoft acquisition for $6.5 billion, it was upped by the Tableau acquisition for $15.7 billion, and has now culminated in this Slack acquisition for a whopping $27.7 billion. Salesforce’s success now depends, not on how innovative its new products are, but on how well it manages its child companies.

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