Slack Acquisition: Reactions to the $27.7B Deal

The announcement of Salesforce’s acquisition of Slack on Tuesday afternoon included a price tag that initially seemed difficult to comprehend. Salesforce invested over $27 billion to integrate Slack into its existing suite of products. The company identified a crucial gap in its offerings, which likely motivated such a substantial financial commitment.

This acquisition provides Salesforce with what CEO Marc Benioff described as a central hub for all operations – a concept the company has been considering for many years. Previously, in 2010, Salesforce attempted to develop a similar tool internally, known as Chatter, but it did not achieve widespread adoption. Slack now fulfills this long-held ambition.

“For over ten years, Salesforce has maintained a vision for a social enterprise. We’ve even dedicated entire Dreamforce events to exploring a collaborative interface, a highly productive environment integrating applications and an ecosystem, all built around our Customer 360,” Benioff explained.

Interestingly, Slack’s headquarters is located in a building adjacent to Salesforce Park. This proximity will facilitate collaboration between the two companies – or, as Benioff pointed out, they can simply utilize Slack itself.

From Chatter to Slack

According to Neeraj Agrawal, a general partner at Battery Ventures, Benioff’s long-standing focus on enterprise social networking is now coming to fruition. He views this as the realization of a vision Benioff initially pursued years ago. “Consider Chatter; Benioff accurately predicted the importance of this development. He previously saw Yammer go to Microsoft – through their $1.2 billion acquisition roughly 7-8 years prior – and subsequently introduced Chatter. While a significant undertaking, it didn’t achieve widespread adoption. Slack effectively represents a refined version of Chatter,” he explained.

Chuck Ganapathi, the CEO and co-founder of Tact.ai, served as the product lead for Chatter at Salesforce around 2009. In an upcoming blog post shared with TechCrunch, he detailed that Chatter’s shortcomings stemmed from several factors, primarily because Salesforce’s core strengths lay in database technology, while enterprise social networking required a fundamentally different skillset.

“Certain challenges were rooted in technical limitations – Salesforce, established by former Oracle personnel, operates as a database-focused organization built on a relational database system. Database applications and applications centered around unstructured communication, such as Chatter or Slack, are distinct areas within computer science with minimal common ground,” he stated. Consequently, he believed they didn't possess the necessary expertise to develop the application effectively, and it failed to gain traction amidst a competitive market.

Despite this, Benioff remained committed to the idea of integrating social features into the Salesforce ecosystem. It ultimately required approximately a decade and substantial investment to bring this vision to life.

A good match or not?

Leyla Seka, a partner at Operator Capital and former leader of the Salesforce AppExchange, anticipates a positive future resulting from the combination of Slack and Salesforce. According to Seka, “The integration of Salesforce and Slack will create a robust combination of applications designed to enhance collaborative work within organizations. The recent COVID-19 pandemic highlighted the importance of providing employees with both the necessary data and a supportive community to succeed in their roles, and this merger aims to deliver both.” She shared this perspective in a recent discussion.

Brent Leary, the principal analyst at CRM Essentials, expressed surprise at the acquisition cost but believes it demonstrates Salesforce’s determination to secure valuable assets. “This acquisition clearly illustrates Salesforce’s boldness and willingness to invest significantly to achieve its objectives. They are confident that incorporating Slack into their platform will yield substantial returns,” Leary stated.

From Slack’s perspective, Leary suggests this move provides a rapid path to greater prominence in the enterprise market. “Slack transitions from competing with major players like Adobe, Microsoft, Oracle, SAP, and Salesforce to becoming part of one of them – and Salesforce represents the most logical partnership,” he explained.

Laurie McCabe, an analyst and founder at SMB Group, echoes Leary’s assessment, noting Salesforce’s proactive approach to acquisitions when perceived value is high. “Salesforce doesn’t hesitate to act when it identifies a worthwhile opportunity. In this instance, Slack provides a powerful collaboration solution that will strengthen their competitive position against Microsoft’s expanding cloud services, which encompass both CRM and Teams,” McCabe commented.

Show me the money

Battery’s Agrawal posits that the primary motivation behind this acquisition is revenue generation, and the company was prepared to invest significantly to achieve substantial increases – measured in billions of dollars. He anticipates the ultimate objective is to challenge Microsoft’s position, or at a minimum, attain a $1 trillion market capitalization.

It is important to observe that initial investor response to this agreement has been unfavorable, as evidenced by a decline in stock value of over 8% today and 16.5% since reports of Salesforce’s interest in Slack emerged last week prior to the Thanksgiving holiday. This represents a loss of over $18 billion in market capitalization – likely not the outcome anticipated. However, Salesforce possesses the financial strength to pursue a long-term strategy and realize its financial objectives with the assistance of Slack.

“To reach a $1 trillion market cap, Salesforce must now directly compete with Microsoft. Previously, the company largely operated within its own defined product area. […] Achieving a trillion-dollar market cap requires Salesforce to pursue growth in two significant markets,” Agrawal explained. He identified these as either the knowledge worker/desktop segment (as seen in the 2016 Quip acquisition) or the cloud market (as demonstrated by the Hyperforce announcement). Agrawal suggests the former represents the company’s most promising avenue for growth, and they were willing to make a substantial investment to secure it.

“This acquisition is expected to enable Salesforce to maintain a growth rate exceeding 20% over the coming years,” he stated. He ultimately believes it will positively impact revenue, which should subsequently increase market capitalization and facilitate the achievement of their goals.

Salesforce president and CEO Bret Taylor noted that while they plan to integrate Slack extensively within the Salesforce product suite, they acknowledge Slack’s inherent value and functionality as an independent product and have no intention of altering that.

“Our core aim is to ensure Slack continues to function as a platform independent of specific technologies. Slack is utilized daily by a vast number of individuals to connect a wide range of tools. Notably, many customers have also integrated their own custom internal tools, establishing Slack as a central hub for their teams, and we are committed to preserving this functionality,” he said.

Evaluating the success of an acquisition of this magnitude requires retrospective analysis to determine how effectively the two companies integrate, how seamlessly Slack can be incorporated into the Salesforce ecosystem while maintaining the independence Taylor described. If they can successfully balance these factors and position Slack as a unifying element – an operating system or connective tissue – within the Salesforce environment, the deal will prove beneficial. Conversely, if Slack’s innovation stagnates and it declines under corporate ownership, the investment may not yield the desired returns.

Only time will reveal the ultimate outcome.