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Salesforce buying Slack? – Why is this relevant?

The Wall Street Journal broke news on Nov 25th 2020 that Salesforce is planning to buy Slack.

What is behind this and why is it relevant? Is it a brilliant move from Marc Benioff and Stewart Butterfield? What are the implications for organizations in Salesforce and Slack ecosystems, and where does Microsoft stand in this?

We need to look back. Salesforce pioneered the integration of chat-functionalities to enterprise software such as CRM. When introduced, the Chatter component was a configurable environment, where for example the sales team could in a smart way discuss customer-related issues so that the conversation was also smartly captured for later use. Salesforce invested heavily in Chatter in its early phases to develop its social functions further, for example with the acquisitions of Dimdim and Radian6 in 2011.

Chatter was ahead of its time and was adopted only in pioneering open cultured organizations. It was an uncut gem. In 2015 the development efforts ended with 300+ developers moved to different projects.

Slack vs. Teams

Slack was born in 2014 as a light and quick instant messenger, with instant, appeal to IT- and communication people – people in modernly vague roles. Growth was fast, and Slack fast achieved a cult status among its users. Slack’s greatest innovation was introducing small applications in its product family with easy integration. By 2016 Slack was the “cool” and “slick” by any hipster standard. Microsoft has tried to catch up with their Microsoft Teams integrations, but Slack still boasts multiple times larger integration libraries, including the relevant parts of the Office 365 -collection.

Microsoft battled a weak reputation and a mess of a cloud software offering for the better part of the early 2000s. Since 2011, they’ve renewed their entire technology stack and started to finally get results. In 2017, Office 365 surpassed Google Suite in its Cloud functionality.

Microsoft has been looking to develop a “Slack Killer” since 2016. The start wasn’t impressive – many people were disappointed with the user experience (UX) of Teams. In 2018, its usability has already made great strides, and in July 2019 Microsoft Teams reported more users than Slack. The success was propelled by their license policy, where a Teams license was part of the Office 365 -package practically for free. The rest is history.  In just twelve months the user base soared from 12 million to the current 115 million daily users. It’s an unparalleled feat in cloud computing. Microsoft’s strategy was, and is, to make Teams the launchpad for all applications and websites.

Salesforce’s rise to the top

Salesforce has grown to the leading secure cloud service provider. In the past 20 years, Salesforce has increased its annual revenue between 20-40% and doubled in size every 3-4 years. Their low-code model offers a fast way for clients to customize their own cloud services, which would have taken 10 times more effort before. Their growth has spurred a vibrant ecosystem of software service providers and consultants, who benefit from high compatibility with each other. For example, in CRM you could edit account information, build an account plan for a client, and make social decisions on pricing. All on one single cloud platform. This is something that the Microsoft ecosystem likely can’t achieve for a while.

Salesforce has positioned itself in refining and maintaining innovative knowledge. Their customer base quickly rose to around 200 000, which is still in steady, albeit slower, incline. On top of that, Salesforce has seen an increase in market- and mindshare within their existing client base. Salesforce has also found its way into some of the largest organizations in the world, and I would estimate that currently, 80% of their revenue comes from their 2000 largest clients.

Focus in customer success

Others have tried to replicate Salesforce’s customer success -model in cloud innovation. Microsoft has been developing their own CRM- and ERP-platform and ecosystem and have somewhat succeeded in catching up. Now they have one extremely valuable strategic advantage, though. For decades, Microsoft’s Office tools, such as Word, Powerpoint, and Excel, have set the standard for digital office software. We’ve learned the advantages of Power BI, but Microsoft Teams is now the ace in the sleeve. Most of us are available on Teams anywhere between 3-10 hours a day. It’s constantly online in the background and has replaced email in many places.

Teams is also easy to integrate other software to, and with their growing user base is increasingly more attractive for that. We’ve also been developing our very own integration for Fingertip to Microsoft Teams. For example, discussing an idea or a problem often starts in Teams. This discussion (degenerating often to rambling) doesn’t lead to anything valuable or influential unless it is transferred into decisions, tasks, plans, and for example objectives. For discussion to actively lead to action, we desperately require a persistent and reliable platforms and applications. Teams doesn’t save anything valuable or persisting itself.

We need a place to realize the results and the effectivity of work now, and in the future. The overarching theme in developing Fingertip has been the documentation of knowledge in a digital cloud platform, with world-class accessibility, transparency, and utility. Salesforce’s current challenge is, where their users actually spend their working hours. Strategically thinking, the one “owning” the discussion – the content – directs the users to the place (platform) where those ideas are incubated further. Salesforce doesn’t have a touching surface to the platform where their users discuss, which is why they are after Slack. Being more laid back than Teams, Slack could be the lobby for the Salesforce Cloud, bringing their users back closer to their tools, transforming Salesforce into an Enterprise Platform itself.

Deal or no deal?

Salesforce has a business advantage in its ability to uphold a high price point for licenses. It has benefitted the ecosystem of application developers around Salesforce with better margins compared to Microsoft’s ecosystem.

Marc Benioff, the CEO of Salesforce, recently promised to take their foot off the gas pedal when it comes to mergers and acquisitions. Recently Salesforce has been active in the market. Recently, they acquired Mulesoft (2017, 6.5B$), and Tableau (2019, 15B$) in some of the priciest deals recently. Somewhat of a lesser spotlight was cast on their 10% acquisition of WordPress developer Automattic with 300M$ in 2019. There is little to show from the 2017 acquisition of smart cloud document platform Quip (750M$) as well.

Slack was listed in the stock exchange in 2019 but failed to capitalize in the Covid-19 revolution of remote work. They were lacking a conferencing tool like Zoom, which has been built in Teams, a mental successor to Skype. Slack’s market cap is right now lucrative from Salesforce’s standpoint. They are also in the market for a discussion platform and business applications that integrate to it.

A Microsoft deal was passed by the Salesforce CEO in 2018, when Teams was already looking like a rising star. Stewart Butterfield, the CEO of Slack, has also dreamed of creating a viable alternative for the Microsoft hegemony as well. My best guess is, that these gentlemen will find themselves around the same table signing papers. Because, frankly, they need each other.

Jaakko Pellosniemi is the CEO of Fingertip, and a pioneer in cloud services since 1993.

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