Salesforce Buys Slack: Entering A Brutal War – Updated

Wow. We could see this coming. Salesforce announces it’s acquiring Slack, and the two CEOs call it “a match made in heaven.” The stock shoots up by 25% and investors are thrilled.

Well to me this isn’t as exciting as it looks. Over the last two years Microsoft Teams has exploded to more than 100 million users, Workplace by Facebook has more than 10 million, and Zoom and Webex are on fire (Webex had 350 million users in one month this year). Slack, the company that started workplace messaging, is stuck around 12 million, with no real growth to report.

Why the lag?  It’s the old innovator’s dilemma: when you’re out in front you better run fast, because the pack behind you brings arrows and guns and they run fast too. And the enemy of Slack is Microsoft, Facebook, Cisco (Webex), and Zoom. Pretty tough competitors. Salesforce is entering a brutal war.

While Slack is a slick tool and it took the software engineering world by storm, it just hasn’t evolved. Features like online video, conferencing, document sharing, translation, and many of the ease-of-use features we see in Teams, Workplace, and Webex just aren’t there. And in my world, where companies want employee communications and training tools, Slack didn’t even seem interested. 

And now that we’ve been living in the Pandemic, investment in these tools is massive. Microsoft has a large organization building out the Teams platform, and it already does amazing things. It reminds you of meetings, it surfaces and stores documents, and it’s totally integrated with Office and other Azure Services. Next year Microsoft is introducing its Learning App, new services for wellbeing and company communications, and dozens of other integrated apps. Slack just isn’t able to keep up.

>> And this last week Webex just upped the ante. Not only does Webex include video meetings, schedule integration with Outlook, real-time translation, and a whole series of new video devices, the company’s new AI can identify “thumbs up” and other smiling behavior to give meeting leaders direct feedback on the progress of video experiences. In messaging, Cisco is adding new AI to Webex that will enable the app to learn what projects, spaces, and people are most important to each user, and then elevate them so they’re easier to locate. The app also includes Webex message pinning and the ability to automatically send recorded meetings to specified groups and individuals

Honestly, based on my experience with Salesforce Lightning (a huge step backwards in Salesforce’s UI), I dont think the company can possibly keep up.

While messaging seemed like an easy app at first, the technology bar is now high. Products like Teams, Workplace, Zoom, and Webex are filled with video technology, AI capabilities, and important integration with back end document and office systems. I’m not sure if Slack (or Salesforce) really wants to invest in all this.

The markets already saw the problem. In its most recent earnings report Slack lost 16% of its value, and entering 2020 it had lost 40% of its value since going public. I suppose buying the WORK stock ticker is worth something, but it looks like Salesforce is placing a pretty big bet.

As of the last earnings report, Slack was about a $1B revenue company, which makes this a purchase at 27X revenue. The company’s revenues grew by 49% YTY, but that’s still a high multiple (Workday trades at 11X sales).

Salesforce is a great company, one known more for marketing and sales than product innovation. The company tried to build Chatter and a series of other workplace products (there was a work.com product that was killed a few years ago), but none have been a big success. Does the company really want to get into the personal and workplace productivity market? They’re entering the holy ground of some pretty big players.

One could imagine that Salesforce will integrate Slack (replacing Chatter) with its platform and then sell it as a feature upgrade to every Salesforce user. Well, that may work, but the pricing is the problem. Companies that buy Salesforce already have Microsoft, Webex, Zoom, or other collaboration tools and Salesforce wants that integration to work too. So is a Salesforce salesperson going to convince you to pay even MORE for their messaging system, when Salesforce itself is so expensive? It feels like a tough sell to me.

And these other products work quite well. Teams is very easy to use and its new features are piling on quickly. Workplace by Facebook is taking off in retail and front office work, and Webex has huge market share. Yes, engineers love Slack because of its speed and techie features, but in my world, almost every corporate client now uses Teams. (Remember HipChat from Atlassian?  It’s gone.)

Listen I understand how the software industry works. Oracle makes a good living buying software companies with low growth rates, milking their maintenance stream, then folding them into something better. And Slack is a well-established brand and well known in the Tech market. And maybe Salesforce needed a new cloud infrastructure and there’s something there they can use?  (Similar to IBM’s acquisition of RedHat.)

In any case, I talk with lots of tech companies that love Slack, and then when I talk with our big corporate clients, they ALL use Teams or Webex.

Salesforce is placing a pretty big $27 billion bet (the largest acquisition Salesforce has ever made). And now they’re in a holy war with Microsoft, which won’t be fun. And don’t count out Zoom and Facebook.

Let’s see if this move changes the race, I’m all ears to see what’s next.

PS. Investors seem to feel like I do.