Acquired for $27 billion – but Slack loses out

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SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on December 2nd, 2020.

$27.7 billion may sound expensive. But it is not the buyer Salesforce who pays the really high price in this deal – it is the seller, Slack.

It is notoriously difficult to sell enterprise IT to large companies. The sales processes are long, the agreements are large, and the integrations are complex. The communication tool Slack has experienced this in recent years.

The company has long been a Silicon Valley favorite where more tech-savvy companies moved their communications at the expense of regular meetings and emails. There was no doubt that they picked the right trend – it did not take long before users began to use “slack” as a verb. There was talk that Slack could become the new platform for business services.

But in order to continue to grow, the company needed to broaden the customer group and bring over more traditional customers to this way of working. There was, however, a certain skepticism. Why should we sit and chat with each other in front of a computer, when it works perfectly well to keep working as we do today?

Then came the coronavirus. Suddenly it became abundantly clear why digital communication in real time was preferable. But while companies like Zoom suddenly experienced explosive growth, Slack failed to take advantage of what should have been their major breakthrough.

Instead, it was companies like Microsoft with their Teams product – which in many ways is a Slack clone – that got a boost. They did not have a better product, but large companies already had Microsoft products in place. You could just turn on Teams and get started.

Slack established the behavior, but did not succeed in fully capitalizing on it and still made big losses during the first half of 2020. The company’s share price never reached its opening price at IPO until rumors of the acquisition came out.

This is where Salesforce comes into the picture – a software giant from San Francisco with a market capitalization of around $206 billion. They are best known for their sales support tools, but offer a wide range of cloud services to marketing and sales companies. What was missing from their portfolio, however, is the everyday collaboration between the employees – what Slack does best. Salesforce’s own product, Chatter, has never succeeded in establishing itself as a worthy competitor.

What Salesforce is good at, though, is selling. And like Microsoft, they already have very many large companies on the customer list. By adding Slack to the portfolio, you significantly facilitate the sales process, and thereby solve Slack’s biggest challenge. They can now accelerate their growth and seriously take on the fight with Microsoft.

Corona exposed both Slack’s greatest strengths and their weaknesses. The product was right. The user behavior was right. But it became too difficult to establish this new way of working for large companies on their own. Instead of becoming the new generation platform for future business services, Slack is now one of many products within an established market leader.

Given that – and despite the incredible purchase price of $ 27.7 billion, many people probably feel that Slack has not fully lived up to its potential in a market that so far has only scratched the surface of how big it could become.

And remember this: In 2012, Facebook bought Instagram for $1 billion. Back then, they were a photo app with no major revenue, and people were wondering what they were paying for. Just eight years later, they are valued at over $100 billion. And most importantly – Facebook bought out its competition. Salesforce pays dearly today, but is probably reasoning in the same way as Facebook did then.

This analysis was first published in SvD Näringsliv, in Swedish, on December 2nd, 2020.

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