Salesforce Acquired Slack in December 2020 for $27.7B for a variety of reasons. We breakdown why the Slack Salesforce Acquisition is good for the CRM giant's product roadmap, helps compete with Microsoft, and more.
Before we take a look at the reasons Salesforce acquired Slack in December 2020, it’s important to look back at a brief history of Salesforce’s acquisition strategy in general.
Over the past 15+ years, Salesforce has been known to pursue growth through an aggressive acquisition strategy across a variety of product and service companies.
Typically, their strategy is to identify existing SaaS vendors that build solutions complementary to the core Salesforce offering. This enables them to integrate those vendor's product features into the Salesforce roadmap and release features significantly faster than if they built the same functionality from scratch.
This has been seen in some of Salesforce’s most successful acquisitions:
This list goes on to include Demandware, Quip, CloudCraze, MuleSoft, MapAnything, Tableau and other acquisitions that have become core ‘Salesforce Clouds’.
The secondary advantage is that Salesforce absorbs the customer base from those acquisitions, which they are able to cross-sell on other Salesforce products - for instance, a company that was a Demandware customer (now B2C Commerce Cloud) could immediately be sold Service Cloud and Marketing Cloud, thus generating incremental revenue with ease.
A final benefit, in addition to acquiring technology & customers, is the ability to acquire talent. For example, Salesforce acquired Quip in 2017 (now Salesforce Anywhere) and Quip Founder & CEO, Bret Taylor, has been President & COO at Salesforce since November 2017. Former Vlocity Founder & CEO, David Schmaier, joined after their February 2020 acquisition by Salesforce and is currently Salesforce President & Chief Product Officer.
The ability to acquire true visionary leaders like Bret and David, in addition to the hundreds of talented, knowledgeable Architects, Developers, and Product Strategists brings immense intellectual property value to a large, incumbent vendor like Salesforce.
As noted, there are a variety of reasons why a large player like Salesforce targets high-growth SaaS startups like Slack for acquisition. In this particular case, we have identified 4 primary reasons this $27.7B acquisition made sense in the eyes of Salesforce.
The Salesforce ecosystem of products has grown larger and more complex over the years (largely driven by the aforementioned acquisition strategy) and a major challenge that comes with this type of SaaS portfolio expansion is building the communication layer that sits between all applications. This is not only about how data flows from Sales applications to Marketing applications but also how those teams are communicating and collaborating with each other, while operating out of different applications.
Salesforce has been investing heavily in their Customer 360 platform - a way to give enterprise organizations a unified view of the customer across marketing, sales, commerce, and support touchpoints - and the ability to communicate effectively at every stage in the customer journey is a critical element.
Let’s not forget that Salesforce acquired Chatter for $31 million way back in 2011 with the goal of building in-app communication & collaboration tools. The product was retired in early 2018 but Salesforce has always seen the benefit of integrating real-time chat and communication, so this is a big part of Slack’s value.
As of 2020, 90% of Fortune 500 companies use Salesforce. Since founded in 1999, Salesforce has been looked at not only as a pioneer in Enterprise Software but as true go-to-market experts. They have assembled one of the highest performing global Sales teams and allocate close to $10B annually toward investing in Sales & Marketing.
This Enterprise market penetration gives them a foothold within massive, multinational accounts that could be introduced to the Slack platform. As of 2020, 156,000 organizations and 12 million users were on the Slack platform, which pales in comparison to the scale of Salesforce and the reach they have to dramatically accelerate growth. (As we will detail below, this is a segment of the market currently dominated by Microsoft Teams with very little competition.)
Equipping Account Executives with another tool in their arsenal carries virtually no incremental cost to sell Slack as part of the Salesforce package and can generate substantial, incremental revenue.
This aspect will almost certainly produce quick wins for Salesforce post-acquisition.
While Salesforce has always served earlier-stage organizations in the SMB market, they don’t often release products specifically targeting this segment.
The release of Salesforce Essentials in 2018 was a significant investment in the SMB market, though. There are 150+ million small businesses around the world that spend 23% of their workday manually inputting data, according to Mike Rosenbaum, EVP CRM Applications for Salesforce.
While this is a huge, growing segment, Salesforce has lost ground to several competitors with the most formidable being Hubspot. It is estimated that Hubspot has 29% market share in Marketing Automation, while growing 41% YOY, with a huge percentage of their customer portfolio sitting in SMB.
Despite much of Salesforce’s focus, attention, and capital going toward the Enterprise, SMBs and startups still present enormous opportunity and Salesforce understands the need to focus on this segment. Fortunately, Slack is deeply entrenched in the startup segment and can enable Salesforce to penetrate the segment with offerings like Salesforce Essentials, Pardot, and Salesforce Anywhere.
We should expect to see Salesforce allocate more time and attention in competing against Hubspot in the years to come.
When it comes to the top 3rd party APIs being used to connect a company's internal tools, Slack was used by 37% of respondents in a recent study on internal apps - #3 behind only GitHub and AWS. (Salesforce was 9th on the list with 16%.)
This is an enormous advantage given the App Developer ecosystem that exists on the Slack platform. The Salesforce AppExchange is one of the largest B2B App Marketplaces, representing one of the fastest growth areas across all Salesforce products, and currently accounting for close to 30% of Salesforce revenue. (Note: Salesforce divides revenue into several segments. AppExchange falls into the Platform segment, which also includes Tableau and MuleSoft revenue.)
A platform like Slack is so deeply embedded in existing technology stacks that it's an extremely 'sticky' tool, meaning there is a high switching cost if companies want to move off the platform - this leads to lower customer churn.
App Marketplaces can be valuable in a number of ways by providing additional subscription revenue from Developers that pay to build on your platform (or share a percentage of their revenue) and by delivering value to your user base in the form of additional features, functionality, and integrations that your organization doesn’t need to invest in building.
To acquire a fast-growing platform with one of the largest B2B app marketplaces is a huge value in itself and something to watch as Slack continues to expand their own ecosystem. Several years ago, the IDC conducted a study that showed The Economic Impact of Salesforce, which was estimated to produce $1.2T of new business revenues and 4.2 million jobs between 2019-2024.
This is the power that effective SaaS ecosystems and marketplaces can have on the broader market.
Microsoft has been a dominant player in consumer & enterprise technology for decades and the sheer scale of their user base afford them massive advantages.
Microsoft Teams (their communication platform and direct Slack competitor) wasn’t launched until early 2017. For perspective, by late 2020 Slack had grown their user base to 12 million, while Microsoft Teams had exploded to 115 million users.
This was largely based on their ability to offer Microsoft Teams as part of the Office 365 bundle for free and immediately tap into their enormous user base.
It was announced in May 2021 that Microsoft would be partnering closely with Troops.ai, a long-time Salesforce partner and early Slack app developer that enables users of Salesforce to surface data, reports, insights, and more from directly within the Slack chat window.
(What have they done in the past?)
Salesforce has a mixed track record with post-acquisition integration. They have been criticized for ineffectively bridging the acquired company product roadmap with the core Salesforce features in some instances, while others have resulted in a good outcome but taken far too long to get there (Marketing Cloud was long considered a failure until recent years).
In other instances, they have been highly effective bringing the products together - for example, Quip was acquired in 2017 and has already been released as Salesforce Anywhere, which shows promise. Vlocity had a major advantage in that their suite of products were already built natively on the Force.com platform, so translating these to Salesforce Industries virtually overnight was simple from a technology roadmap perspective.
The acquisition that many feel Slack will resemble the most is that of Heroku - acquired in December 2010. Heroku is considered a PaaS (Platform as a Service) and enables Developers to build, run, and operate applications entirely on the cloud without having to manage all underlying infrastructure & hosting.
Since the acquisition, Salesforce has left Heroku to run independently and autonomously, which it has done very successfully over the past decade.
We detailed the incremental value Salesforce can generate from Slack but rushing to monetize this acquisition may not be necessary. It’s possible that Salesforce may simply help facilitate go-to-market strategy and invest heavily in Sales & Marketing to build Slack into a significantly more formidable competitor to Microsoft, rather than needing to re-design the core Slack platform in an attempt to fit it into the Salesforce box.
There is already huge value in connecting your Slack and Salesforce instance, which can be done through native integrations, using tools like Zapier, or with custom API development for more complex, bidirectional syncs.
Leveraging Slack to surface data & insights from Salesforce without leaving the Slack app can add quick productivity for your Sales Reps or companies are leveraging it to power internal collaboration and external communication across Sales, Marketing, and Support use cases.
Check out the Slack Integration Guide if you’re having trouble setting it up or Talk to a Salesforce Integration Expert through FoundHQ at no cost.