Salesforce is reportedly in talks to buy Slack in a move that could help it head off competition from Microsoft in the CRM space.
A deal for the enterprise communications platform could be completed as early as next week. Slack’s market cap currently sits at $23.2bn, after its share price soared following the news.
If it goes through, the acquisition is likely to be Salesforce’s biggest purchase, and will mark the latest step in a two-year spending spree which has seen it snap up integration provider MuleSoft for $6.5bn and data visualisation business Tableau for $15.3bn.
These acquisitions suggest Slack will continue to operate as a standalone product if the deal goes ahead, albeit with greater integration into Salesforce’s cloud offerings.
Why Covid-19 has not been kind to Slack
Though collaboration tools such as video conferencing platform Zoom have seen their value shoot up during the Covid-19 pandemic and the widespread shift to remote working, Slack’s revenue has continued to grow at a steady but unspectacular rate, reporting income of $215m in the second quarter of this year. Following that, chief executive Stewart Butterfield said the economic downturn had led to Slack losing some customers.
Slack hasn’t published daily average user figures since September 2019, when it reported more than 12 million people were using its platform. While this has probably increased over the past year, it is unlikely the growth will be in-line with the exponential surge of users of Microsoft’s collaboration platform, Teams, which is now bundled free with Office 365. Last month, Microsoft said that 115 million people were using Teams daily.
Though Slack has previously stated it does not consider Teams as a rival, in September it filed an antitrust complaint with the EU against Microsoft, saying that including Teams in Office365 infers it an unfair advantage. Joining up with Salesforce might help Slack redress the balance.
Dynamics CRM making in-roads
Meanwhile, Salesforce has been trying to crack the increasingly crowded collaboration market. It launched a new chat and video calling app, Salesforce Anywhere in June. Buying and integrating Slack would bolster its offering on this front.
But the strategic value of the deal to Salesforce relates to its core CRM offerings. Although Salesforce dominates the CRM market, as traditional rivals such as SAP struggle, Microsoft’s offering, Dynamics CRM, is slowly making in-roads.
Dynamics holds just a 3.8% share of the CRM market, according to the latest IDC Worldwide Semiannual Software Tracker, compared to Salesforce’s 21.8%, but it is on an upward trajectory. And revenue for Dynamics 365, the company’s suite of cloud-hosted applications that includes CRM, revenue grew 38% year-on-year in its latest quarterly earnings report, making it the company’s fastest-growing business unit.
According to CEO Satya Nadella, this pick-up in part reflects the integration with Teams. On a recent earnings call, Nadella highlighted the way Dynamics can be connected to Teams so that “you can see customer information and take action”.
Salesforce CEO Marc Benioff may believe purchasing Slack could offer similar benefits to his company.
“Salesforce sees increased competition from Microsoft in its core business,” notes Daniel Newman, principal analyst at Futurum Research. “With Microsoft seeing its Teams numbers grow by more than 100 million in 2020, Salesforce has been looking for the killer app to drive faster user growth. To me, this is where Benioff sees Slack. The revenue growth won’t be overly significant with Slack at under a billion a year, but the user growth and ‘cool factor’ shouldn’t be underestimated in a deal like this.”
Tech Monitor has approached Salesforce and Slack for comment.