Slack and Salesforce will be a force to be reckoned with

Wrote this a couple of weeks ago and set it aside. I thought I’d share it now.

Salesforce ($CRM) — a cloud-based software giant — lost a staggering 25 billion dollars in market value following the announcement of their decision to acquire Slack ($WORK) — a workplace communication app. Given the sudden news, Salesforce is a magnet for bears all around. But why? The reason is simpler than you think; investors are perturbed that it will decimate the firm’s balance sheet. However, further prodding reveals the claims to be unsubstantial; Salesforce made a stellar decision in acquiring Slack. In the following paragraphs, I will explain why by (1) holistically analyzing the product integration, (2) exploring Mark Benioff’s previous purchases, and (3) double-clicking on the impact this has on market share behemoth Microsoft.

Integrating Slack into Salesforce’s existing product portfolio will finally push Salesforce to become a primary software platform for businesses. Over the past few years, the firm has been pivoting off of being a niche cloud computing service to powering all of a company’s modern infrastructure and operational needs. With this goal in mind, Salesforce has built a prevalent ecosystem of apps ranging from customer to commerce to data management. But to continue, it must march forwards and become a full-blown tech platform; Slack is the proverbial finish line. As described by Salesforce CEO Marc Benioff, the tie-up will create “the operating system for the new way to work”. Slack will become the backbone of the said operating system, helping to connect businesses in the new remote work world. Furthermore, their integration with Salesforce will see that it expands beyond an internal communication tool with suppliers and customers to one that enables organizations to collaborate between suppliers and customers. Slack fits Salesforce like a glove.

Marc Benioff has been a master at plugging acquisitions into Salesforce that grow into more than the sum of their parts; let us look at some examples. Take the commerce and marketing cloud segments; Benioff purchased Demandware in 2016 for $2.8 billion. In the last earnings call, he said that the two e-commerce segments processed more than 31 million orders in the last quarter, up 62% year over year. Let us look at the platform segment, digital integration services MuleSoft and Tableau were acquired in 2018 for $6.5 billion and $15.7 billion, respectively. Both companies are snowballing, allowing businesses to draw insights from data in a seamless way. Given that these acquisitions complement Salesforce’s existing customer relationship software, it displays how deliberate the firm’s decision is to purchase Slack. Marc Benioff and his team are not playing around with their acquisitions, and it seems that this one is with a specific intention in mind.

Slack cannot overtake Microsoft Teams by itself, but pairing with Salesforce gives reason for the monopoly to worry. In 2018, Microsoft’s jab at the industry — Microsoft Teams — overtook first-to-market player Slack. Analysts do not foresee Slack taking back the lead. Microsoft’s robust office suite almost ensnares businesses to use the service. To catch up to the likes of Microsoft Teams, a primary tech suite will be crucial. Who better to join forces than Salesforce? The firm has an existing customer relationship software that is ubiquitous among businesses globally. Combining Slack into the portfolio will enable Salesforce to put up a legitimate force to combat the market behemoth that is Microsoft Teams.

I remain bullish long term on Salesforce! Salesforce consistently identifies strategic targets and smoothly integrates both products and operations, so they will do the same with Slack. I am confident that the decision made by Benioff and his team was taken into much consideration, taking into account all of their successful past acquisitions. Lastly, Microsoft will have to pick up the pace if they wish to defend their market share in the workplace communication industry.

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Pavan Jayasinha

Pavan Jayasinha

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pavanjay.com | Invested in QC + ML | Intern @IQC | EECS @UWaterloo | Seeker of rigorous truth