According to a report in The Wall Street Journal, CRM giant Salesforce is in advanced talks to buy enterprise messaging platform Slack. With Salesforce due to report quarterly numbers next Tuesday and its annual Dreamforce event a day later — albeit virtual this year — it makes sense that Salesforce would want to spend Thanksgiving weekend closing this rumored $17 billion deal. But Salesforce was also once in talks to buy LinkedIn, and then Twitter, so don't hold your breath just yet. Still, here's why the deal could make sense.
Slack's ambition has held it back this year
The market's reaction to the rumored deal is that Slack is doing well to sell up while it can. Its stock has rocketed on the news, while Salesforce's has dipped. Investors had been disappointed with Slack's performance during the pandemic, when the world switched en masse to remote working, and the likes of Zoom and Microsoft Teams saw adoption soar. Their success came because swapping in-person collaboration for video meetings is pretty straightforward, even though fatiguing — whereas learning how to use Slack is something people have to work at. A frequent lament of Slack CEO Stewart Butterfield back in the spring was that his product was too hard to just pick up. Here's how he framed it in comments on the company's Q1 earnings call back in June:
You just can't adopt Slack that quickly. You can't move from e-mail to channel-based messaging in that short amount of time. I wish that whole cultures could change overnight.
Slack became a victim of its own ambition. It never aspired to be a quick substitute, it wanted to be a whole new way of working. But that didn't lend itself to the kind of overnight switch that the sudden lockdowns of the pandemic demanded. While there were some successful rapid roll-outs, these were typically organizations that were already familiar with Slack. We have some sympathy at diginomica for Slack's stance, since we have a whole maturity model for enterprise digital teamwork in which Slack performs well. But you don't achieve maturity over a weekend. In playing the long game, Slack wasn't in the right place to capitalize on this year's sudden shifts in behavior.
Sales has gone virtual and isn't going back
Meanwhile Salesforce this year saw a massive shift in its customer base as in-person sales suddenly became largely impossible and everyone became an internal sales person, except that they had to do it from their home office (or kitchen table). It seemed like a recipe for chaos, but actually it worked out a whole lot better than anyone had expected. Former road warriors discovered they could fit many more meetings into the day without having to travel from one to another, while previously hard-to-meet prospects became more accessible. Meanwhile, sales associates from closed retail outlets brought their sales floor skills into the customer service realm.
Salesforce has adapted its product offerings accordingly. June saw the launch of Salesforce Anywhere, an upgrade on its venerable Chatter messaging platform — more on that in a moment — which brought real-time team chat, notifications, comments and video conferencing directly into the CRM workflow. Then in September, the introduction of Salesforce Meetings streamlined the virtual sales process to help sales people make the transition from road warriors to video warriors.
The productivity gains of these new sales processes mean that a wholesale return to the old ways are out of the question, even when social distancing restrictions are fully lifted. In-person meetings will come back, but they will no longer be the norm when it's so much easier to just hop on a video call.
Benioff's Chatter backstory - and Quip
At this point it's worth remembering that Salesforce CEO Marc Benioff was advancing the cause of digital communication channels more than a decade ago with the launch in 2009 of Chatter, the messaging channel built into Salesforce. Much like Slack, its mission was to eliminate the scourge of email, and within many sales teams it did achieve that goal. But being embedded within the Salesforce app, it never managed to transcend the boundaries of the enterprise. We'll come back to that point in a moment.
One of the reasons Benioff was an enthusiastic evangelist for Chatter was that it had the potential to expand the reach of Salesforce beyond the confines of sales and marketing into the rest of the enterprise. That has always remained an ambition, and also fueled the acquisition of Quip in 2016, which added a collaborative document platform into the Salesforce platform. Quip's founder and CEO Bret Taylor is now President and Chief Operating Officer at Salesforce.
But something interesting happened earlier this year with the launch of Salesforce Anywhere, a new native chat and video channel that effectively sunsets Chatter. The combination of Chatter and Quip had not been enough to hold off inroads from other conversational platforms including Slack — as early as 2016 early adopter 21st Century Fox was using Quip alongside Slack. This meant that Salesforce was in danger of losing users to the likes of Slack and Teams, with chatbots making it possible to access Salesforce functionality without even having to visit the CRM app. Anywhere provides an alternative, but as I pointed out when it launched, it's still limited to the Salesforce environment. That is where Slack comes in.
This is really about collaborative sales and service
One of the big themes of this year has been the accelerating convergence of different channels. There's much more overlap between sales and service than ever before. Customers want to be able to switch in an omnichannel mode between email, messaging and voice when interacting with suppliers. The problem for Salesforce is that Chatter, Quip and Anywhere all stop at the enterprise boundary. What Slack brings is a mechanism that straddles that boundary. Its CEO Stewart Butterfield was talking up its Slack Channels capability for just this role on the company's Q2 earnings call in September. Introduced earlier this year, Channels make it possible to set up secure communications between multiple organizations involved in a transaction. It's especially useful in scenarios like a complex B2B sale, as Butterfield explains:
For a complex sales process — which can involve legal negotiations and security reviews and the vendor approval process and commercials and all of that stuff — to have the leaders, the managers on the sell side and the buy side, both have oversight of the conversations that are happening, it’s a lot less to put into work.
That's interesting because, unlike the rather complex sales pitch around productivity from digital teamwork (which as we've mentioned, demands a certain level of maturity), this is a much simpler business case to make. Butterfield explains:
The other reason why I like this use case is because that's an argument to buy Slack to get revenue, which is different than buy Slack to get productivity. I'm 100% sure that the ROI on the productivity sale is massive ... 100x or something like that. We don't actually charge that much in the grand scheme of things. But of course that's always a harder sale to make, whereas buying our product to get revenue is a lot easier.
It also taps into a more viral distribution model. If businesses are using Slack Channels to close deals, they have a vested interest in persuading their prospects to switch on Slack. That removes the need for Slack to do its own evangelism to drive adoption, as Butterfield explains:
If you are a new user coming in through a Slack Connect invitation, you already have people to talk to, you already have stuff to talk about. There is already a business use for this. So I think people will wrap their heads around Slack and in a fundamentally different and much better way.
You can see how this stacks up as a mutually beneficial collaboration for both Salesforce and Slack. Salesforce helps its customers close deals, Slack gets to drive adoption and prove its value.
And CRM rivalries with Microsoft - and Adobe
Now step back and take a look at the competitive landscape. Slack is already in a tussle with Microsoft, where Microsoft currently has the upper hand. Microsoft and Salesforce are also rivals in CRM. Joining forces gives both Slack and Salesforce a much stronger proposition. Slack's vision is great but it needs a use case, which Salesforce delivers in the B2B sales context.
Salesforce is also competing with Adobe, and the latter's pending acquisition of Workfront has similarities to the potential Slack deal. Workfront is a shoo-in for managing teamwork in a marketing environment, just as Slack offers effective channels for teamwork across enterprise boundaries in a sales or customer service relationship.
Looking further ahead, Slack's future roadmap opens up the potential for managing transactions such as purchase order processing or settling payments using its shared channels. This could dovetail into Salesforce's existing Experience Cloud platform to streamline customer services and sales.
Overall, I'd say that Salesforce has at least as much to gain from this potential deal as Slack. It's a lot more than a roll-up of Slack's existing growth into Salesforce — there's a huge multiplier that could be triggered by bringing together these technologies and customer bases. Salesforce can gain from Slack even more than Slack stands to gain from Salesforce — if the deal happens, that is.