Final week, information broke that Salesforce was regarded as in superior talks to amass Slack. This inevitably fuelled a lot pleasure and debate, not least due to the size of the potential acquisition. Slack’s market capitalization was about $17 billion earlier than the information broke and jumped to virtually $23 billion quickly after.

And with Saleforce’s earnings name scheduled for tomorrow, we could possibly be in for an official announcement quickly.

There’s little question this could be a serious acquisition for Salesforce. It wouldn’t be its first of this scale — Salesforce acquired Tableau in 2019 for over $15 billion in an all-stock deal — however there would should be a rock-solid argument for such a call.

Why would Salesforce purchase Slack?

To take care of the excessive price of progress that it has achieved for the previous couple of years, Salesforce has been investing in varied initiatives that allow it to develop its attain in buyer organizations. A few of this has been taking place organically, for instance bettering its cross-selling and upselling inside every buyer. Nonetheless, acquisitions have performed a major function right here too.

Salesforce’s most up-to-date acquisitions, MuleSoft and Tableau, had been each designed to construct out the Salesforce platform, enabling it not simply to grow to be embedded in CRM processes however to increase throughout prospects’ total operations. Regardless of these progress efforts, the majority of Salesforce’s present purposes portfolio doesn’t give it vital attain past gross sales and advertising groups.

The corporate needs its purposes to be vital to each worker with a corporation; to be the place they go to get their work completed. And it has lengthy been eyeing the collaboration software program area as a strategy to obtain this.

It launched Salesforce Chatter in 2010, adopted a few years later by Group Cloud, however neither actually supplied that prolonged attain exterior gross sales. Salesforce’s $750 million acquisition of real-time doc creation firm Quip in 2016 was one other step on this path, however though the product has discovered a robust function in enabling work within the CRM setting, Quip hasn’t considerably expanded Salesforce’s attain.

Buying Slack, nevertheless, would lastly give Salesforce the increase it’s been in search of. Though Slack was initially profitable in tech-savvy IT groups, utilization has unfold considerably over the past couple of years — one thing that has accelerated dramatically with the rise in distant working because of the pandemic. The Slack workforce additionally has a superb understanding of tips on how to drive adoption and enterprise change inside prospects, which might increase Salesforce’s buyer success group.

Plus Slack has made investments in areas that may be fascinating to Salesforce. It has a big developer group, and is robust in bots and app growth. And, very similar to Salesforce, Slack has been investing in low-code know-how with its Workflow Builder instrument, which allows particular person, non-technical staff to automate day-to-day duties. Lastly, Slack Join allows B2B collaboration and is gearing as much as enable the creation of a B2B enterprise community, which might be one other nice alternative for Salesforce. Alongside Slack’s in depth checklist of shoppers, every of those areas present differentiation and progress alternative that would underpin a possible acquisition.

Why would Slack conform to a deal?

There have been rumors about tech firms wanting to amass Slack for a number of years — arch-rival Microsoft was reportedly contemplating a purchase order again in 2016 — for a a lot lower cost, for sure. Nonetheless, the deal by no means got here to something. Microsoft determined to construct its personal competing answer, and Slack continued to develop at an astonishing tempo.

Issues are a bit completely different now.

Slack’s income progress has been beginning to gradual over the previous 18 months, with its fiscal 2021 (which ends January 31) anticipated to indicate about 38% progress, versus 82% in fiscal 2019. It has seen a major increase in 2020 when it comes to adoption of the Slack utility, with paid prospects up 20,000 prior to now six months, in contrast with a rise of 15,000 in the entire of 2019. Slack has additionally seen its variety of large-ticket prospects (with over $100,000 in trailing 12-month income) double since 2019.

Regardless of this, Slack has upset buyers who had been hoping for Zoom-like income progress in response to the pandemic. Though Slack and Zoom had been the identical dimension a yr in the past, Zoom is anticipating to have grown 280% this yr, dwarfing Slack’s 38% steering.

Slack can be going through ever-stronger competitors from Microsoft Groups. Slack nonetheless has some appreciable factors of differentiation over Groups, not least the 2 areas I highlighted above. However the results of the pandemic and the shift to distant working have made the competitors with Microsoft even more durable, particularly given Microsoft Groups’ energy in video conferences, an space that has grow to be enterprise vital this yr.

With sturdy ambitions, Slack now wants a strategy to step up its market attain and product funding, however doing that as an impartial may be very difficult. Salesforce may present an ideal platform for Slack and has loads of expertise and success in integrating main acquisitions, which might give Slack’s prospects confidence if the acquisition does go forward.

If it does purchase Slack, Saleforce would doubtless proceed to function Slack as an impartial enterprise unit, in the identical manner it has completed with Tableau or MuleSoft. An acquisition would inevitably imply a lot deeper integration throughout the breadth of Salesforce’s portfolio, which can solely be constructive for the various Slack prospects which might be already Salesforce prospects. Slack already integrates with Salesforce in a number of methods, together with with Gross sales Cloud and Service Cloud through Chatter, and with Quip for doc collaboration. Nonetheless, there’s scope for integration with the remainder of the portfolio, and the Chatter capabilities may even be utterly changed by Slack.

A possibility to workforce up in opposition to Microsoft

Total, if they’ll agree on a deal, this could possibly be a really constructive and thrilling transfer for each Slack and Salesforce, and one that may see them becoming a member of up in opposition to Microsoft — not simply in enterprise purposes, the place Microsoft is more and more difficult Salesforce with its Dynamics 365 enterprise, however in worker productiveness and collaboration as nicely. One factor’s for positive, with such a giant price ticket, the strain is on to verify the affect on progress lives as much as buyers’ expectations.

Angela Ashenden is Principal Analyst of Office Transformation at CCS Perception.

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