Salesforce Acquires Slack: Salesforce Stands to Gain Much More Than Slack in the Long Run | Blog

There was much excitement on December 1, 2020, when Salesforce announced that it has entered into a definitive agreement to acquire Slack, and Salesforce CEO Marc Benioff called the US$27.7 billion deal a “match made in heaven.” In the days since, however, the market has significantly dampened that excitement, with Salesforce losing more in market valuation than the price it paid for the acquisition.

But we at Everest Group are bullish on the deal; we believe Salesforce has much to gain in the long term.

Microsoft’s erstwhile involvement

Microsoft considered buying Slack for US$8 billion in 2016, but ultimately decided to take this market on organically, releasing Teams within a year. Microsoft used the US$8 billion to invest in Teams growth through:

• An ecosystem play – Microsoft leveraged its Office 365 ecosystem to increase the Teams user base. It effectively provided Teams for free as part of multiple Office 365 packages, providing a more holistic value proposition.
• Aggressive sales – Microsoft started a price war with Slack by offering Teams as a free product or at a highly discounted price. With its deep pockets and bundled offerings, Microsoft effectively contained Slack, turning the market against it, causing its valuation to decline.

Slack’s story

They say necessity is the mother of invention, and Slack is the poster child for that. What began as an internal tool, developed out of necessity turned into a wildly popular chat and productivity offering. Then Microsoft set its sights on the space, effectively crushing Slacks’ growth. In terms of market adoption, before Slack stopped reporting daily active user numbers in 2019, it was able to grow to about 12 million users in seven years; Teams matched that number in only three years. Moreover, Teams continues to expand its presence with a daily active user base touching 115 million in October 2020.

In terms of market valuation, despite achieving robust revenue and user base growth, Slack has not been profitable, reporting a loss of US$138 million in 2019. Additionally, its market valuation has eroded significantly since its IPO listing: From its IPO price of US$38.50, Slack was trading at $25.89 on October 31, 2020, a valuation loss of ~33%.

In many ways, its rivalry with Teams and its ensuing market valuation loss made Slack desperate for an acquisition. Slack needed a partner to sustain itself and compete with Microsoft. Salesforce to the rescue!

How can Salesforce help Slack compete with Teams and Zoom?

One’s immediate reaction may be that Slack should be able to arrest its slide given its ability to reach into Salesforce’s deep pockets. However, our take is that Salesforce is good at selling to business units and sales and marketing folks, not to enterprise IT and tech, who would be the primary Slack buyers. That is Microsoft’s power alley – the area it rules. In addition to money, Salesforce will have to make big changes to its sales model to make a dent in Microsoft’s tight control of that space.

How does Salesforce benefit from this acquisition?

The acquisition comes at a time when Salesforce recognizes its need to build integrated suites for enterprises. Most of its competitors – Microsoft, of course, and SAP and Oracle – have been talking about integrating the front and back ends, especially as enterprises have started to realize the importance of end-to-end integrated suites cutting across ERP, CRM, and HCM.

This acquisition gives Salesforce the opportunity to move beyond the sales and marketing area and gain access to other parts of the organization. If integrated well with the Salesforce platform, Slack could potentially act as a unifying thread across ERP, CRM, and HCM, while also solving for the missing piece in their customer-360 value proposition.

Salesforce has made a couple of failed forays in the collaboration space with Chatter and Quip; the third time may be the charm with Slack, given its more robust offering and positive customer sentiment.

What does the acquisition mean for the market?

The acquisition highlights the fact that the industry is going through consolidation, and standalone products are finding it difficult to compete with larger players that offer bundled products. Moreover, the collaboration space is gaining significant traction among enterprises as remote working becomes the new norm. We wouldn’t be surprised to see Amazon or SAP getting into this space, and we’re wondering if we might see Atlassian, Splunk, or some other similar organizations in the acquisition news sometime soon.

If you’d like to share your thoughts on the acquisition or on Salesforce’s strategy, reach out to us at [email protected] or [email protected].

Salesforce Acquires Acumen: The Likely Ripple Effects in Professional Services | Blog

The news of Salesforce’s acquisition of Acumen Solutions on December 1, 2020, was completely buried under Salesforce’s whopping $US27 billion acquisition of Slack the same day. But don’t discount the Acumen acquisition – I believe it will be the cornerstone of Salesforce’s professional services strategy over the next several years.

Why this acquisition is unusual

For starters, tech vendors in general do not leverage M&As to enhance their professional services capabilities; most tech vendors’ M&A activity is driven by their technology arms. The Acumen deal is the only pure-play professional services partner acquisition that has happened in the past three years among big tech vendors, based on an analysis of 51 acquisitions by AWS, Microsoft, SAP, and Salesforce over that time period.

The acquisition comes at a time when most tech vendors are in a state of flux over their professional services strategies. For example, AWS grew its professional services arm by an eye-popping 40% over the past 12 months, while peers and other vendors were still figuring out the implications of the pandemic and whether they should be aggressive with their professional services offerings.

The acquisition is also important given the fact that Acumen was one of the few remaining pure-play Salesforce System Integrators (SIs) that was competing head-on with the larger SIs as a major contender in the market. Thus, the acquisition adds significantly to Salesforce’s professional services strength, as Acumen adds approximately 1,000 FTEs to the existing base of 1,000-1,200 FTEs currently working in Salesforce’s professional services arm, effectively doubling the overall headcount.

What’s in it for Salesforce?

Salesforce gains significant advantages from the acquisition, chief among them:

• Bridging the talent demand-supply gap – Everest Group’s recent talent study suggests that the demand-supply gap for Salesforce services talent has widened over the past two years and now stands at more than 20% for areas such as Lightning, Mulesoft, and Einstein Analytics. Also, Salesforce is getting pushed out by other vendors such as Oracle, SAP, and Pega and needed to have talent to help clients increase adoption, an area where service providers have been struggling. The acquisition strengthens the footprint of Salesforce’s professional services arm in North America especially in areas such as Einstein, Lightning, and Service cloud.
• Catering to demand for industry-specific expertise – More than 70% of Acumen’s current portfolio is concentrated in three industries: federal; Banking, Financial Services, and Insurance (BFSI); and, manufacturing. The acquisition boosts Salesforce’s industry-specific agenda, which it has been driving on the technology side with Vlocity and the launch of industry cloud offerings. The acquisition also will have significant positive impact on Salesforce’s ability to serve the federal services space, where Salesforce has been able to capitalize on multiple opportunities post-pandemic.
• Getting a nimble service partner – The acquisition also highlights Salesforce’s recognition that it needs to get more involved from a services standpoint. Pure play and niche SIs, in general, are faster to react to vendors’ technology innovation, and they are more flexible in meeting clients’ demands. The need for nimble service partners is more pertinent for Salesforce today given the volume of innovation that they have been bringing to the market.

What are the key implications going forward?

The Acumen acquisition has implications for enterprises, service providers, and, of course, Salesforce itself:

• For enterprises: According to our Salesforce Services research (see our report, Salesforce Services – Solving for the Missing Link) more than 80% of clients said their vendor’s professional services arm is their go-to partner in defining the adoption roadmap when it comes to emerging products such as Mulesoft and Lightning. There is a clear time lag in the service provider’s ability to deliver on to the tech vendor’s innovation. This acquisition is a step in the right direction as strengthened professional services gives Salesforce an ability to deliver innovation faster in specific industries.
• For service providers: Once the dust settles, this acquisition will force service providers to demonstrate their ability to think ahead of Salesforce’s innovation curve and be at the top of their game as truly agile partners. Service providers should think beyond the core platform and invest proactively in the marketing and commerce cloud and cross-skill talent in Mulesoft and Tableau. They should further develop a structured program to build industry and functional expertise in the existing Salesforce talent.
• For Salesforce: As a result of this acquisition, some large SIs may perceive Salesforce Professional Services as a competitor – which might not be totally untrue – but could work against Salesforce. Even today, large SI partners believe core platforms (sales and service cloud) are not growing as fast as they want, and so they have curtailed proactive spending. Thus, the onus falls back on Salesforce to allay these fears and continue expanding its partner network.

It’s early days yet; only time will tell how this acquisition will actually shake out. But I have no doubt it will provide food for thought for other big tech vendors as they work through their professional services strategies over the next year. If you want to share your thoughts on the acquisition or on Salesforce’s strategy, reach out to me at [email protected].