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 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:
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!
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.
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.
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.
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.
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.
Salesforce gains significant advantages from the acquisition, chief among them:
The Acumen acquisition has implications for enterprises, service providers, and, of course, Salesforce itself:
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].
On June 10, 2019, Salesforce announced an agreement to acquire Tableau, a leading interactive data visualization company, for US$15.7 billion in an all-stock deal. Here’s our take on it.
The announcement is a masterful move to aid Salesforce’s hyper growth agenda to become a US$28 billion company in three years’ time. In the past 15 months, Salesforce has accelerated the data pivot through its acquisitions of Mulesoft in March 2018 and now Tableau, for a combined value of $22.2 billion.
Given its ambitious topline growth goals, Salesforce has hedged its bet against a pure cloud play. Tableau, which is not a cloud company, runs most of its products on-premise, with over one-third deployments in the cloud. However, last year, Tableau announced that its products will also be available on hyperscalers’ cloud platforms (AWS, Microsoft Azure, and GCP.) Addressing the ubiquity of data in a modern enterprise and recognizing the transition in software consumption pattern, Salesforce is taking an “anytime, anywhere” analytics approach to cater to enterprise’s hybrid cloud-first mandate.
In addition, Tableau’s strong performance against rivals including IBM Cognos, MicroStrategy, Oracle BI, and QlikView makes a strong case for the acquisition, given Salesforce’s big bet on its Customer 360 initiative and its broader foray into empowering clients with data analytics and visualization capabilities.
Salesforce, a veteran in the CRM space, is repositioning itself as a digital experience (DX) platform, wherein it intends to become a one-stop, end-to-end solution for enterprises’ DX needs. It has been making strategic acquisitions over the years to plug in the gaps in its DX platform portfolio to achieve this goal.
Because Tableau and Salesforce’s in-house analytics tool, Einstein Analytics, can easily interoperate, the company will be able to sell a well-packaged data analytics offering. Tableau’s niche capabilities in data analytics will not only deliver an improved data management solution but will also help enterprises form data-intensive strategies and optimize the overall stakeholder experience. And, the acquisition gives Salesforce new up- and cross-sell opportunities, as enterprises will be able to purchase CRM and business intelligence (BI) capabilities from a single vendor.
Looking at the timeline of Salesforce’s acquisitions, we see a strategic shift from targeting digital marketing and commerce space toward enhancing enterprise data lifecycle management. Since 2018, Salesforce’s top deals have been to expand its coverage in the data and analytics space. Undoubtedly, the move has given Salesforce a shot in the arm when it comes to showcasing its capabilities across the data management value chain. Tableau sits atop of its acquisitions, plugging in multiple outside data sources and offering an easy to use UI for data visualization.
Indeed, Salesforce’s acquisition of Tableau is a strategic next step after its 2018 acquisition of MuleSoft. While Salesforce leveraged Mulesoft to create a “Salesforce Integration Cloud” that allows different cloud applications to connect via APIs, Tableau can help it gain deeper insights in this data, in turn driving enterprises toward data-driven decision making.
We give a thumbs up to this deal, particularly for what it means to the market going forward. Why?
The move fits well with Salesforce’s agenda to move into machine learning-driven analytics. Essentially, it will now have a strong BI tool, underpinned by AI, that will democratize enterprise access to next-generation data modeling and analytics capabilities. A Tableau-integrated Salesforce Einstein Analytics offering should be able to deliver an intelligent, intuitive analytics and data visualization platform that leverages enterprise-wide data to help enterprise customers, employees, and partners with well-curated insights.
In a major statement that reaffirms its vision of becoming the backbone of the modern digital enterprise, Salesforce acquired MuleSoft, a leading application network platform, for a hefty US$6.5 billion. This is the software giant’s largest ever acquisition.
It is evident that MuleSoft will complement Salesforce’s PaaS agenda, per Salesforce’s statement that it will leverage MuleSoft to create the “Salesforce Integration Cloud.” MuleSoft’s AnyPoint Platform, which connects different cloud applications via APIs, is a good fit with Salesforce’s platform offerings.
In addition to strengthening Salesforce’s PaaS portfolio, the acquisition will enable the combined entity to:
Gain a stronger competitive foothold: Salesforce has been competing with Oracle and Microsoft in the CRM space. With players such as ServiceNow and Workday pivoting towards platform services, this deal enhances Salesforce’s platform play.
Salesforce CEO Marc Benioff has been chasing hyper-growth, with ambitions to nearly double the company’s current revenue to US$20 billion by 2022. While Salesforce’s growth has been relatively muted growth recently (~25%), he application network platform business grew by an impressive 37 percent YoY in Salesforce’s Q418. This presents a strong opportunity for Salesforce to enhance its PaaS portfolio, beyond the headway it’s been making in infusing AI and IoT capabilities across its platform to deliver a more personalized experience for customers.
Naturally, the next smart move for Salesforce would be building or acquiring a strong API integration engine that helps it access and connect data across enterprises, regardless of its location. Evaluating its acquisition chronology, it was time for Salesforce to start owning the integration experience as well, while also trying to stitch together an integration cloud and potential iPaaS offering. The acquisition of MuleSoft gives it just that, with the added advantage of ensuring a faster time to market and a broader customer base. Additionally, MuleSoft was growing at a fast clip, clocking revenue of US$297 million for FY2017, 58% YoY growth, with guidance of US$405-415 for FY2018 (with an aim to reach US1 billion in revenue by 2021).
The growth story notwithstanding, Salesforce is paying a premium for MuleSoft, with an enterprise value to sales multiple over 20x, which is a reasonably high compared to typical deals in the segment. Salesforce is not alone to tap into the API ecosystem. Google acquired Apigee in 2016 for US$625 million, while Red Hat acquired 3Scale in 2016.
This interest in tapping into the API and integration economy is not accidental. Enterprises have realized that they cannot move the needle meaningfully when it comes to digital transformation if they don’t get their technology estate in order. As we’ve opined before, creating the next breakthroughs in digital requires collapsing the stack to eliminate friction across the value chain. Digital needs to be enabled through convergence of emerging technology themes to drive efficiencies across back-office and core mid-office business processes and enhance competitive advantage by impacting market-facing front-office processes. To do this, it is not enough to invest in a solitary mobile app for customers or an internal gamification initiative, it requires efficient plumbing (e.g. DW/BI, creating data lakes, etc.) as a precursor to meaningful digital transformation. Our recent enterprise research also indicates that front office digitalization or Digital for Growth (DfG) is just the tip of the proverbial iceberg (less than a fourth of the spend), while a significant share is focused on the nuts and bolts (Digital for Efficiency / DfE and Digital enablement).
Although there is a general optimism around the business value of the acquisition, the stakeholders need to be wary of some of the potential roadblocks that will emerge:
The size and intent of the deal has certainly piqued the market’s interest. With the aggressive stance Salesforce is taking to expand its PaaS portfolio while playing the customer experience card, it wouldn’t be surprising if we see it forging more acquisitions and/or partnerships, including other companies in the API economy. Enterprises will need to keenly evaluate this landscape to choose the right partner in their digital transformation journey.