Salesforce Votes with its (Large) Wallet on Slack in Bid for Outright Enterprise Collaboration Leadership

Cloud software giant Salesforce announced yesterday its plans to acquire software company Slack for $27.7 billion, making it Salesforce’s largest-ever acquisition and one of the largest acquisitions in the history of the software industry. This creates significant potential value for both Slack and Salesforce in terms of portfolio enhancements as well as cross-selling opportunities and new market growth. It also builds Salesforce’s enterprise collaboration chops in its intensifying competition with Microsoft. The latest ISG Provider Lens Digital Workplace of the Future study identified Slack as a “Leader” and Microsoft as a “Market Challenger” in the enterprise collaboration solution quadrant.

Salesforce is well known for its strategic acquisitions and for integrating third-party solutions into its ecosystem. Its earlier acquisitions of MuleSoft and Tableau are used to consolidate data from diverse sources in one place for Salesforce platform users. The Slack acquisition is similar in intent as it allows users to manage disparate forms of workplace and even third-party communication on a single platform. Integrating Slack into Salesforce would allow users to consolidate different modes of client communication and interaction, including social media and email.

What this deal could mean for Salesforce?

• A strengthened position in the enterprise collaboration space: Salesforce had been trying to enter and compete in the enterprise collaboration space for many years. Until now, it has used Chatter, an enterprise social collaboration tool that offered real-time messaging and chat for users on Salesforce platforms. When other leading enterprise collaboration solutions started to include productivity features, Salesforce acquired word-processing app Quip in 2016, making it a contender in the 2019 IPL study for enterprise social collaboration solutions. A key drawback for Chatter and Quip was that they required end users to communicate and collaborate within the Salesforce ecosystem. Slack gives users the ability to connect with diverse channels and inter-company communication channels through its Slack Connect feature.
• Integration with a diverse set of enterprise business applications: Salesforce offers a wide range of strong capabilities as a standalone customer relationship management (CRM) platform, but to date it has required users to rely on Connectors to connect with other ERP business systems. Meanwhile, its strongest competitors, including Microsoft Dynamics, have been building various business function modules, such as finance and operations. With Slack, Salesforce users will be able to leverage integrations of 2200+ enterprise applications covering a diverse set of business functions.
• Enhanced competition with Microsoft: Microsoft offers a robust bundled package in Dynamics365 with PowerApps that provide non-technical users the ability to develop low-code-no-code apps on Microsoft platforms. But talk to developers and you’ll find that Slack has been the number one favorite destination for developing apps for many years. And, with the recent launch of Workflow Builder, which allows non-technical users to create workflows and build custom apps in Slack, technology democratization may well be just around the corner for enterprise Salesforce users.
• Access to small- and medium-sized businesses: Slack is quite popular with small- and medium-sized business customers, a segment of the industry with which Salesforce faces tough competition from other cloud-based CRM vendors such as Zoho. Its acquisition of Slack will help it push ahead in this market.

The global COVID-19 pandemic has hindered traditional sales and marketing efforts, and cloud application usage has increased dramatically. When Salesforce launched Salesforce Anywhere earlier this year to provide real-time chat and notification in one place for its platform users, it found it was leaving out some critical communication channels, including social media, web and email. Slack solves this problem.  

What this deal means for Slack?

• A leap in front of competitors: Slack has been neck and neck in competition with Microsoft Teams and is popular because of its unique approach to team collaboration and its user stickiness. However, when COVID-19 hit, organizations turned to Microsoft Teams and video collaboration tools such as Zoom that easily integrated with their existing technology ecosystem to provide effective communication and collaboration for remote working. Though Slack also reported a significant increase in its userbase, it trailed Microsoft Teams. Slack found it difficult to compete with Microsoft’s existing productivity suite and users’ familiarity with it. Organizations weren’t sure they could adapt their work culture quickly enough to take advantage of the benefits of Slack. Integrating with an existing solution such as Salesforce gives Slack a bigger enterprise solution umbrella and a much-needed boost against its competitors.
• Co-existence with other vendors’ collaboration ecosystems: Slack faces challenges when organizations already have invested in collaboration solutions from vendors such as Microsoft, Cisco or Google. Slack can co-exist with clients’ existing productivity solution ecosystem. However, it’s difficult to help an organization understand the value add of Slack when they are already investing in Microsoft 365 or Google Workspace. When Slack integrates with Salesforce, decision makers will be able to have it as part of their CRM platform along with their existing productivity collaboration ecosystem.
• Access to a wider client base: After the acquisition, Slack gets to expand its reach with existing Salesforce accounts. Its ability to interact with partners outside the enterprise walls will be a huge positive factor for existing Salesforce users.

Caution:

Though the news is good for both firms, one should not ignore a bit of caution for a distant future. Slack is known as a disruptor in workplace collaboration and clients favor it because of its stickiness. Integrating with a large enterprise software vendor can dilute its image, and existing users may have concerns about that. There is a risk of losing its unique differentiation when associating with an established software giant.

Salesforce, too, must be careful not to turn into a de-facto or monopolistic vendor in the CRM space with Slack capabilities. Such positions present their own set of challenges as faced by leaders in other domains, be it Facebook for social media, Google for search engine or Microsoft for workplace productivity.

Enterprise Guidance

Clients using both Slack and Salesforce can expect even better functionality in future. However, acquisitions involve merging distinct cultures. Slack was born out of a "kill the email" philosophy and Salesforce was the first firm to provide enterprise applications through web browsers. Though both Salesforce and Slack are “born in the cloud” firms, Salesforce will need to be smart to keep the best minds within Slack motivated and hold onto common clients.  

Enterprises using Slack should request roadmap updates to be sure their ongoing collaboration requirements will be met throughout the acquisition. Enterprises using Salesforce and considering Slack should also seek roadmap information, including clarifications on integration plans.

About the author

Mrinal Rai is the principal analyst for Digital Workplace and Conversational AI. His area of expertise is digital workplace services, enterprise social collaboration and conversational AI both from a technology and business point of view. He covers key areas around the Workplace, End User computing domain and conversational AI viz., modernizing workplace, Enterprise mobility, BYOD, VDI, managed workplace services, service desk, enterprise social software, content/ team collaboration, chatbots and intelligent virtual agent platforms. He has been with ISG for last 8+ years and has more than 13 years of industry experience. Mrinal works with ISG advisors and clients in engagements related to chatbots, virtual assistants, workplace modernization, social intranet, collaborative workplace, cloud-based VDI, end user computing and service desk.