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MARC BENIOFF got the idea for the “ohana” corporate culture during a sabbatical in Hawaii. The term refers to a network of linked families. He likes to think of Salesforce, the third largest software company in the world, which he founded and runs, as such a network. On December 1, Mr. Benioff welcomed Slack, an instant messaging tool, to his ohana. The $ 27.7 billion deal is one of the largest ever in the software industry.
Like many family alliances, reunion is in part a matter of power and strife. Slack’s product has a cult following, which Salesforce wants to leverage to create a technology platform that sells digital tools that no business can do without. Stewart Butterfield, co-founder of Slack, hailed it (hyperbolically) as “the most strategic combination in software history.” The feud is with Microsoft, whose Slack advances were rejected four years ago. The deal makes Salesforce a much more formidable challenger for the giant.
Mr. Benioff is perhaps best known to the public for having championed the “object” of the business (and owning Time magazine). But in his own industry, he wins kudos for disruptive innovation. In the 2000s, the young Salesforce essentially invented software as a service (SaaS) – access programs remotely rather than installing them on desktops – especially for managing customer relationships. Microsoft, Oracle, SAP and others had to follow suit.
The explosive growth of SaaS has taken Salesforce to ever higher heights. And on a bigger scale: since 2016, it has spent more than $ 25 billion to buy more than a dozen companies to increase its IT capabilities. He bought Tableau, a data analytics platform, and MuleSoft, which helps businesses connect legacy HE systems to the cloud.
Then came the pandemic. A boom in tech stocks has pushed Salesforce’s market value from $ 144 billion to $ 225 billion this year. Slack, whose share price has lagged behind those of Zoom and other remote work facilitators, suddenly seemed affordable. Mr. Benioff pays with a mix of cash and Salesforce stocks. His company’s valuation is still well behind Microsoft’s $ 1.6 billion. But he can finally have a chance on the top tech table. It already reigns supreme in customer relationship software and thrives in other areas of enterprise software, particularly since the acquisition of Tableau. Aaron Levie, boss of Box, a cloud computing company, describes Slack as “another point on the graph” that charts Salesforce’s rise to become the world’s number two in enterprise software (behind Microsoft). Perhaps, Mr. Levie thinks, “even the greatest.”
Feelings like this explain why for Microsoft the Slack deal is a red rag. Slack caught the giant’s attention a few years ago when Mr. Butterfield promised to erase emails, which would threaten Outlook, Microsoft’s popular inbox, and its mail server, Exchange. “If you want to come to the King, you better not miss it,” quips Charles Fitzgerald, a former Microsoft executive who is now an angel investor. At the time, Mr. Butterfield failed – and Microsoft hit back with a new product, Teams, combining messaging with video conferencing and other features. Slack has filed an antitrust complaint against it for offering Teams for free in its Office offering, as well as its popular word processor and Excel spreadsheets.
Teams are a big reason Mr. Butterfield is in the ohana-ish mood. Like Zoom, it has video conferencing and much more active users than Slack, which explains the latter’s poor performance in the stock market. Salesforce will invest to reinvigorate it, likely adding more video conferencing capacity. Its selling machine will push Slack past the early adopters in the mainstream of the business.
This will intensify Salesforce’s rivalry with Microsoft, with which it will compete in three main areas. With Slack, it will take Office directly, now that Teams is integrated into it. Slack also provides a gateway to 2,400 software tools, mostly created by independent companies, which compete with other Microsoft products. Salesforce and Slack could bundle all of this software into a convenient Microsoft alternative. Second, Salesforce competes with the customer relationship management giant, where it plans to make Slack the user interface and other business functions.
Then there is the bigger battle on the platforms. Salesforce and Microsoft aim to give business people who don’t write software themselves the tools to create custom programs – “with clicks, not code,” as Salesforce puts it. Salesforce’s Developer 360 is poorer than Microsoft’s Power Platform but is improving, thanks to MuleSoft and Einstein, a set of artificial intelligence services. Slack could be a “Trojan horse” for hooking clients of Salesforce’s own clients to more of the company’s applications, says George Gilbert of TechAlpha Partners, a consulting firm.
Success is not in the bag for Salesforce. Mr. Benioff may not be able to turn his vision into reality. Even if Slack gets its video act, it would be late for the video conference, which matured quickly during the pandemic. Most large corporate customers are already using Zoom, Teams, or Cisco’s Webex software. And Salesforce could wrongly end up sacrificing Slack’s growth while trying to strengthen its own business.
Moreover, Slack is not in itself enough to make Salesforce a real rival to Microsoft. Mr Benioff should develop (or buy) capacity for document storage, cybersecurity and more, believes Mark Moerdler of Bernstein, a broker.
Wall Street is already wary of large Salesforce acquisitions; The company’s stock price plummeted when news of Operation Slack surfaced. Again, SaaS has great potential, as Microsoft shareholders are well aware. And, as Mr Butterfield noted when announcing the deal, Mr Benioff has already started a revolution. Betting against this ohana is not for the faint hearted.■
This article appeared in the Business section of the print edition under the headline “Get me some Slack”
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