Salesforce makes a trillion dollar hedge

Editor’s Note: This article by Jiri Kram was originally posted on LinkedIn on December 2, 2020. Jiri has posted several articles here on Cloud Wars over the past 9 months, and as with all of his other insightful and compelling articles, this article reflects the enlightened opinions of Jiri and does not necessarily reflect the views of Cloud Wars. Jiri is a solutions architect who studied FinTech at MIT with a special focus on ML and blockchain, and has worked with Salesforce technology for many years. In November, Cloud Wars published an article by Jiri titled AWS just won the cloud contract of the century, preceded by two in September: Can Salesforce Become the Next Trillion Dollar Company? and Snowflake: an IPO that made Salesforce and Warren Buffett bullish.

On December 1, 2020, Salesforce acquired Slack for $ 27.7 billion. Here’s what came before and will happen next.

introduction

1. Do you think the timing is a coincidence?
2. Do you think Marc Benioff paid too much for Slack?
3. Do you think Salesforce paid a premium for Teams?

Here is the other side of the story; you may not know:

“Soft – this company is the biggest surprise of the last round. It was number 1 on my pre-IPO company watch list, but now it’s absolute number one. Slack is clearly a game changer and disruptor to various highly profitable franchises. Who should buy Slack and get it fast? 1) Microsoft – if Slack moves to Google, Microsoft Office 365 will have a huge competitor, 2) IBM – Slack is a Lotus Notes killer. Anyone who has been through hell of using the worst enterprise application in the universe knows how far behind Lotus Notes is, somewhere in the 19th century Lotus Notes is from Slack and Office 365. If IBM buys Slack , it can stop the massive churn and hate of Lotus Notes users (I’m one of them) 3) Google – if Google for Work is to create traction, Slack is finally the way to go: integrate Gmail, Hangouts, Google Docs and you are directly targeting both IBM and Microsoft, 4) Salesforce – will likely join the bidding war as well as the potential ability to attack both IBM (Lotus Notes) and Microsoft (Office 365) will be too much great temptation to resist for Marc Benioff, 5) Facebook – Marc Zuckerberg has long dreamed of becoming Facebook for businesses and businesses. If he gets Slack, it will be a big blow to all of the competitors in this space: Google, Microsoft, IBM, and Salesforce. “

This is an excerpt from my article Top 25 companies that will then be acquired from (August 2016).

The article was originally posted on LinkedIn and has garnered around half a million views. I had to delete in 2017 when I joined PwC and had to follow the rule of independence. But some copies have survived until today (https://bsi.com.au/the-25-hottest-tech-companies-that-could-be-acquired-next-august-2016/)

The most controversial part of my article was this:

“Potential buyers: defensive (Microsoft, IBM), offensive (Google, Salesforce, Facebook) Estimated price: 5 to 25 billion USD.”

Yes, my 2016 model also estimated the buyback price. As you can see in 2020, Mr. Benioff paid $ 27.7 well aligned with my 2016 model. My article also has a few other names that may sound familiar: MuleSoft, Tableau, Magento, Gigya, Apttus, Appirio, Hortonworks, Krux, Ping Identity.

(Image copyright Shutterstock)

Now let’s move on to 2020 and let me tell you what will happen next and answer the following questions

1. Why Slack?
2. Why pay a premium?
3. Why now?
4. Who is the biggest winner?
5. What will happen next?

Why Slack?

The first time I heard Marc Benioff’s vision for social enterprise, I was among the crowd (where this photo was taken) waiting for James Hetfield, Kirk Hammett, Lars Ulrich, and Robert Trujillo at the Moscone Center. It was 2011, Metallica’s “Enter Sandman” was Dreamforce’s theme song, and I was looking forward with a few thousand people to hear it live! In 2011, Salesforce was that growing company we all loved and had so much fun with. Meanwhile, Marc had a big vision where Salesforce would be ubiquitous in all processes within the company. He knew that for Salesforce to realize this big dream, it had to become a fabric on which the business would operate. Chatter and Salesforce 1 were the first steps in this future. But there was a problem: Oracle Database (the foundation of Salesforce 2011) couldn’t fit into its social enterprise vision. Then a few years later, Slack came out of nowhere and unlike Salesforce Oracle, Slack had no issues with scaling. The Salesforce engineering team took note. 2020 was just the right time when Slack was undervalued in the market.

Why pay a premium?

Do you think Marc Benioff has paid too much? Not at all. Who do you think is the real target here? No, Microsoft Teams, this is just collateral damage. The real target is ServiceNow. Benioff’s team noticed two things. 1) Under Bill McDermott, ServiceNow has grown into more than just an “IT help desk,” Bill’s vision goes beyond IT. NOW’s next target is Salesforce’s main cash cow – Service Cloud. If Bill McDermott was successful, NOW could become an alternative to Service Cloud, 2) $ NOW share price is also much higher than Salesforce despite much lower earnings. Why? Because it is expected that someone will buy Service Now and that someone is Microsoft. If Microsoft buys ServiceNow and merges it with Dynamics 365, it will become dangerous for Salesforce. Thus, to guard against the acquisition of ServiceNow by Microsoft and therefore, Marc Benioff needed a Trojan horse sitting in IT departments like ServiceNow. Slack was the weapon of choice.

Why now?

Because we are in a time of uncertainty, there is a transition to the White House which could propose the next tax on capital gains, and therefore the availability of capital for mergers and acquisitions and its cost could increase. Since Salesforce is buying Slack with cash and equity, the deal price is much lower today than it would be in a few months. But there is, of course, one more thing that no one has noticed and it’s around 2023. In case you don’t know what it is, then you’ll find it there.

Who is the biggest winner?

Amazon Web Services. Why? Because Salesforce, by purchasing another native cloud based on AWS technology (at a massive premium), has also made a strong commitment to the future of its database. What do you think Slack works on? Of course, AWS. Who is the most likely candidate to replace Salesforce’s aging Oracle database engine? Of course, AWS! What will be the new database engine that will run Salesforce? Of course, Aurora. Who will lose? Oracle. Because Salesforce, with the acquisition of Slack, also made Salesforce overnight the largest SaaS company using AWS.

What will happen next?

You can already feel it at Reinvent. The Salesforce logo is more and more presentand new AWS services like Amazon Connect Customer Profiles, Amazon Connect Wisdom… .Etc are already directly linked to Salesforce. Amazon is also starting to speak publicly about powering Salesforce’s ML services. You can even see the Salesforce logo among Lambda customers. This is just the beginning because for the moment, everything depends on the US Congress.

Will AWS remain part of Amazon? If so, you still have two independent companies Amazon and Salesforce. Otherwise, AWS will become a new public company. And guess what will happen next? AWS will create a joint venture (which is why Marc Benioff was to level the playing field with Andy Jassy by acquiring Slack) where Marc will lead the application side of the newly formed company, and Andy will focus on infrastructure. This new company will have a valuation of over a trillion dollars. It will be in direct competition with a single Microsoft competitor because no one else can match the size of the AWS Salesforce empire.

Well done Marc!