Slack + Salesforce Emergency Pod with Packy McCormick of Not Boring

Summary Notes


In this episode of Acquired, hosts Ben Gilbert and David Rosenthal, along with guest Paki McCormick of Not Boring, dissect the acquisition of Slack by Salesforce for $27.7 billion. They explore the strategic implications, Slack's performance as a public company, and potential scenarios for Slack within Salesforce over the next five years. The hosts consider the acquisition a significant move by Salesforce to bolster its enterprise collaboration offerings and compete against Microsoft, while also questioning Slack's decision to sell given its strong business metrics and growth potential. They speculate on the integration challenges and opportunities, the impact on Slack's innovation trajectory, and the potential for Salesforce to become a new distribution channel for best-in-breed SaaS companies. The conversation also touches on alternative acquirers like Google and Zoom, and the importance of Slack Connect in the deal.

Summary Notes

Introduction to Acquired Podcast Emergency Episode

  • Ben Gilbert and David Rosenthal introduce the emergency podcast episode.
  • Ben is the co-founder of Pioneer Square Labs, a startup studio and venture firm in Seattle.
  • David is an angel investor and independent advisor to startups based in San Francisco.
  • They mention the episode will discuss the acquisition of Slack.

"Welcome to this emergency pod of acquired, the podcast about great technology companies and the stories and playbooks behind them."

"And I'm David Rosenthal, and I am an angel investor and independent advisor to startups based in San Francisco."

Ben and David are the hosts of the Acquired podcast, and they set the stage for an emergency episode discussing Slack's acquisition, highlighting their backgrounds in the tech industry.

Slack Acquisition Discussion with Paki McCormick

  • Paki McCormick, from Not Boring, is introduced as a special guest.
  • The discussion centers around Slack being acquired and Paki's mixed emotions on the matter.
  • Paki is described as the number one Internet and Twitter Slack bull.

"We are talking about Slack being acquired, and we have the best in the business, the number one Internet and Twitter slack bull out there."

Paki McCormick is introduced as a prominent supporter of Slack, and his perspective on the acquisition is sought after in the conversation.

Non-Traditional Episode Context

  • The episode is non-traditional due to the timing of other big tech events like DoorDash and Airbnb IPOs.
  • Paki was contacted last week via Twitter to participate in the emergency podcast.
  • The hosts express surprise at the timing of the acquisition news, comparing it to unexpected acquisitions like LinkedIn and Whole Foods.

"We've got doordash, we've got Airbnb ipos coming up. We're gearing up. For those."

The hosts provide context for the episode's timing, noting it's an unusual week with other significant tech events happening, and they discuss the process of arranging the emergency podcast with Paki.

Sponsorship from Pilot

  • Pilot, a company offering accounting, tax, and bookkeeping services for startups and growth companies, is introduced as a sponsor.
  • Pilot is commended for helping companies focus on core business aspects by handling financial operations.
  • The hosts mention Pilot's growth and endorsements from notable investors.

"Our next sponsor for this episode is one of our favorite companies and longtime acquired partner pilot for startups and growth companies of all kinds."

The sponsorship from Pilot is introduced, emphasizing the company's role in supporting startups by managing their financial needs, allowing them to focus on their product and customers.

Slack's Direct Listing and History

  • The hosts recall Slack's direct listing and history, including an episode they did on Slack.
  • They reference Slack CEO Stewart Butterfield's blog post "We Don't Sell Saddles Here" and his upbringing.
  • The focus of the episode is on the transaction rather than recounting Slack's full history.

"So we've talked about Slack a little bit here on acquired before. We did a full episode around their direct listing."

The hosts mention their previous coverage of Slack, including its direct listing and the CEO's background, noting that the current episode will concentrate on the acquisition details.

Paki McCormick's Bull Case for Slack

  • Paki wrote a piece two weeks ago laying out his full bull case for Slack.
  • He argues against the bearish narrative that Microsoft Teams will kill Slack.
  • Paki highlights Slack's strong performance metrics compared to other SaaS companies.

"The piece was, I've been a long suffering Slack bull. And the piece was, I'd kind of touched on Slack in a few different cases and this one was once and for all. I'm just going to put down my full bullcase on the company."

Paki McCormick explains his rationale for supporting Slack, countering the bearish view and emphasizing Slack's solid performance in the SaaS industry.

Salesforce's Acquisition of Slack

  • Salesforce's acquisition of Slack is discussed, with a total purchase price of $27.7 billion.
  • The deal involves a mix of cash and stock, with a significant premium over Slack's recent trading prices.
  • Slack will remain independent, and CEO Stewart Butterfield will stay on.

"Today in Salesforce earnings, $27.7 billion total purchase price works out to, I think, 45 80 share in cash and stock."

The acquisition of Slack by Salesforce is detailed, including the purchase price, the structure of the deal, and the future independence of Slack within Salesforce.

Microsoft Teams vs. Slack User Comparison

  • The conversation shifts to comparing Microsoft Teams' user count to Slack's.
  • Paki argues that Teams is more of a Zoom competitor than a Slack competitor.
  • The hosts discuss Microsoft's aggressive strategy in promoting Teams over Slack.

"So I think let's say that Microsoft Teams has about ten times the number of users as Slack does."

Paki McCormick provides insight into the user count comparison between Microsoft Teams and Slack, suggesting that Teams is not a direct competitor to Slack but rather more akin to Zoom.

Microsoft's Strategy Against Slack

  • Microsoft's direct targeting of Slack is unusual and indicative of Slack's potential threat to Microsoft's suite.
  • The discussion touches on why Microsoft views Slack as a competitor and not Zoom.
  • Slack's platform potential is seen as a threat to Microsoft's core products.

"Microsoft Teams. And Microsoft generally has gone after Slack by name."

The strategy of Microsoft targeting Slack directly is highlighted, suggesting that Microsoft perceives Slack as a significant threat to its enterprise software dominance.

Slack's Growth and Market Perception

  • Slack's growth is compared to other SaaS companies, particularly Zoom.
  • The hosts discuss the high switching costs and moats associated with Slack.
  • The perception of Slack being beaten down due to Microsoft Teams is challenged.

"Slack is growing faster than 49 of the 54 companies, or Slack and Zoom are really kind of the two most public facing or consumery of all of the work from home stocks."

The growth of Slack is analyzed in the context of the broader SaaS market, and the conversation addresses the misconceptions that have led to Slack's undervalued perception in the market.

Anti-Microsoft Consolidation Theory

  • The hosts theorize about the anti-Microsoft consolidation, with Salesforce stepping in to acquire Slack.
  • The discussion includes Aaron Levy's blog post about the acquisition being a show of force from best-in-breed applications.
  • The consolidation is seen as a strategic move against Microsoft's integrated system.

"What we're really seeing is like the anti Microsoft, I don't think it's like an alliance. It's really like the anti Microsoft consolidation."

The theory of anti-Microsoft consolidation is presented, suggesting that the acquisition of Slack by Salesforce is part of a larger strategic move to counter Microsoft's enterprise software ecosystem.

Best of Breed Argument

  • The "best of breed" argument suggests that while a company may not excel in any single area, it is the most integrated solution.
  • Integrated solutions offer advantages like a single point of contact for support, bundled pricing, and ease of management.
  • Best of breed typically refers to purchasing from multiple vendors where each product is purpose-built for its specific function.
  • There is a trend of consolidation among best of breed applications from one company.
  • Salesforce's acquisition of Slack raises questions about further ambitions to consolidate other best of breed applications.

"They're best at nothing, but they're the best integrated. And so if you're buying from one single provider, it's the proverbial enterprise, one throat to choke."

This quote explains the advantage of integrated solutions in enterprise settings, where dealing with a single provider simplifies management and support.

Salesforce and Box/Dropbox Valuation Impact

  • The acquisition of Slack by Salesforce is seen as positive for Box and Dropbox valuations.
  • File storage is a significant component of the enterprise puzzle, and these companies could be potential acquisition targets.
  • The acquisition strengthens strategic partnerships and distribution channels.
  • This move by Salesforce could be a tailwind for smaller software and productivity companies.

"This is fantastic news for them and for their valuation."

The quote indicates that the acquisition of Slack by Salesforce has positive implications for the valuation of similar companies like Box and Dropbox.

Microsoft Stack vs. Open Source Ecosystem

  • The developer world has a parallel with the Microsoft Stack versus the open source ecosystem.
  • Salesforce with Slack is now a centerpiece in the best of breed productivity ecosystem, similar to how open source languages like PHP, Python, or Node.js serve developers.
  • Salesforce's acquisition of Slack is positioned as transformative and the creation of an operating system for a new way to work in the digital world.
  • Slack integration with Salesforce Customer 360 is touted as a new interface that could potentially simplify interactions with Salesforce's suite.

"Combining slack with Salesforce customer 360 will be transformative for customers and the industry."

This quote suggests that the integration of Slack with Salesforce's Customer 360 will significantly impact how customers work and interact with Salesforce products.

Slack as an On-Ramp to Salesforce

  • Salesforce implementations can be complex and time-consuming.
  • Slack's easier onboarding process could serve as an introduction to the Salesforce ecosystem.
  • The acquisition may lead to better integration between Slack and Salesforce, facilitating the use of Salesforce's services.

"And so it's really hard and maybe that's why Slack over time becomes kind of the on ramp to the whole Salesforce ecosystem."

The quote reflects the idea that Slack's user-friendly interface could make it the entry point for companies to start using the broader Salesforce ecosystem.

Slack's Growth and Enterprise Distribution

  • Slack's growth strategy involved starting with small innovative organizations and expanding as they grow.
  • The acquisition by Salesforce could enable Slack to reach larger organizations more effectively.
  • Salesforce's distribution network may facilitate Slack's penetration into the enterprise market.

"This feels like the unlock to that."

The quote suggests that the acquisition could be the key to Slack's ability to access and grow within larger enterprise organizations.

Slack Connect and Salesforce Integration

  • Slack Connect allows companies to communicate with partners and clients, which aligns with Salesforce's focus on tracking external communications.
  • The growth of Slack Connect endpoints indicates a strategic focus that complements Salesforce's acquisition.
  • Slack's integration with Salesforce could mean more seamless interactions within the Salesforce product.

"Slack Connect will be a way that a company can communicate with all of the different partners or clients that it has."

This quote highlights the strategic importance of Slack Connect as a communication tool that facilitates collaboration with external entities, which is synergistic with Salesforce's capabilities.

Slack's Positioning and Product Evolution

  • Slack's marketing has evolved from being trendy in startups to essential in remote work.
  • The company has struggled with succinctly explaining its value proposition.
  • Slack has been perceived as an email killer, a positioning that resonates with users despite not fully describing its functionality.

"We kill email is something that people can really rally behind versus we're where work happens."

The quote captures Slack's challenge in marketing its product and the appeal of positioning itself as an alternative to traditional email.

Salesforce's No Software Slogan and Enterprise Sales

  • Salesforce's "no software" slogan capitalized on the frustration with on-premise software configurations.
  • Enterprise software, including Salesforce, is often sold based on a vision rather than a detailed demonstration of the user interface.
  • Salesforce's approach contrasts with Slack's transparency about its features and user experience.

"People hated all the configuration that came with on premise software, so they just made their tagline no know software with a thing crossed out of."

This quote illustrates Salesforce's marketing strategy, which focuses on addressing customer pain points without explicitly detailing the product's features.

Slack's Valuation and Acquisition Price

  • Slack's valuation at the time of Salesforce's acquisition was based on a revenue multiple.
  • The company's growth rate had slowed, which may have influenced the decision to sell.
  • A premium was paid for Slack, which may have been attractive given its stock performance since going public.

"You're paying 27.7 times next twelve months revenue."

The quote indicates the revenue multiple used to determine Slack's valuation in the acquisition, reflecting the premium that Salesforce was willing to pay.

Slack's Position in the Market

  • Slack's current market position is challenging due to competition with Microsoft.
  • Slack has potential to triple in value, but integration into Salesforce could alter its trajectory.
  • The acquisition by Salesforce offers Slack the opportunity to leverage Salesforce's distribution power and connect with a full ecosystem of products.
  • Despite the opportunities, Slack's lawsuit against Microsoft indicates the significant challenge and annoyance of competing against Microsoft's distribution advantage.

"I think for me, not having to sit inside of Slack and sell against Microsoft every day, I think this could be a triple on its own in the next year or so."

The quote suggests that the speaker believes Slack has the potential to significantly increase in value if it didn't have to constantly compete with Microsoft.

"And so it's disappointing from that perspective on the other side of the table to say, yeah, we're going to plug you into Salesforce's, Salesforce and you're going to be able to kind of match the distribution power, at least approach the distribution power of a Microsoft."

This quote expresses a view that by becoming part of Salesforce, Slack might be able to compete more effectively with Microsoft's distribution power.

"And Microsoft, for the amount that they say that Microsoft isn't that big a threat, they also sued Microsoft for leveraging their distribution advantage against them."

The speaker points out the contradiction between Slack's public stance on Microsoft not being a big threat and their legal actions against Microsoft, highlighting the real competitive pressures Slack faces.

Slack's Leadership and Strategic Choices

  • Stewart Butterfield, Slack's CEO, is seen as a product-focused leader rather than a sales-oriented leader.
  • The decision to sell to Salesforce could be influenced by leadership fatigue and the desire to realize Slack's mission more quickly.
  • The possibility of hiring a new CEO specifically to boost enterprise sales was considered but ultimately not pursued.
  • The sale to Salesforce allows Butterfield to continue focusing on product development without having to shift into a sales-centric role.

"And I also don't think that adding several more billions to his net worth matters that much to Stuart."

This quote suggests that financial gain may not have been the primary motivator for Slack's CEO in the decision to sell to Salesforce.

"So instead of bringing on a new CEO who's really more of an enterprise SaaS guy, you just sell the business and you have this successful exit out of 55% premium and all of that."

The speaker is speculating that Slack chose to sell rather than bring in a new CEO with a different skill set to drive sales and compete with Microsoft.

The Trend of Enterprise Sales Rebundling

  • The speaker discusses the possibility of a rebundling trend in enterprise sales to alleviate subscription fatigue.
  • Companies are experiencing challenges with managing numerous SaaS subscriptions, leading to a desire for more consolidated solutions.
  • Salesforce's acquisition of Slack could be an attempt to emulate Microsoft's strategy and offer a more integrated suite of services to enterprises.

"You have to wonder if this is the beginning of the rebundling of enterprise sales."

The quote introduces the idea that the market might be moving towards a rebundling of enterprise sales tools to simplify procurement and management processes.

"And so you have to imagine too, if Salesforce is kind of saying actually we have the opportunity to run the Microsoft playbook here and we're going to continue to see more consolidation here to alleviate the pain of procurement around, well, basically people going around procurement and I."

This quote suggests that Salesforce sees an opportunity to consolidate services and create a more streamlined procurement process, similar to Microsoft's approach.

Slack's Bear Case and the Rise of Integrated Collaboration Tools

  • The bear case for Slack as an independent company is that other software with built-in collaboration features could diminish its central role.
  • Tools like Figma, Notion, and Discord are integrating chat and collaboration, potentially reducing the need for Slack.
  • The conversation hints at a future where Slack could become a secondary tool for emergencies or broad announcements rather than a primary workspace.

"Slack is really once every piece of what a business does has a figma like software that has collaboration embedded, then Slack becomes this kind of like backup."

The quote explains the bear case where Slack becomes a secondary tool as primary work moves to other collaboration platforms with embedded chat features.

"But yeah, to the extent that work stops. I mean, it's funny where work happens. The extent that work gets federated and happens in apps rather than in the central communication nexus, they're in big trouble."

This quote highlights the risk to Slack if work increasingly takes place within specialized apps rather than through a central communication platform like Slack.

Discord as an Alternative to Slack

  • Discord is discussed as a potential alternative to Slack, offering more customization and catering to different markets, such as gaming and influencer communities.
  • The speakers note the unintuitive nature of Discord for new users but also its greater extensibility compared to Slack.
  • Discord's business model, which charges for upgraded features rather than penalizing all users, is seen as better suited for non-enterprise use cases.

"It's the first piece of software that's really made me feel old using."

The speaker humorously comments on the complexity and unfamiliarity of Discord for those accustomed to other software, implying a generational gap in user experience.

"Because I think when you think about all the deeper features of each, they're way different."

This quote emphasizes that despite surface similarities, Slack and Discord have fundamentally different features and target markets.

Salesforce's Acquisition of Slack

  • The acquisition by Salesforce is seen as a strategic move to provide Slack with a larger salesforce and better market penetration.
  • The speakers consider whether Salesforce is in a unique position to acquire companies without attracting antitrust scrutiny.
  • The discussion also touches on the potential for Salesforce to grow by acquiring high-growth assets like Slack and integrating them into their offerings.

"I think the acquisition is interesting because, and we haven't talked about this, but Salesforce is kind of the biggest acquirer that didn't get dragged up in front of Congress."

This quote suggests that Salesforce may have more freedom to make acquisitions compared to other tech giants that are under closer regulatory scrutiny.

"That's how I would describe what Salesforce wants to do is meaningfully grow their enterprise revenue quarter over quarter, they got to acquire their way into new revenue streams to do that."

The speaker explains that Salesforce's acquisition of Slack could be driven by a desire to grow revenue through strategic acquisitions, rather than relying solely on organic growth.

Potential Acquisition of Slack by Google

  • Paki McCormick discussed a potential acquisition of Slack by Google and its strategic fit.
  • He believes that integrating Slack with Google's suite of products, including Gmail, Google Sheets, and Google Docs, could create a powerful new office bundle.
  • Paki points out that Google's ad business generates significant cash, making it surprising that Google did not pursue Slack.
  • Amazon was also mentioned as a potential acquirer due to its partnership with Slack for video product support.

"Google I wrote about, actually a couple of months ago I wrote about a Google Slack acquisition. I think that part of the press around this is that it's now Salesforce versus Microsoft. I don't think that's really the case unless people start using quip documents to replace word and whatever else. But I do think that a Google Plus, a Slack with Google's distribution really is a powerful combination." "And then there's Amazon. On the other is the other one. They had a partnership where they powered Slack's video product and Slack used AWS and all of that. So that's another one. But Google to me makes a ton of sense."

Paki McCormick suggests that the strategic fit between Google's suite of products and Slack would be powerful, especially given Google's distribution capabilities. He also notes Amazon as a potential acquirer due to their existing partnership with Slack.

Slack's Integration with G Suite

  • The integration of Slack with G Suite is highlighted as one of the best, with seamless document collaboration within Slack.
  • Custom integrations between Slack and Google products, such as sharing permissions, were developed to enhance user experience.
  • The acquisition by Salesforce is seen as a missed opportunity for Google, which had already invested in custom integrations with Slack.

"Yeah, the G suite is really like one of the best integrated things into Slack where the docs pop up and it really is one of the nicest integrations in the product which is custom happy about." "There was CEO conversation to custom build some stuff there, especially around the different types of sharing and how you can grant access from within Slack. That was custom work that Google had to do in order to enable that in Slack."

The speakers discuss how G Suite's integration with Slack is well-received due to the seamless experience and custom integrations that Google had developed for Slack.

Slack's Position as a Startup Productivity Tool

  • Slack is positioned as a productivity tool for startups, particularly those with 500 to 5000 employees.
  • The natural pairing of Google Docs and Slack is seen as a common productivity stack for such companies.
  • The acquisition by Salesforce potentially changes the narrative around Slack's role in the startup ecosystem.

"Especially when you consider the startup productivity stack and I would say not the bleeding edge pre chasm crossing startup stack. That's like notion and airtable, but you think about 500 to 5000 person companies. It's a Google Docs company that uses slack for internal communication. That's sort of a natural bundle."

The quote emphasizes Slack's role in the productivity stack of startups and medium-sized companies, often coupled with Google Docs.

Financing the Acquisition

  • Salesforce took on debt to finance the acquisition of Slack.
  • Google, with its substantial cash reserves, could have easily financed a similar or larger acquisition.
  • The speakers speculate on whether Google was a bidder and whether there was a bidding process for Slack.

"So Salesforce is taking out debt to finance this. Now of course they have a strong balance sheet. They can do this. It's not like a problem for them. Google's just got literally an infinite amount of money sitting there spending 27.7 billion purchase price for Salesforce. Google could have spent 35 40 billion, no problem. Wouldn't have made a dent in their treasury."

The discussion revolves around Salesforce's decision to finance the acquisition through debt, while highlighting Google's ability to finance a potential acquisition without financial strain.

Slack's Tenure as a Public Company

  • The speakers discuss grading Slack's performance as a public company.
  • They note that while Slack's business execution was strong, its stock price did not reflect confidence in the company's long-term prospects.
  • The narrative that Microsoft Teams was a significant competitor to Slack is seen as a factor in the market's perception.

"So this is not in my dna. This is pretty bad. So I'm going to go with a c minus tenure as a public company. Maybe it deserves to be worse, but the outcome here is above the DPO, the first day of trading on the direct public listing." "Public market investors are not short sighted. They overindex on recent signal, but the reason is because the stock's price and the enterprise value of the company is primarily formed by an investor's view of what the next 30 years of cash flows are going to be."

The speakers critically evaluate Slack's performance as a public company, considering both business execution and market valuation, and discuss the impact of public perception on stock prices.

Slack's Future Within Salesforce

  • The speakers discuss potential scenarios for Slack within Salesforce, ranging from highly successful (A+) to failure (F).
  • A successful integration would see Slack's growth accelerate through Salesforce's distribution channels.
  • An unsuccessful integration could lead to product atrophy or a negative perception of Slack due to association with Salesforce.

"A plus to me is that Slack on its own has been a reasonably high growth SaaS company and Salesforce is successful at buying fast growing SaaS revenue and now they get to pump it through their channel and their channel receives it well and they just are able to massively increase the revenue growth for slack and have more and more companies adopt it." "I think the f to me is trying to integrate Slack and Salesforce, the products and failing and turning slack more into Salesforce than Salesforce more into Slack."

The quotes and discussion focus on the potential outcomes for Slack as part of Salesforce, considering both the opportunities for growth and the risks of integration challenges or changes in market perception.

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