Why Salesforce acquired Slack
Earlier this week, Salesforce acquired Slack for $27.7 billion.
It’s a seismic move in the workplace collaboration space, which has surged with the rise of remote work and virtual communication.
So, why did Salesforce acquire Slack — and more importantly, why did Slack decide to sell to Salesforce? It’s clear this was not about ‘bailing out’ a company; this was a strategic partnership to build the operating system for work.
In this post, I’ll dig into the three areas of opportunity that a Salesforce + Slack acquisition unlocks:
- The system of record for work
- Distribution to the enterprise
- Streamlined external communication
The system of record for work
Traditionally, CRM (customer relationship management) software has been about, well, managing one’s customers. Indeed, CRM’s very definition is:
The process of a company managing interactions with its existing, past, and potential customers.
The reason CRM software (like Salesforce) was necessary in the first place was because a company’s interactions with its customers were spread across multiple channels: emails, phone calls, in-person meetings, conferences / tradeshows, etc. Not to mention all the artifacts that these interactions were comprised of — documents, spreadsheets, presentations, etc.
Now, that’s customers. But what about a company’s own employees?
Well, traditionally, companies did all their internal communication over one channel — email. (And many still do!) So everything was always in one place.
That meant email was being used for: file sharing, to-do’s, collaboration, project management, and tons more. Far from ideal for one product to do!
But then Slack happened.
We saw the advent of a unified communications platform, via channel-based messaging. And it was no longer just messaging; it was file sharing, collaboration apps, HR tools, metrics & reporting… and so on.
No longer was ‘work’, and everything it was comprised of — decisions, questions, action items — isolated in individual email inboxes; it was spread across Google Drive, Confluence, Asana, etc.
The way we worked had shifted from writing emails, to writing posts, threads, comments, and reactions —spread across multiple channels.
And Slack was what brought all those interactions together. It’s why they position themselves as “where work happens.”
But… because it now resided in multiple places, work had become harder to organize, harder to search, and harder to share.
And with that, came the existential questions knowledge workers face:
- “Who’s working on this?”
- “What happened with that?”
- “Why did they do that?”
This is where Salesforce + Slack comes in.
Slack will be the system of record for work.
The output of a company’s employees is the work they produce. So inevitably, companies need a way to keep track of all that work! And ensure it’s organized, searchable, and easy to share.
I call this concept Employee Relationship Management (ERM); a company’s CRM for its own employees.
Earlier this year, Slack acquired Rimeto, a corporate directory tool that “gives employees context and understanding to work together effectively.” That jumpstarted this goal, and now with Salesforce, they’ll be full steam ahead.
Imagine being an employee who has just joined a new company. In your onboarding, you could head to this re-imagined corporate directory to see:
- Who your co-workers are (background, interests, etc. from Workday)
- What teams they’re on, and their roles (org. charts from Confluence)
- What projects they’re working on, and the status of them (Asana / Jira)
- The upcoming product roadmap (Github)
- The relevant conversations you’ve had with their teammates (Slack)
That’s the power of centralized internal knowledge and relationships. Now, how about external communication?
Well, the value proposition is the exact same; the interactions are just with individuals outside of the organization.
Imagine: in one, unified interface, a Sales rep could see:
- The emails they’d sent to a prospect (Gmail)
- The notes from their last call with them (Salesforce)
- The implementation questions they’d asked the Product team (Slack)
- The tasks to complete the customer’s onboarding (Asana)
- The Support tickets that the customer had (Zendesk)
- The customer’s usage of the product (Looker)
- The invoice / record-keeping from Finance (Stripe)
It’s a 360 degree view of the end-to-end customer journey.
Combined, Salesforce and Slack will be the all-in-one, source of truth for all of a company’s interactions: both external ones (customers) and internal ones (employees).
Imagine the clarity that would bring to an organization and its employees. And the productivity gains as a result.
Distribution to the enterprise
The top 1% of Slack’s customer base (by contract value) accounts for 50% of Slack’s total revenue; that’s ~$450 million alone (source).
Needless to say, the enterprise is where the big bucks are to be made. Margins are bigger, switching costs are higher, and there’s upsell opportunities galore (training, expansion, upgrades, etc).
Today, 61 of the Fortune 100 companies use Slack — which is impressive — but consider that 90% of the Fortune 500 are Salesforce customers.
That might not sound like a big difference, but each of those contracts is worth millions of dollars. By joining Salesforce, Slack has unlocked an inroads to the Fortune 500 and beyond; through cross-selling and bundling.
Aaron Levie, the Founder and CEO of Box, said in an interview:
“The reality with the enterprise is that you can have the best product, but that’s not good enough. You need distribution. And that’s what Salesforce has — they have the procurement officers, they have the finance people. They have all of the apparatus you need to interact with to sell software, and they have it for the top 100,000 corporations around the world.”
“The only advantage Microsoft has is distribution, and so now [Slack] has neutralized that advantage that Microsoft had. All of a sudden, they can actually fulfill the ultimate promise of the opportunity, because they have 10 times the amount of salespeople that can go distribute this thing into corporations around the world.”
This is where Slack has struggled in the war against Microsoft Teams, despite having a superior product; Microsoft had a huge leg up in distribution due to the prevalence of Office 365 in the enterprise. It’s why Microsoft has been so successful at getting their existing customer base to adopt Teams; they were able to bundle it into O365 subscriptions, for no extra charge.
The graph below tells the story of why distribution > product:
Salesforce, meanwhile, is already a household name in the enterprise, and has thousands of sales reps in their arsenal. This means they can easily:
- Cross-sell Slack to Salesforce’s existing customer base (150k+ companies)
- Bundle Slack when selling to new Salesforce customers (free / discounted)
This is mutually beneficial for Salesforce, because it’ll increase retention and average contract value / ARPA for these customers who opt to buy Slack.
Streamlined external communication
Earlier this year, Slack launched Slack Connect, which enabled multiple organizations to communicate with one another, all from one Slack channel. It was a game changer for organizations of all types; their internal and external communication could now occur from the same place.
Conversations between organizations usually take place over email, which is pretty inefficient for everyone involved. Think about complex business transactions that involve multiple vendors, partners, and clients. These often result in a game of back-and-forth over email, for weeks or months at a time.
Slack Connect eliminates the runaround of those endless email chains, but it also makes the conversations discoverable to anyone else in the organization. Imagine being a manager who isn’t directly involved in the transaction, but wants to have oversight onto the deal their employees are working on.
Bringing those conversations into Slack means these deals can now move faster — or close at a higher rate due to the added clarity. And as Slack’s CEO Stewart Butterfield explains, that’s an easy business case to sell:
“The reason why I like this use case is because that’s an argument to buy Slack to get revenue, which is different than buying Slack to get productivity. The latter is always a harder sale to make, whereas buying our product to get revenue is a lot easier.”
Now, think about who spends their entire days communicating with external organizations… Sales teams.
And what tool do they use all day? Salesforce.
By integrating Slack Connect into Salesforce’s CRM products, Salesforce will be able to provide Sales teams with a streamlined way to communicate with their leads, prospects, and customers — from a single interface.
That external communication will shift from email to Slack Connect, the interactions will be captured in Salesforce, and the customer’s activity throughout the lifecycle will be tracked through Slack’s integrations.
Sales teams will instantly become more efficient, allowing them to close more deals, faster.
In addition, this unlocks an incredibly viral distribution model for Slack:
If a prospect is using Slack Connect to communicate with a company’s sales rep, they’ll be more incentivized to buy Slack, because they’ll have already realized the value of Slack— before even becoming a customer.
And when that prospect turns into a customer and onboards onto Slack, they’ll reach activation quicker than ever before. As Butterfield explains:
“If you are a new user coming in through a Slack Connect invitation, you already have people to talk to, you already have stuff to talk about. People will wrap their heads around Slack and in a fundamentally different and much better way.”
In summary, here’s why Salesforce acquiring Slack was a brilliant move:
- It provides organizations with a system of record for their employees’ work.
- It captures every interaction of the customer lifecycle.
- Its brand equity and reach will drive adoption of Slack in the enterprise.
- It streamlines external communication, making Sales teams more efficient.
This is a series of blog posts on the tech industry and product management. I’m on Twitter at @samir_javer if you want to say hello!