Business software pioneer Salesforce.com buys online chat service Slack for $ 27.7 billion in deal to give the two companies a better chance at competing with longtime powerhouse from Microsoft industry.
The acquisition announced Tuesday is by far the largest in Salesforce’s 21-year history. The San Francisco-based company was one of the first to sell software as a subscription service that can be used on any internet-connected device instead of the more tedious process of installing programs on individual computers. .
The flamboyant founder and CEO of Salesforce, Marc Benioff, hailed the concept of “cloud computing” as the wave of the future with much derision at first.
But software as a service has become an industry standard that has turned into a gold mine for longtime software makers. Microsoft for its part has developed its own thriving suite of online services, known as Office 365, which includes a Teams chat service that includes many of the same features as the 6-year-old Slack app.
In July, Slack filed a complaint in the European Union accusing Microsoft of illegally consolidating Teams into Office 365 in a way that blocks its removal by customers who prefer Slack.
Microsoft is also a threat to core Salesforce products, a line of tools that help other businesses manage their customer relationships.
“For Benioff, it’s all Microsoft’s business,” Wedbush Securities analyst Dan Ives said of Tuesday’s deal. “It’s clear that Microsoft is moving further and further away from Salesforce when it comes to cloud warfare.”
Benioff left no doubt that he viewed the deal as a major coup, having lost to Microsoft in 2016 when the two companies were vying for professional networking service Linkedin. In a prepared statement, Benioff presented this combination as “a match made in heaven” that “will transform the way everyone works in the fully digital world and from anywhere”.
Salesforce is building on its success in recent years to branch out into other areas, in large part through a series of acquisitions that included its previous largest deal, a $ 15.7 billion purchase from the specialist Tableau Software data analysis last year.
Many deals have been funded with Salesforce stock, which is worth nearly seven times more than ten years ago to bring the company’s current market value to $ 220 billion. Salesforce uses its stocks to pay for about half of the purchase of Slack, with the rest covered in cash, with some of the money borrowed during an era of extremely low interest rates.
Slack, on the other hand, has not proven to be as popular with investors, although its service launched publicly in 2014 is increasingly used by businesses and government agencies looking for more agile alternatives to email. . Before reports of a potential deal with Salesforce surfaced last week, Slack’s stock was still hovering around its original listing price of $ 26 when the company went public almost 18 months ago. .
“This is a great exit strategy for Slack,” said Kate Leggett, analyst at Forrester Research. “Microsoft Teams eats Slack’s lunch.”
Slack co-founder Stewart Butterfield hopes this sale will work better than when another company he started, the photo-sharing service Flickr, was sold to Yahoo 15 years ago. Flickr got lost in the shuffle at Yahoo amid years of turmoil before it was finally sold in 2018 to SmugMug.
Leggett predicted that Salesforce would benefit from owning Slack because it will add a popular collaboration tool to its own software suite, which focuses on customer relationship management for businesses and government agencies. She said the need for customer relations officers and other Salesforce users to rally around a topic and collaborate remotely has only grown with the coronavirus pandemic that has fired so many employees from home office and made many people addicted to new online tools.
“I think the pandemic played a huge role” in paving the way for the deal, Ives said. “Zooms, Slacks, Microsoft Teams, it’s going to be a new part of the workforce. ”
Ives said Benioff was also running out of time to catch up with Microsoft, which remains a secondary player in Salesforce’s core customer relationship management business, known as CRM, but ahead in delivering more. wide range of cloud-based services.
Slack and Salesforce are headquartered about a block from each other in San Francisco. Slack’s office sits in the shadow of the 62-story Salesforce Tower, the tallest building in town. If all goes well, the two companies hope to close the deal and join forces between May and July of next year.