HFS Highlight: Benioff hopes it’s ‘Once Slack and he’ll never look back’. But he probably will…

Salesforce stakes its OneOffice claim with the biggest-ever cloud acquisition. 

Salesforce has confirmed rumors that were swirling around for days by splashing out a whopping $27.7 billion on Slack. While this deal looks exciting on a press release – as it pits Salesforce aggressively against Microsoft as a broader OneOffice player – we are sceptical that the market has the appetite to walk away from its addiction to Microsoft Teams, which have been the stalwart collaboration and video application during the intensity of the 2020 pandemic economy.  However, if Salesforce can leverage its powerful services community partnerships, it could stand a chance of making some real inroads into the emerging OneOffice market. 

This is not only Salesforce’s biggest acquisition to date (by a considerable margin after Tableau and MuleSoft) but the largest cloud deal the industry has witnessed. By comparison, the $34 billion that IBM paid for Red Hat was not all for cloud capabilities but broader professional services around OpenSource.  

The deal broadens Salesforce strategic focus from the front-office and CRM–related capabilities to a much broader emphasis on employee experiences. Thus, Slack gives Salesforce a new Augmented Workforce focus as organizations accelerate their journey toward the OneOffice (Exhibit 1). The deal allows Salesforce to build new collaboration tools and channels that pitch the company at the frontline of the battle for the Future of Work and squarely against Microsoft’s ambitions with Teams and beyond. 

Exhibit 1:  Connect the front, middle, and back offices to deliver the “OneOffice Organization.” 

Source: HFS Research 2020

Slack provides the glue to put the parts of the OneOffice together 

Slack’s tools enable collaboration across siloed organizations and even broader ecosystems. As such it is strongly aligned with HFS’s OneOffice framework. “OneOffice” describes the HFS vision for business operations amidst the impact of cloud, automation, AI, and disruptive digital business models.  It is the foundation of the virtual workforce, where automation tools augment the employee’s digital capabilities and the workplace becomes a “plug-and-play,” work-from-anywhere scenario. Silos between front, middle, and back–office are collapsed into one single office, where all employees are empowered and motivated by common outcomes and common values.  

Thus, Slack can provide a new system of engagement for every customer and partner interaction. It will become the new interface for Salesforce Customer 360, which allows clients to connect Salesforce applications and build a single view of their customers. The ability to drive data assets across organizational siloes and disparate applications are what HFS calls the Digital Underbelly that enables organizations to accelerate the journey toward the OneOffice. The secret sauce is Slack’s approach to open integration which allows organizations to transform both their customer and employee experiences. 

Price and new battle lines the biggest challenge 

As with most of its acquisitions, Salesforce was willing to pay a hefty premium. In this case, more precisely more than a 50% premium compared to the valuation before the rumors started to circle. Slack represents a multiple of about 26 times forward sales. Yet, the price tag has to be seen in the strategic context. Salesforce is lagging in productivity capabilities despite the acquisition of Quip in 2016. With the disruptive shift due to the pandemic, digital collaboration has become somewhat of a Holy Grail. This is much more than the ability to do teleconferencing and stable video connections. The Future of Work will be driven by innovative ways of collaboration in complex environments such as Distributed Agile and Cloud Native. It is in these scenarios where those acquired capabilities will come to the fore. But here Salesforce will compete head-on with Microsoft which is approaching those challenges from an employee productivity angle. With the whole portfolio (Cloud, Outlook, LinkedIn, MS Office, intelligence capability), Microsoft is becoming a serious challenger for Salesforce. Though Microsoft is way below in terms of CRM market share. To win this battle we will see more acquisitions around the big change agents automation, AI, and analytics by both organizations. The North Star will be in the context of converged customer and employee experiences.  

The Bottom Line: The price for Slack is hefty, but what is at stake is to become an ecosystem for the future of work 

Marc Benioff put it in his inimitable way that Slack is “a once-in-a-generation” company and platform, it is the central nervous system” for many of Salesforce existing customer. Thus, the price should be seen as future rather than current value. Microsoft refused to buy Slack in 2016 and instead started to develop Microsoft Teams in 2016 itself. Zoom launched its software in 2013. So, it is very hard to create and perfect a new in-house one for Salesforce within a short period of time. Slack takes Salesforce center stage for the landgrab on digital collaboration.