Updated: May 3
We are beginning to see changes to Slack’s sales tactics and customer agreements since its acquisition by Salesforce in July of 2021, as predicted in a previous blog on this subject. Specifically, the collaboration software company used to offer a one-year auto renewal with no unit price increase, but this is no longer the case. Customers must now renegotiate their contracts.
The upshot: some clients will see an improvement in pricing if they demonstrate substantial growth, while others will experience price increases from the contract reopening. By opening a contract for renegotiation, Slack has an opportunity to adjust the terms and pricing without pushback from the active agreement.
As a hosted solution, customers put their trust into Slack’s ability to effectively deliver the platform and quickly remedy technical issues. Though vendors work hard to maintain a near-constant uptime, outages can still happen. Unplanned downtime often leaves customers without the channels of communication or resources needed to conduct business. In the end, these business disruptions can be extremely costly.
This is where Service Level Agreement (SLA) language comes in to protect customers from the financial impact of unplanned downtime. Such protections should lay out the vendor’s uptime responsibilities and how customers will be compensated if the vendor fails to meet this commitment.
Slack’s Terms of Service includes SLA penalty language that promises an uptime commitment (outside of planned downtime) of 99.99%. Each customer is entitled to a credit multiplier that is applied to the total amount of spend the customer paid to Slack during the outage (multiplier X spend = total credits). Following an outage, Slack will issue these credits to customer accounts as compensation. Since Slack’s massive, hours-long outage in March 2022, we have seen the vendor’s reps target changes to customers’ SLA rights to lower credit payouts for future outages.
Recently, Slack used this tactic to adjust a client’s agreement language and reduced its SLA penalty by 10x. To illustrate the impact that this has on the customer, we’ve included the below graphic to map out hypothetical payouts for different amounts of daily downtime based off the current spend levels with Slack.
The Slack sales rep accompanied this contract language with renewal pricing options that significantly increased unit price on both a flat and growing deployment, which represented a 12% to 19% uplift. This was highly uncompetitive and differed from Slack’s typical renewal pricing practices. In most instances, clients receive a flat or improved unit rate, especially when displaying growth.
How Should Customers Prepare?
We believe that existing Slack customers could face reduced coverage and greater financial loss in the event of an outage. It’s important to remember that all contract language – in addition to the unit pricing – must be viewed as part of a deal’s overall value. In a renewal, the goal is to maintain the overall deal value from your previous term (i.e. minimize price uplifts and hold terms constant). Reducing the SLA credit multiplier would effectively cut the value of an agreement at renewal because it forces the customer to accept an increased financial risk around unplanned downtime. This demonstrates why customers pushing for flat SLA penalty language when negotiating a renewal.
As Slack’s sales team becomes more integrated with Salesforce business practices, new customers should be on the lookout for reduced or non-existent SLA language in their contracts. At minimum, customers should negotiate an SLA penalty multiplier of at least 10x to align with Slack’s current standard language. Clients should not be afraid to negotiate this term, as we have seen this multiplier as high as 100x.
We also believe that Slack will use notice of non-auto-renewal to apply renewal price increases. Though renewal uplifts are uncommon for Slack, Salesforce is well-known for significantly increasing customers’ renewal pricing. We therefore urge Slack clients to be diligent about securing competitive renewal rates (0% to 5% uplift per term) that apply in the event of non-auto-renewal for protection.
We suspect that this may be the first instance of Slack adjusting their contract terms and sales tactics to align more with Salesforce’s. It is quite possible that Slack plans to reduce their SLA penalty over time and eventually dovetail with Salesforce, which has no SLA language in their MSA.
Thus, it behooves Slack customers to consider alternative deal options prior to their next conversation with the vendor and begin vetting competitive solutions to create deal leverage. Although other solutions may not offer the seamless integration with Salesforce, most customers already have Microsoft and Google environments, which offer Teams and Hangout respectively, as reasonable alternatives to harness during negotiations.
Often, reps know that migrating solutions is a cumbersome task that can take years to complete, making the threat of loss feel far less likely. However, the built-in nature of the above Slack- alternatives to many customers’ existing environments can significantly minimize transition costs and make migration a more viable option. Leveraging this reduced-obstacle path to switching vendors can push your rep to move on pricing and meet terms requests. Even if migration is not in a customer’s plan, utilizing existing resources can be a powerful tool during conversations with vendors.
For more information on negotiating with Slack and creating leverage, contact your Accenture representative.
- Olivia Sullivan is an Analyst at Accenture.