Updated: 5 days ago
By now, everyone knows that Salesforce offered $27.7B to acquire Slack, a rival of Microsoft Teams. The deal is slated to be finalized by the end of July 2021, but in the meantime, clients of each vendor have plenty to ponder. Based on our observations of Salesforce’s acquisitions of MuleSoft and Tableau, changes for deal makers are in store, though we expect Salesforce’s and Slack’s sales teams will remain separate for at least a year after the acquisition is completed.
Why Salesforce Wants Slack
The two reasons for the Slack acquisition are (1) it would add robust messaging capabilities and functionality that Salesforce lacks within its CRM products, and (2) it will enable the vendor to better compete in the enterprise social segment with Microsoft Teams and Google Hangouts.
One of Slack’s key strengths is its ability to seamlessly integrate with a range of applications. Salesforce will use Slack as the interface for the Customer 360 Platform it has been heavily pushing over the past two years, which lets clients connect all their Salesforce applications and view an individual customer’s data across all the applications in one place. In addition, Slack brings the Slack Connect feature, which allows clients to communicate with external customers and business partners directly and securely. Salesforce believes the addition of these features to its Customer 360 Platform will allow businesses to easily connect and collaborate with customers and make more informed decisions based on the information within the Customer 360 Platform. We expect Salesforce to combine the functionality provided by Quip with Slack, and use Slack to replace Chatter, Salesforce’s current internal communications tool that never gained much traction.
The second driver for the acquisition is to improve Salesforce’s ability to compete, mainly with Microsoft. During the pandemic, Microsoft capitalized on the work-from-home opportunities with Teams, (while Slack sales remained flat, making it ripe for acquisition). Microsoft was able to gain an advantage in this space rapidly because they offered Teams as a bundle with the Office 365 licenses that many businesses already rely upon.
Microsoft and Salesforce go head-to-head in multiple spaces: Microsoft Dynamics competes with Salesforce’s CRM offerings, and Microsoft’s PowerBI competes with Tableau. Both vendors strive to be a “one stop shop” for businesses’ core software. The acquisition of Slack will allow Salesforce to take on Microsoft in the collaboration tool or enterprise social segment, and potentially yield net new business, which will presumably increase adoption of Salesforce’s range of offerings.
What to Watch For Near Term
Salesforce will want Slack to boost sales immediately, to show Wall Street that the targeted acquisition is moving in a positive direction and is a smart investment. To increase sales, Slack is likely to roll out special and aggressive pricing and terms to customers. We urge Slack clients to take advantage of this small window – at best six months – to gain concessions from Slack while it remains separate from Salesforce.
What to Watch For Long Term
As we’ve seen with MuleSoft and Tableau, it’s likely that Salesforce will keep the sales organizations separate for the time being, but there are risks and opportunities in store for buyers to consider. First, the risks:
1. Changes to product offerings and pricing models
With Tableau, Salesforce quickly eliminated perpetual license offerings (ending May 2021) and enforced harsh price increases on any renewal with legacy perpetual licensing (as high as list price increases to force customers to adopt the new subscription offering)
Slack doesn’t have perpetual offerings so this scenario will not occur, but Salesforce consistently demonstrates a heavy hand in making major sales and pricing decisions at its acquisitions, regardless if the sales organizations are “separate”
Salesforce may enforce changes to Slack/Salesforce products, such as forcing re-brands or product functionality additions, creating a business case for the supplier to reprice licenses due to changes
This tactic was used by Salesforce with prior acquisitions (i.e., Pardot, ExactTarget, Krux, Demandware)
It is a popular tactic among SaaS vendors; ServiceNow is notorious for rebranding products and forcing non-competitive increases at renewal (as high as 30% due to rebrands)
2. Proposal inflation with highly valued products
Both MuleSoft and Tableau have been bundled into large Salesforce Enterprise License Agreements (SELAs), which often lack the needed price transparency to validate competitiveness of pricing or accuracy of product demand
Salesforce buyers can expect similar behavior with Slack products
Salesforce reps push recently acquired products to help justify the large cost of the acquisition to Wall Street by showing those products’ sales growth ASAP
Salesforce typically applies lucrative commission bonuses and special incentives tied to recently acquired products, which increase the likelihood of a sales rep pushing them on a customer
Customers must understand that their proposals may include inflated product quantities due to reps trying to force new Slack functionality on them. We urge clients to validate the accuracy of the quantities/products included in a deal to mitigate long-term costs.
So, what opportunities await buyers if/when the acquisition goes through?
1. Special compensation packages for sales reps can be leveraged
Customers will achieve better outcomes with Salesforce if they tailor deals to the presumed special incentives and compensation bonuses associated with the newly acquired products rather than wait for sales reps to push products on them
For MuleSoft, Salesforce offered a limited compensation incentive where any Salesforce rep that was able to sell MuleSoft in a Salesforce deal would receive double commission for that deal
For Tableau, Salesforce offered additional bonuses for any sales rep that was able to convert Tableau customers from Perpetual to Subscription based licensing
Salesforce buyers who exhibit pro-active interest in adopting the new Slack product will have additional negotiating power to dictate terms and pricing for future agreements.
Though the summer and fall of 2021 seem a long way off from December 2020, proper deal preparation and leverage management require a long runway. Thinking about upcoming Salesforce renewals and any pending Slack engagements should begin immediately, while you have the luxury of time on your side.
Dan Beyh, Matt Gowing and Francis Gagliano contributed to this report.
Read our Guide on Salesforce Negotiations for more information on how to gain leverage in your Salesforce deal now.