Uniting against a common enemy - the logic behind Salesforce's rumoured move for Slack

Salesforce is rumoured to be in talks with Slack over a potential acquisition

Rumours of Salesforce considering the acquisition of Slack surprised many yesterday, sending Slack's valuation soaring past the $20bn mark.

On the face of it Slack and Salesforce have little in common beyond serving the enterprise market.

But what they do share is a common enemy: Microsoft.

Salesforce is without doubt the CRM leader in terms of market share (19.8 per cent globally, according to an IDC report released last month), but Microsoft Dynamics has been growing impressively over recent months.

Dynamics has reported sales increases of 13 per cent and 19 per cent in the last two quarters, while Dynamics 365 revenue rocketed 38 per cent in each period.

Microsoft is also reportedly now insisting its salespeople to include Dynamics in enterprise licensing, with all enterprise deals not including the CRM software having to be signed off personally by senior Microsoft execs - signalling a renewed effort to challenge Salesforce.

Slack meanwhile has made no bones about the fact that Microsoft is its main competitor, even citing the Redmond-based vendor as a threat to its business when IPOing in 2019.

It has since gone as far as it call Microsoft's challenge illegal, claiming Microsoft is "abusing its market dominance to extinguish competition in breach of European Union competition law", referring to the bundling of Teams in with Microsoft's suit of software products.

The case has yet to be decided, but in the meantime Microsoft has seen usage of Teams balloon to 115 million daily active users amid the pandemic.

Slack hasn't publicly revealed its number of daily active users since October 2019, when the figure stood at 12 million.

Investors responded well from a Slack perspective, driving up its share price by as much as one third.

The Wall Street Journal, which first reported the news, said that any acquisition would likely value Slack above its $17bn market cap - although it's valuation soared to over $23m after the news broke.

Salesforce's share price meanwhile dipped by over five per cent.

The Wall Street Journal said that an announcement could be made in the next few days but said that any potential deal could still fall through.

But this isn't the first time Salesforce has shown an interest in workplace collaboration.

In 2016 it acquired Quip for $750m, which allowed users to collaborate on documents and was seen as a challenger to Microsoft Office.

It also has Salesforce Chatter, which it bills as an "enterprise social network".

Salesforce's forays with both products have received, at best, lukewarm reception.

But most significant is the imminent launch of Salesforce Anywhere, which is seen as Salesforce' biggest bet on the collaboration market.

Salesforce Anywhere was announced in June this year and was pegged as competitor to Teams and Slack, housing functions for chat, video conferencing, real-time alerts and across PC and mobile.

Ironically, the launch of Anywhere cast doubt on Salesforce's long-standing partnership with Slack.

At the time Salesforce said that its integrations with Slack and Teams would remain in place, although it was clear that it's preference would soon be for customers to use its own offering.

Salesforce Anywhere is currently available to all Salesforce customers via its open beta.

While it's not yet clear what Saleforce would do with Anywhere if its interests in Slack come to fruition, what is clear is that the CRM giant wants to bolster diversify its offering.

Microsoft has the broadest portfolio in the enterprise software space, with its Microsoft 365 portfolio housing the likes of Office, Teams, Dynamics, Outlook, Sharepoint and OneDrive.

Competitors such as Google, Amazon and Oracle have different combinations products in these segments, but arguable none have as many as Microsoft.

The acquisition of Slack would tick another box for Salesforce and bring with it a whole new set of customers to potential cross sell to.

It could also stoke up M&A in the enterprise software space, according to analyst Ben Ives.

He told CNBC that the acquisition would be an "aggressive but smart move" for Salesforce, while also claiming that the move could force Google's hand.

"I think this would be a shot across the bow," he said.

"I think [Google Cloud CEO Thomas] Kurian and Google would have to accelerate their acquisition strategy."

Salesforce U-turn

The acquisition would mark an apparent U-turn for Salesforce CEO Marc Benioff, who in August said M&A was not on the table.

"For a company like Salesforce, we don't see an M&A environment," he claimed.

"I just don't see it. Maybe things could change, of course, things always are changing. But I think, this isn't part of our plan right now."

If indeed things have changed, Salesforce could be heading towards its biggest acquisition and one of the biggest software acquisitions ever.

Salesforce's current largest deal is shelling out over $15bn for Tableau Software.

Assuming a potential acquisition of Slack costs Salesforce around $20bn, only LinkedIn, WhatsApp and Red Hat will have been sold for more in the software space.

We're unlikely to see any further clarity on the rumours today, with the US markets shut for Thanksgiving.

But with both Salesforce and Slack set to release quarterly earnings over the next two weeks, their respective CEOs cannot stay quiet for much longer.