Tech

Salesforce spent a jaw-dropping amount of money to buy Slack

hashtag made of small pencils like slack logo or social media logo, white isolated background

$27.7B

That's like buying Instagram 28 times over.

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Salesforce has confirmed reports that it intends to acquire Slack, saying that it will pay $27.7 billion in cash and stock for the workplace chat app. The deal, the largest that Salesforce has ever made, signals that the company wants to more closely compete with Microsoft as a one-stop-shop for all things productivity.

Deep pocketed rivals — Launched in 2013, Slack garnered a cult following from pretty much day one, thanks to its bright colors and fun-loving "Slackbot" assistant that made the app feel less like a stodgy enterprise-focused product and more like a social network. The app was built around the idea that instant messaging is more efficient than email, though detractors say that Slack creates an "always on" expectation with employees feeling they must respond to messages quickly, like they would in any other messaging app.

There's no denying Slack's popularity, however, and today it faces intense competition from bigger rivals who have released their own similar products — most notably Microsoft, which has been pushing Teams onto its hundreds of millions of Office 365 users.

Back in the summer, Slack CEO Stewart Butterfield said that Microsoft is "unhealthily preoccupied with killing us." Microsoft already has a massive base of IT departments that it can push Teams onto — the app is included in Office 365 for free — and it has done just that. The company most recently said it has 115 million daily active users for Teams, up 50 percent from only six months ago. Slack in comparison said it had 12 million daily active users in October of last year, but hasn't updated those number since.

Full productivity suite — It's estimated that somewhere around 85 percent of Fortune 500 companies use Salesforce, which specializes in customer relationship management (CRM) software that helps businesses manage online sales. With this acquisition, Salesforce could sell Slack to those clients — or it could upsell existing Slack customers on its other products.

With customers addicted to Slack, it may be easier for Salesforce to keep them within its own ecosystem for all their productivity needs. Enterprises will stick with Salesforce for CRM because they're already paying it for Slack. For the same reasons, Microsoft may have built Teams out of fear that allowing Slack to become too big could lead people to try out other productivity software instead of Microsoft offerings.

Salesforce's stock is down about 2 percent on today's announcement. That may be because the chat app's growth has slowed, disappointing during a work-from-home pandemic, but clearly the company is confident that Slack offers something it doesn't have.

Stock as free money — Salesforce has a market value of $220 billion and its stock price has increased 70 percent this year. If Slack strengthens Saleforce's competitive position against Microsoft by making it more sexy, the stock will only rise and this acquisition will look incredibly cheap in hindsight. In the same way that Facebook's $1 billion acquisition of Instagram looks laughably cheap today — the app now accounts for a quarter of Facebook's revenue.

Antitrust regulators likely approved the deal because Salesforce didn't compete in productivity software, meaning the competitive market hasn't shrunk as a result. But the fact that Microsoft was able to kneecap an upstart's growth by subsidizing Teams is concerning.