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With Slack, Salesforce Would Put Heat on Microsoft

26/11/2020 7:59pm

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By Aaron Tilley 

Salesforce.com Inc. has thrived for years as a niche business-software vendor with a chief executive, Marc Benioff, who has positioned himself as a prominent voice in American business.

Now Mr. Benioff is taking steps that analysts say aim higher, intensifying the company's battle with the industry's biggest player: Microsoft Corp.

Salesforce is in advanced talks to acquire Slack Technologies Inc., The Wall Street Journal reported Wednesday, in what would be Mr. Benioff's biggest acquisition to date and the company's most direct attack on a market Microsoft has identified as critical to its growth.

The deal, which could still fall through, would add fuel to Salesforce's ambition to become the go-to software platform for business customers to use for everything from data analysis to managing customer relationships to even daily communication.

The pandemic has amplified Salesforce's efforts. When Covid-19 broke out, Mr. Benioff quickly launched Work.com -- a suite of applications companies could use for contract tracing, mental-health checks and shift scheduling.

A deal for Slack could heat up the simmering rivalry between Salesforce and Microsoft. About five years ago Microsoft was in talks to buy Salesforce, but the deal fell apart over price. Salesforce lost out to Microsoft in 2016 in bidding for LinkedIn Corp., the business-focused social-media network. The loss stung. Salesforce responded by urging regulators to examine Microsoft's proposed purchase on antitrust grounds; the deal passed regulatory scrutiny.

Landing Slack, which Microsoft once tried to acquire, could amount to a bit of revenge for Mr. Benioff.

Having failed to capture Slack, Microsoft launched its own workplace collaboration tool, called Teams, spurring a sometimes heated battle between the two companies.

"They want to kill us," Slack CEO Stewart Butterfield told the Journal earlier this year. This summer, Slack filed a complaint with the European Union over alleged antitrust behavior by Microsoft in using its dominance to push Teams.

Slack "extends the footprint of what Salesforce goes after," said Jefferies analyst Brent Thill. "Not everyone uses a sales system, but everyone can use collaboration. The beauty of Slack and Teams is that it touches everything inside enterprises."

Mr. Benioff has a history of deal making since he co-founded Salesforce 21 years ago and turned it into one of the most successful companies in the then still nascent market of providing software as a service. Salesforce completed its biggest-ever purchase last year, paying around $15 billion in stock for data-analytics platform Tableau Software Inc.

A year earlier it splashed out more than $5 billion for cloud-application provider MuleSoft. Inc. This year Salesforce said it was buying cloud-software provider Vlocity Inc.

Mr. Benioff has long been one of Silicon Valley's highest-profile and most outspoken executives, using venues like the World Economic Forum in Davos, Switzerland, to champion causes. He set up Salesforce with a pledge of corporate giving and bought himself an even larger platform with his acquisition of Time Magazine two years ago.

The San Francisco-based company also has made a big push into the emerging field of artificial intelligence, developing tools to help customers make better use of their data. In 2016, it acquired PredictionIO, which makes software for building machine-learning apps. That followed the purchase of MinHash and Tempo AI, two further machine-learning companies. In 2014, it bought RelateIQ, which also specializes in the field.

Breaking into the market of workplace collaboration has long been on Salesforce's agenda. In 2010, it launched Chatter, a private social network for companies to collaborate. And in 2016, it bought cloud-document collaboration app company Quip Inc. for more than $500 million. Neither product attracted a wide following. Acquiring Slack, which Salesforce had previously explored buying, would immediately make the company a big player in the workplace-collaboration market. Slack has more than 130,000 paying customers.

Salesforce, which declined to comment for this article, is pursuing Slack as competition in its core business of customer relationship management software is intensifying. Adobe Inc. this month said it would buy Workfront, a platform for marketers, for $1.5 billion. Microsoft also has been pushing its rival product, called Dynamics. Salesforce still has the largest share with 20.1% of the world-wide market in 2019 compared with 2.6% for Microsoft Dynamics, according to research firm Gartner Inc.

Even with Slack, Salesforce would be a comparatively small rival to Microsoft. The Redmond, Wash., company had sales of $143 billion in its latest financial year, generated by business enterprise software, its cloud-computing infrastructure, and consumer-facing businesses, such as videogaming, which has exploded during the pandemic. Its sales are roughly nine times Salesforce's annual revenue. Microsoft's market valuation tops $1.6 trillion, about six times that of Slack and Salesforce combined.

Last year Salesforce said it was seeking to reach $28 billion in annual sales in the 2023 financial year. It had $16 billion in sales in its most recent financial year.

"He really needs to keep growing," said Mark Moerdler, senior research analyst at Bernstein Research, of Mr. Benioff. "He needs another big acquisition. Slack gives him a big acquisition. It gives him revenue."

Slack also has been looking to broaden its appeal. Companies have used Slack principally for intra-office communications. In June, the software provider introduced Slack Connect, which allows messages to be sent between different companies. Slack's Mr. Butterfield said the feature has driven a rise in paying customers and should fuel future growth.

But big acquisition plans aren't without pitfalls. When Salesforce tried to buy social-media company Twitter Inc. in 2016, Mr. Benioff faced significant pushback from investors and he walked away from the deal. Although Slack is more in the mainstream of Salesforce's business than Twitter, it would still come at a hefty price given Slack's $17 billion market value before Wednesday's stock surge.

"Investors don't want Salesforce to do a big deal," Mr. Thill of Jefferies said, adding they want the company to show it can generate growth from within.

Write to Aaron Tilley at aaron.tilley@wsj.com

 

(END) Dow Jones Newswires

November 26, 2020 14:44 ET (19:44 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.

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