Salesforce’s Splashy Slack Deal Isn't Worth the Risk

(Bloomberg Opinion) -- Salesforce.com Inc. is betting big on the staying power of remote work by buying Slack Technologies Inc. But is the splashy takeover of the workplace messaging leader worth the risk? I don’t think so.

Late Tuesday, Salesforce announced a definitive agreement to acquire Slack for about $28 billion in cash and stock, confirming recent reports by the Wall Street Journal and others. The value of the purchase tops Salesforce’s previous largest deal, last year’s $15.7 billion purchase of Tableau Software, marking founder and CEO Marc Benioff's biggest wager yet.

There are legitimate reasons Salesforce may want to acquire Slack. Its software has gained in popularity and become an indispensable tool for many businesses that were forced by the coronavirus crisis to quickly adopt new technologies to maintain operations and enable their employees to work remotely. Surveys show office workers intend to keep using the software even after the pandemic subsides. 

However, expanding outside of Salesforce’s core business could be a distraction for management. The company’s best acquisitions have provided a distinct specialized solution related directly to its customer relationship management (CRM) software — technology that helps companies sell products. These include the purchase of ExactTarget’s email marketing service for $2.5 billion in 2013, Demandware’s e-commerce platform for $2.8 billion in 2016 and Tableau Software’s data analytics last year. All of these transactions resulted in obvious synergies related to sales and marketing. 

Slack doesn’t do any of those things. Instead, it’s a software product for the common office worker. To illustrate the difference, Slack’s main competitor — Microsoft Teams — is bundled inside the tech giant’s suite of office productivity tools that includes Outlook, Word, Excel and PowerPoint. Slack’s end user isn’t quite the same as the sales manager, business analyst or marketing executive that uses Salesforce’s specialized products. As a result, the integration and future cross-selling opportunities aren’t as obvious as the other add-on purchases.

Slack would help Salesforce compete with Microsoft on its own turf. But giving up roughly 13% percent of its market value to purchase an unprofitable company in a relatively disparate area seems inherently risky. Salesforce has tried for years to gain traction in the workplace-messaging space with its Chatter product to no avail. Its failure may speak to how different CRM software and services are, compared with general office tech tools. Investors seem to be in this skeptical camp, with the company’s shares falling about 9% since deal talks were first reported last week.

There are other technology companies that would make far better suitors for Slack, such as Amazon.com Inc., which already provides Slack with cloud-computing infrastructure and video-calling technology as part of a partnership. Amazon could also add the workplace-messaging product to the vast array of services Amazon Web Services offers its customers. An even better match would be Alphabet Inc.’s Google. 

Like Microsoft, Google sells a cloud-based productivity suite called Google Workspace that includes word processing, email and other applications. The Google bundle lacks a comprehensive messaging and collaboration tool that is comparable to Microsoft Teams, making Slack the perfect fit. And with Microsoft dominant in the category  — it has about 270 million office workers paying for its productivity suite — a Google-Slack combination has a far better chance of increasing the level of competition in this key market. Unlike Salesforce, the revenue synergies are also clear cut: Slack’s best-in-class product would make Google’s productivity cloud offering a more attractive proposition. In contrast, Salesforce lacks the ability to bundle Slack with any truly complementary services, raising the danger it may wither inside the company.

Neither Amazon nor Google would likely stand a chance at trying to snatch away Slack, given the rising antitrust concerns over Big Tech’s power, influence and competition-squelching acquisitions. But this begs the question of why Salesforce is immune to such scrutiny. Salesforce has bought more than 60 companies since its inception and now has become a giant in its own right with a valuation of more than $200 billion. Given the risks this deal entails for Salesforce, investors may to want to root for regulators to block this deal as well.