What Slack’s $28 Billion Deal Means for Cloud Services

While Americans were buying all manner of cut-price products over Black Friday and Cyber Monday, tech giant Salesforce was cutting a deal of its own to acquire the popular communications platform Slack.

In a deal worth around $27.7 billion, Slack will combine with Salesforce’s CRM platform to create a more comprehensive cloud service that now includes communications, in addition to its well-known existing services of marketing, sales, and commerce.

So What?

Good question!

As ever with deals like this, it’s not the size of the deal that’s important, but what’s underneath—the motivation.

Just as Microsoft made waves back in 2016 when it acquired LinkedIn for a deal of similar size ($26 billion), Salesforce’s acquisition is sure to do the same as we round out 2020.

Why? Because it’s another example of a tech company looking to shore up and expand its position in the cloud services market, and specifically the software-as-a-service (SaaS) market.

Cloud SaaS Market

It should come to the surprise of absolutely no one that the popularity of software-as-a-service solutions has increased significantly over the last year. What some may not know was that the market was expanding rapidly prior to the pandemic in any case.

In short, whether the events of this year occurred or not, investment by enterprise firms in SaaS solutions was going to ramp up either way.

Related Post: The State of SMB Cloud Spending in 2020

 SaaS solutions are by far the biggest cloud investment for SMBs, with the market totaling $105 billion in 2020, more than double its closest solution (Infrastructure-as-a-service (IaaS)).

So, what we have in the lead up to this deal was an already burgeoning cloud market, in which this deal is just the latest in a series of moves by large enterprises to raise their profile and align more closely with the ever-popular subscription model for software.

Why Slack?

Salesforce chose to acquire Slack for two principal reasons: brand recognition and its existing standing in the space.

Slack is one of the most recognizable communication and collaboration suites on the market, particularly among businesses.

Earlier this year, the platform hit a record number of daily active users (DAUs), with 12.5 million users logging on in March 2020.

This makes the service an extremely attractive proposition for Salesforce. Known almost exclusively for their sales and marketing services, the acquisition of Slack not only gives them access to an already successful UCaaS platform, but it allows them to diversify their offering by providing a collaboration service.

How Microsoft and Zoom Upended the SaaS Market

Zoom, an otherwise unfamiliar platform for most, exploded in popularity in the early stages of 2020 as newly remote workers looked to download solutions that could help them share and collaborate on work while at home.

It paid off for Zoom, which has seen a monumental rise to the top as a UCaaS provider for businesses and the general public.

After going public in April 2019, Zoom was worth $16 billion. In September 2020 its market cap had risen to $129 billion, giving the company a valuation worth more than IBM.

Then we have Microsoft and its Teams collaboration platform.

While not as headline-grabbing as Zoom’s meteoric ascent, Teams has nevertheless asserted itself as a major player in the space.

In November 2019, Teams had 20 million daily active users (DAUs)—by May 2020 that figure had increased to 75 million.

The popularity of platforms like these has spurred others into action, and now it appears as though the major tech players in the space all want a piece of the action.

SaaS and the Amalgamation of Cloud Services

Because of the popularity of SaaS solutions—and particularly ones that offer a comprehensive suite of tools—tech firms have been competing harder for market share.

It used to be the case that different departments within a business would have different software systems for their specific tasks—Sales would have their own CRM, the warehouse would have its own logistics ERP; you get the picture.

The desire of businesses to unify all their data across the whole company has prompted a surge in interest in solutions that offer everything in one single package.

Microsoft Dynamics 365, a leading ERP in the space, has been developed more recently with with intention of seamless integration with Microsoft’s collaboration suite Office.

Salesforce—for many years now the market leader in CRM, will be under no allusions as to Microsoft’s intensions in muscling their way into the CRM market.

And just as Microsoft has been pushing its offerings as the comprehensive business SaaS offering, Salesforce is responding in kind by tying in Slack as the collaboration suite for its own service.

What Does This Mean for Cloud Services?

It means that we can expect a further conglomeration of services from companies competing in the SaaS space.

Tech firms are acutely aware that businesses want compatibility and integration across all their systems and will look favorably on them if they can offer that.

One of the most notable aspects in this regard is Salesforce’s pursuit of Slack in an attempt to tap into the collaboration suite market, which has largely been dominated by Microsoft and Google until now.

Whether Salesforce (and Slack) manages to pick up steam remains to be seen, but nonetheless it’s another step in the direction of SaaS cloud offerings that seek to service every business need as opposed to one vertical or line of business.

It’s also a resounding affirmation of the direction of collaboration suites in general. While productivity solutions have always been a core component of any business, the events of 2020 have spurred a fervent interest in them.

In fact, collaboration suites were found to be the second-most invested in software by businesses in 2020.

As businesses continue to adjust their long-term plans and adopt collaboration suites for their workforce to use either in the office or remotely, providers who can offer them along with other business software solutions will start looking more and more attractive to businesses.

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