Slackforce and the Future of Work 🐎 Transcend Newsletter #36
What the largest acquisition in years means for founders rethinking how we work.
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Slackforce and the Future of Work 🐎
Yesterday, Salesforce announced the acquisition of Slack for almost $28B, the largest software acquisition in almost three years.
This acquisition will impact the way companies do work in a remote-first world, and while it may make competition harder, it will also open up 4 opportunities for your startups:
Build on top of the new largest enterprise app ecosystem
Find investment from their funds
Upskill millions on how to use these two tools
Integrate Slack into other products (Slack-as-a-Service)
Let’s get to it.
Slack + Salesforce = Slackforce?
If you’re reading this newsletter you’ve probably heard of Slack and/or Salesforce.
Both are enterprise software tools:
Salesforce is the leading CRM (Customer Relationships Management) software company, grows at 30% YoY with 75% margins, and has a valuation of over $200B.
Slack is a team communication software that enables employees to connect through “channels,” rather than via 1:1 media, like email or chat. This Acquired Podcast covers Slack’s fascinating journey to its 2019 IPO.
Slackforce “doesn’t sell saddles”
We need to go back to the origins of Slack to understand this acquisition. In 2013, CEO Stewart Butterfield wrote a team memo titled "We Don’t Sell Saddles Here". He writes:
"We have something people want. However, almost all of them have no idea that they want Slack. (...) That’s why what we’re selling is organizational transformation."
The main idea here is that Slack should not try to sell saddles (read "a team communications tool") because most companies don’t know they need that. Rather, they should sell horseback riding (read, “organizational transformation”), for which a saddle (like Slack) is needed.
Fast forward seven years and Slack is...still struggling with this.
Those who use Slack love it. Their net dollar retention is 125%, meaning they earn 25% more revenue from their existing customers every single year, even if you account for customer churn.
But they have a hard time acquiring new customers, since most companies don't see their need for better communication tools until they try them. Every year, it would become more expensive and difficult for Slack to sell their product to large enterprises (see chart by Nathan from Divinations).
Salesforce is a lot less “sexy” than Slack, but one thing they have going is their ability to reach large brick and mortar enterprises. Just look through Salesforce’s investor presentations and the concept of “digital transformation” (replacing manual workflows and tools with new digital ones) for large enterprises is all over the slides. To do this, Salesforce offers a suite of tools as well as services to manage that transition.
Slack provides a critical business tool that Salesforce can offer to its existing and new customers, thus helping Slack acquire customers more easily, and integrating it directly with the Salesforce’s CRM product through “Slack Connect” (which Packy describes at length).
Strategically, the acquisition makes sense. Now let’s get into the impact for you as a founder.
"An Operating System for the New Way to Work"
Slackforce (wonder if they ever considered this new name?) is going up against a giant.
Microsoft takes advantage of its massive user base for Office 365 (258 million paid seats, since it is pre-installed in Windows computers) to distribute Microsoft Teams (which competes with Slack), and also has experience with digital transformation services for enterprises
Here’s the approach Slackforce may use against this software Goliath to shake up the world of work – and the four opportunities and one threat that startups will be facing.
Opportunity #1: The Ecosystem Approach
Slack and Salesforce are taking a more open approach to their ecosystem than Microsoft. Microsoft bundles exclusive products developed in-house (Microsoft Excel, Word, Azure, Teams) and sells them together, offering lower prices (even free) for their customers.
Slackforce, on the other hand, wants to "create the most extensive open ecosystem of apps and workflows for business”, and is merging two of the largest enterprise app marketplaces. Slack's App Directory has over 2,000 apps in its directory, 700k custom apps used weekly, and over 800k developers actively building products for Slack. Similarly, Salesforce has over 3,600 apps in its AppExchange marketplace and offers Lightning as a simple framework for app development within the platform.
This creates an opportunity for products that can be built on top of these platforms. Companies like Donut, which raised $12M in funding last month, or Polly have built initial products on Slack before building their own platforms.
This is also true for partnerships, as Packy from Not Boring shared: Slack has more partnerships than all Microsoft products combined, and Salesforce announced in 2019 their target of 250,000 new partnerships in the coming years.
Opportunity #2: Slackforce Funds
Salesforce Ventures and Slack Fund are some of the world’s most active and successful corporate funds.
They have invested in over 500 companies combined and realized 95 exits, 5 of which are $50B+ companies. Salesforce Ventures invested in some of the largest tech companies of the last decade, while Slack is an active investor in emerging technology startups like Lattice, Hoppin and Donut.
Both funds converted their portfolio companies into close product partners, which led to distribution opportunities and new revenue for portfolio startups. This is an opportunity for early-stage companies looking for value-add investments.
Opportunity #3: Tool Training
American businesses run on Salesforce, as Ryan Craig argues. But why are there no programs to train employees on its tools?
There's an opportunity for workforce development startups to address this need and complement Salesforce’s Trailhead programs.
Slack is also getting there. The number of job openings mentioning "Slack" in the description grew by almost 50% in 2020, adding it to the list of skills that new players can train employees on.
Opportunity #4: Slack-as-a-Service
Packy from Not Boring shared another potential future direction for Slack: Slack-as-a-Service (“SlaaS”).
In this world, Slack would open up its API to integrate Slack chats and channels to other platforms. Imagine chatting with your colleagues on Figma through a #channel pop up in the corner.
I can't tell if this is an opportunity or a threat for startups: Kevin Kwok rightly points out that work collaboration tools like Figma or Google Docs are creating separate communication channels to keep conversations away from Slack, while Slack would much rather have you communicate through their integrated channels.
Threat: Bundle moats
The ecosystem approach is great, but if Salesforce takes a suite of products to market, they will likely use bundling to drive down the price for customers. This is in essence Microsoft's strategic moat, and Salesforce may end up killing some bottom up innovation for better work tools that cannot to compete on price or distribution.
At some point, even some of their partners, such as Donut.ai or Loom (Slack partners and portfolio companies of the Slack Fund) may have to choose between selling a lower-price product through the Salesforce channel (as a partner) or go solo to maintain their SaaS pricing.
The Future of Work
Stewart ended his 2013 memo asking himself why they were even building Slack in the first place. His answer was ”why the fuck else would you even want to be alive but to do things as well as you can?”
Some might see Slack selling to Salesforce as a great exit, while others might view it as waving the white flag in their battle with Microsoft – but Slack wants to keep growing, and joining Salesforce is how Slack gets to sell horseback riding.
What did you think? Reply to this email to let us know!
news roundup around the future of learning and work
🔨 The state of New York announced a major upskilling initiative by partnering with Coursera to offer thousands of skills pathways to the youth and unemployed.
🎊 City of Learning Education Unconference will be happening on Jan 9th, 2021, and will be hosted by Vriti from K20 Educators (F20 Transcend Fellow). Sign up and share it with your educator communities (free access for them)!
🖥 Customer interest in edtech went through the roof during 2020 – here’s how different categories and products experienced it, by BrighEye.
🚀 Applications are open for the XX accelerator – $50K investment and mentorship over 8 weeks for companies that rethink how we work, learn, and live.
exciting job opportunities we want to share with you!
K-12 Sales Rep - Integrate
Enrollment Growth Marketer - Rize Education
Ejecutivo Comercial - Edutive
Computer Science/Game Development Mentor - Outscal
Investment Associate - Reach Capital
For more job opportunities, check out our full Job Board!.
This post was heavily influenced by a few amazing pieces on Slack and Salesforce that I can’t recommend enough: The Bulls are Typing, by Packy from Not Boring, Why Salesforce bought Slack by Nathan from Divinations and the Acquired podcast on the acquisition. Go give them a read!
Many thanks to Alexandra Macqueen, Stew Fortier, Dan Hunt, Adam Tank, Arvind KC, reddy2go, Ayomide Ofulue (from Compound Writing), Vartika Manasvi, and Edward Sturm for the edits and inspiration for the feedback and ideas!
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