Microsoft's Role in Slack's Sale

That Was The Week, #47


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Editorial:

Aaron Levie, the founder of Box, focused on the real meaning of Marc Benioff's purchase of Slack for $27.7 billion:

Most importantly, this is massive validation of the modern, best-of-breed enterprise software stack. It creates even more choice in the ecosystem for the future of work. And given Slack's focus on being an open platform, there will be even more opportunity for developers to integrate into a common platform that tens of millions of users are already working from and interacting with everyday. It's hard to overstate how critical this development is for innovation in enterprise software and for IT buyers and users. We're on the verge of another massive wave of adoption and innovation that is going to be fundamentally enabled by the move to the cloud.

The move to the cloud and an open, developer-friendly, platform contain the essence of why Slack is valuable.

Many of the articles about the acquisition have focused on a relatively meaningless subplot. Whether Slack sold because it lost out to Microsoft Teams in the war for the screen and with $833m in revenues and a sale price of 30x that, it has effectively done a fire sale and Salesforce is the fool in the room doing the buying. In this world view, Microsoft is the winner and Salesforce overpaid. Both are addressed in this week's That Was The Week.

Charles Fitzgerald, an old Microsoft executive:

Microsoft is making Dynamics 365 a platform ISVs can leverage (as well as Teams), which is one of the things causing Salesforce so much discomfort that they’re will to roll the dice on Slack

But more pointedly Casey Newton at Platformer:

Slack’s life as an underdog darling of Silicon Valley ended on November 2, 2016. That’s when the upstart communication startup published an open letter to Microsoft in the New York Times, offering the tech giant an insincere “welcome” to the world of workplace chat software. The occasion was Microsoft’s launch of Teams, a Slack clone that would come bundled with the company’s popular Office 365 suite of products.
In its letter, Slack warned Microsoft that “Slack is here to stay,” adding: “we’re just getting started.” But the 4 million users it had at the time would increase to just 12 million four years later, while Microsoft — which added Teams to its 365 bundle without increasing the price — took Teams from zero to 115 million users.
That disparity helps to explain why Slack sold itself this week to Salesforce. The deal, which values Slack at $27.7 billion on revenues of $833 million over the past year, has largely been greeted with cheers. (Ben Thompson offers a typically excellent rundown of the opportunity here for both Salesforce and Slack.)

Stewart Butterfield, interviewed by Kevin McLaughlin in The Information denied that narrative:

But Slack CEO Stewart Butterfield, in an interview on Wednesday evening with The Information, bristled at the notion that Microsoft can squash Slack with Teams, its workplace collaboration product, by leveraging its vast sales and marketing muscle. “It almost seems sometimes like it’s a matter of faith for people,” Butterfield said. “It’s not based on any empirical evidence—it’s just people think Microsoft is a bigger company, and they have a huge channel, and so they’ll inevitably win, despite the fact that we win.”
“There’s this narrative that Slack doesn’t have enterprise customers, when the truth is Microsoft’s product doesn’t scale to the enterprise,” Butterfield said. “You just can’t use Teams in the same way that people use Slack.”

Newton interviewed Levie who predicted that Salesforce would be able to give Slack some sales-led rocket fuel. Casey:

Assuming Levie is right — and I wouldn’t bet against him — that means the medium-term future of work is increasingly a choice between three giants: Microsoft, Salesforce, and (in a distant third) Google. And with that, the golden age of worker choice in productivity tools seems to be coming to an end.

My take?

Stewart Butterfield, the Slack founder and Bret Taylor, Chief Product Officer at Salesforce, represent a formidable team. Together with Salesforce's market weight and sales energy they are likely to play a major role in helping to evolve the operating system that enterprises run on. Microsoft is a powerful adversary, but with legacy systems and teams (pun intended) that might not be nimble enough to keep up.

--News Of The Week:


Deals

Strategy

Innovation


And the rest is here:

News You Can Use: For Founders


The Best of the Rest: For VCs


Startup Of The Week: BioAge


Tweet of the Week:




--News Of The Week: Deals


Salesforce to buy Slack in $27.7bn deal aimed at competing with Microsoft

Technology | The Guardian

  • Business software pioneer Salesforce.com is buying work-chatting service Slack for $27.7bn in a deal aimed at giving the two companies a better shot at competing against longtime industry powerhouse Microsoft .
  • Microsoft for one has developed its own thriving online suite of services, known as Office 365, which includes a Teams chatting service that includes many of the same features as Slack’s six-year-old application.

How Microsoft crushed Slack

Platformer, @CaseyNewton

  • That’s when the upstart communication startup published an open letter to Microsoft in the New York Times , offering the tech giant an insincere “welcome” to the world of workplace chat software.
  • (Ben Thompson offers a typically excellent rundown of the opportunity here for both Salesforce and Slack .) But it also feels like the end of an era — one where workers gained new power to bring their own tools to the office, and decide for themselves how they wanted to get work done.

Slack CEO Downplays Microsoft as Factor in Salesforce Deal

The Information

Slack CEO Stewart Butterfield. Photo by Bloomberg

Before word of Salesforce’s planned acquisition of Slack leaked last week, investor sentiment about the workplace chat provider had decidedly soured, causing its stock to lose about a quarter of its value since Slack went public in June of last year. A big reason was competition from Microsoft, that old bogeyman for any upstart in the market for productivity applications.

But Slack CEO Stewart Butterfield, in an interview on Wednesday evening with The Information, bristled at the notion that Microsoft can squash Slack with Teams, its workplace collaboration product, by leveraging its vast sales and marketing muscle. “It almost seems sometimes like it’s a matter of faith for people,” Butterfield said. “It’s not based on any empirical evidence—it’s just people think Microsoft is a bigger company, and they have a huge channel, and so they’ll inevitably win, despite the fact that we win.”


Slackforce and the Beginning of the End of SaaS Sprawl

Platformonomics, @charlesfitz

  • Salesforce has bought a lot of companies ( 60+ ), but has struggled to integrate them at the product level, or consolidate them onto a common platform.
  • “What this is all about is the value of the social enterprise ,” Benioff said on a call with analysts after the announcement, “And creating this incredible idea that you have this amazing hub of productivity, of collaboration and integration and applications that now leverage all this amazing data .”

Salesforce’s Bret Taylor: Company Didn’t Overpay for Slack

The Information

Salesforce didn’t overpay for Slack, the business messaging company it agreed to acquire on Tuesday for nearly $28 billion, Bret Taylor, Salesforce’s president and chief product officer said.


Salesforce, Slack, and the future of work

Aaron Levie, Box Founder

Salesforce officially announced the intent to acquire Slack today. To state the obvious: this is a major moment for the enterprise software landscape, and importantly the best-of-breed software ecosystem. As the first best-of-breed software player to challenge Oracle and SAP, Salesforce was the original champion of cloud and SaaS, primarily focusing on Sales, then Marketing, Customer Success, and recently Data Analytics and Software Integration.

With Slack, Salesforce is blowing past those traditional departmental boundaries and entering the communication and collaboration space in the biggest way possible, enabling them to go enterprise-wide and have a new front-end for the future of work. This isn't just about the future of "collaboration." This is a new "operating system" for how knowledge workers will interact in the future, connecting the front office, back office, and customers all together in a single platform.

For Slack, they now have the backing of one of the world's largest software companies, which means they get a major distribution advantage bringing their platform to vastly more customers globally. This is almost invariably a great thing for them. Salesforce knows how to disrupt markets and in Slack, they know they're getting a great product, which is why unlike more legacy acquirers they'll surely let the Slack team continue to do what they do best -- keep moving fast, pioneer, and innovate.


--News of the Week: Strategy


SPAC vs Traditional IPO: Investors See Benefits of Blank-check Companies

Crunchbase News

  • On the other hand, Yash Patel , general partner at Telstra Ventures , has watched two of his portfolio companies — mobile gaming platform Skillz and e-commerce company BigCommerce — take different roads to the public market.
  • “You can think of it like: an IPO is basically a company looking for money, while a SPAC is money looking for a company,” said Don Butler , managing director at Thomvest Ventures .

SPAC Merger Class of 2020 Is Trading Better Than 2019

The Information

Special purpose acquisition companies are the hottest investment phenomenon of the year. But they’re not a surefire way to make money, as many lose value after they merge with operating businesses. The good news is that the SPACs that have completed mergers this year are trading better than last year’s crop, according to new data.

Forty three percent of the stocks of companies formed from the merger of a SPAC with an operating business this year were trading at or above their initial SPAC offering price of $10 as of Nov. 10,  according to data from SPAC Research. While that means 57% are trading below their initial offer price, it's an improvement on those that merged last year. Of that group, 71% were trading below their initial price earlier this month.

THE TAKEAWAY
The proportion of SPAC stocks that are losing value after merging with an operating business is declining, a sign that an improving quality of business combinations is attracting more investors. Some say SPACs can be good investments for people with a long time horizon, as it can take a while for Wall Street to recognize the value of the businesses that are combining with SPACs.

The improvement is likely a reflection of the higher quality of businesses merging with SPACs, increased investor interest in SPACs generally, and the growing number of experienced and high-profile businesspeople backing SPACs, also known as sponsors, says Benjamin Kwasnick, founder of SPAC Research. That suggests the rate of post-merger SPAC stocks trading above the SPAC IPO price should continue to rise, particularly as investors with a long-term time horizon get to know the businesses.


Why a SPAC Bubble Is Actually Good for the Economy

A boom in blank-check IPOs is setting off alarms, but they solve a very real problem for some companies

Marker — Business News and Articles for Startups and Leaders — Medium

  • It’s a company that goes public and raises capital from investors in order to make an acquisition.
  • They’re hot because they are filling an important hole in those capital markets: They’re providing companies with a quicker and cheaper way to go public than the traditional IPO, and more certainty about the price they’ll get when they sell a stake in their business.

--News of the Week: Innovation


The death of the department store and the American middle class

Vox — Recode

  • As a result, chains that sell brands at sharp discounts like TJ Maxx, Ross, and Dollar General have become more popular, siphoning away shoppers from full-price department stores like Macy’s and J.C. Penney that were designed to cater to a stronger middle class of yesteryear.
  • More mid-priced brands such as Levi’s and Adidas started selling on Amazon and other online marketplaces as department stores targeting the middle class started to struggle, meaning chains like Macy’s now had serious online competition, too.

Stripe to Offer Banking Services in Deal With Goldman Sachs, Citigroup

Shopify, a Stripe customer, will begin offering the service to its merchants early next year

Wall Street Journal

PHOTO: DAVID PAUL MORRIS/BLOOMBERG NEWS

Stripe Inc. is teaming up with banks including Goldman Sachs Group Inc. and Citigroup Inc. to offer checking accounts and other business-banking services, the startup’s latest attempt to become the internet economy’s financial supermarket.

Stripe, which processes payments for millions of online businesses and e-commerce platforms, will soon give its customers the option of offering insured, interest-bearing bank accounts, debit cards and other cash-management services. These products aren’t meant for consumers. Rather, they are designed for the merchants and vendors that do business with Stripe’s customers.


Social Media’s Liability Shield Is Under Assault

WSJ

PHOTO: MICHAEL REYNOLDS/PRESS POOL

The law that enabled the rise of social media and other internet businesses is facing threats unlike anything in its 24-year history, with potentially significant consequences for websites that host user content.

Section 230 of the Communications Decency Act was instrumental to the success of Silicon Valley tech giants such as Facebook Inc., Twitter Inc. and Alphabet Inc.’s Google and YouTube by giving them broad immunity for the content they publish from users on their sites.

There is a growing consensus in Washington and elsewhere that Section 230 needs an overhaul, even as liberals and conservatives disagree on the reasons why.

Democrats say the immunity has allowed companies to ignore false and dangerous information spreading online, since the companies generally aren’t liable for harmful content.

Republicans focus their ire on another aspect of Section 230, which says companies broadly aren’t liable for taking down content they deem objectionable. President Trump and others contend liberal-leaning tech companies have used that provision to block conservative views.

Section 230 was instrumental to the success of Silicon Valley tech giants such as Alphabet’s Google.

PHOTO: DAVID PAUL MORRIS/BLOOMBERG NEWS

Tech companies acknowledge they need to improve their content moderation practices, but they deny negligence or political bias. With attacks coming from both sides, some tech industry leaders have begun to accept the need to make changes.


--News You Can Use: For Founders


Eric Schmidt is backing a new $111 million European venture capital fund — CNBC

CNBC

  • The tech billionaire — who has a net worth of $20 billion, according to the Bloomberg Billionaire Index — has invested an undisclosed amount into a $111 million fund that was announced Monday by London-headquartered VC firm Firstminute Capital.
  • “Seed venture investing is attracting ever higher quality backers which will help more founders succeed.” While the continent never used to be known for its start-up scene, today it boasts a growing number of successful tech firms with music streaming giant Spotify, payment platform Klarna and food delivery company Deliveroo among the biggest names.

5 Interesting Learnings from Slack at $1B in ARR

SaaStr

  • Slack is growing its new customer base at $1B ARR faster than many do.
  • Slack is still significantly growing its customer base, even at $1B ARR .

The Purpose of Business Modeling

Business Modeling vs. Budgeting vs. Forecasting vs. Accounting

Alex Oppenheimer

For the last 10 years I have been working in startup finance. This has taken a few different forms, but has recently been focused on helping early stage (and occasionally late stage) companies with their business models. I also do financial models, budgets, forecasts, company analyses, projections and even some accounting. But for me, modeling is the most important and interesting part of the startup finance puzzle and should be the bit of finance that every executive and manager understands. So what is modeling?

To understand the role of modeling, I go back to my education in mechanical engineering and the 3D CAD (computer-aided design) models we built before we started manufacturing a device.

A business model needs to work the same way. Inputs, mechanics and outputs need to accurately represent how the business functions.

Inputs should be in two groups:

  • Things that we control that impact our business (i.e. advertising spend, pricing).
  • Things that we do not necessarily control but that we can measure and potentially influence that impact our business (i.e. taxes, churn).
  • Mechanics of the business then need to flow logically based on the operations and strategy. Operations are a combination of people, technology and process. The people include executives, managers and individual contributors.
  • Outputs are the key success metrics for a business. These can be top line metrics (i.e. users, revenue), bottom line metrics (i.e. net income, cash flow) or ratios (i.e. sales efficiency, growth).

FCC chairman Ajit Pai is resigning on January 20th

Engadget

FCC chairman Ajit Pai has announced that he’s leaving the commission as of January 20th, 2021, the same day that President-elect Joe Biden will be sworn in. It’s not a major surprise, as such appointees often resign as a new administration takes over…


--The Best of the Rest: For VCs


How Banking Giant Citi’s VC Arm Invests In Billion-dollar Exits

Crunchbase News

  • Citi Ventures ranks in the top 15 U.S. corporate venture firms based on its pace of investing in new portfolio companies since 2015, per Crunchbase data.
  • “Our goal is to invest in category-defining companies that are going to be the leaders in their area,” Matt Carbonara , the managing director at Citi Ventures, told Crunchbase News.

Startup Of The Week: BioAge


Faster drug discovery for aging.

BIOAGE:

Proceeds will support advancement of the company’s pipeline and proprietary platform for identifying and developing therapies to treat diseases of aging Company announces Chief Medical Officer as it prepares to enter clinic in 2021 with lead Phase 2-ready therapeutic compounds RICHMOND, Calif., December 3, 2020 — BioAge Labs, Inc., a biotechnology company developing medicines to treat aging and aging-related diseases, today announced that it has raised $90 million in an oversubscribed Series C financing. The raise was co-led by Andreessen Horowitz and serial entrepreneur, Elad Gil, and included new investors Kaiser Foundation Hospitals, AARP Foundation (through the RockCreek Impact Fund) and Phi-X Capital, the fund of genomics entrepreneur Mostafa Ronaghi, among others. Current investors including Caffeinated Capital, Redpoint Ventures, PEAR Ventures, AME Cloud Ventures, Felicis Ventures, and others also participated. “These additional funds will support advancement of our systems biology and data-driven platform to map the key pathways that drive human aging and our pipeline of medicines that target these pathways to reverse or eradicate diseases and extend healthspan,” said Kristen Fortney, PhD, cofounder and chief executive officer. “We look forward to advancing our first platform-derived therapies, BGE-117 and BGE-175 into clinical trials in the first half of 2021.”

Faster drug discovery for aging

Our mission is to develop a pipeline of therapeutic assets that increase healthspan and lifespan.


--Tweet of the Week:


We’re Never Going Back

Not Boring by Packy McCormick

  • Generally, though, people are both overestimating the likelihood that companies will successfully Return to the office full-time and dramatically underestimating the first-, second-, and third-order impacts of Remote or Hybrid work.
  • Assuming that most employees have gotten comfortable working from home and like the flexibility of at least a Hybrid option, and will look for jobs at companies that offer Hybrid or Remote work, this company is left with the people who: Live in or near the city in which their office is located.