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Why Salesforce just put Microsoft and Google on notice

03 December 2020

By Ian Silvera

This is what the techies are calling the ‘cloud wars’. When it comes to business service software bundled together alongside constant remote access, Microsoft and its $1.6 trillion market cap is the big beat in the work-from-home room, with Google/Alphabet offering competitive alternatives (Docs, Workspace and Hangouts).

The Covid-19 pandemic has catalysed the space as companies put digital transformation as a top priority. Zoom, the video call provider, defied Warren Buffet’s warning of having an economic moat (it’s easy to replicate what Zoom does, but the business has been able to acquire customers at a rate of knots) and is also a significant, yet undiversified, player in the sector.

Slack, arguably, could be regarded on the same terms: a good communications platform, but with limited revenue creating options. This is why its $27.7m acquisition (via cash and stock) by Salesforce makes an awful lot of sense as investors and management will be exiting while the going is good.

For Salesforce and CEO Marc Benioff, meanwhile, the deal is a no-brainer as Slack compliments and effectively amplifies its current offering and is good for customer retention as employees are using other non-Salesforce services to discuss between their teams and manage them. As technology analyst Benedict Evans put it, Slack will provide Salesforce with much needed “connective tissue”.

The move, the largest ever acquisition by Salesforce, will also force Microsoft CEO Satya Nadella to put on his thinking hat: is Salesforce now an enterprise play competitor and how much will Microsoft have to put aside for future cloud-concentrated acquisitions? Likewise, the ante has been upped for Google/Alphabet and the company will have to consider how and if it wants to meaningfully compete in what is looking more and more like a two-horse race.

And, finally, the shockwaves of this mega-deal will be registered by Zoom management and investors, especially as the roll-out of a Covid-19 vaccine will begin in December. SAP and Oracle might be two logical partners for their future.