December 15, 2020

Market Analysis

5 Reasons the Slack Acquisition Should Make You Shiver

Originally published on Intellyx.com

If you follow my work, you’re probably in one of two camps. You’re either an enterprise leader or a tech company executive. Usually, it’s pretty clear who I’m talking to when I produce a piece of analysis, but regardless of which camp you’re in, you may be wondering if I’m talking to you with this one.

The answer is simple: YES!

I have been processing and reading about Salesforce’s $27.7 billion acquisition of Slack since the news broke at the beginning of the month. The more I process, the more I believe that it should send a shiver down the spines of enterprise and tech company leaders alike.

In fact, there are five critical reasons that I think this acquisition is a signal that we’re entering a harrowing time for both of you.

Before We Get Started

Before I dive into this analysis, I need to set the stage. First, I’m breaking one of the Cortex Newsletter rules, namely that I’m mentioning vendors by name. I’ve already done that and will name a few more as I go. While we do not presently work with any of the companies mentioned, we work with a few that may compete with those I do.

I should also hasten to say that I do not mean this to be an indictment of this acquisition itself. As Paul Sawers points out in VentureBeat, “With the Slack acquisition, Salesforce now has a direct path to social collaboration across the enterprise, allowing it to create deeper integrations for its array of products.”

This piece isn’t about this being a bad acquisition. Instead, it lays bare what I believe is an ominous trend that threatens to negatively impact both enterprise leaders and the tech community if it continues to play out. And I felt it was important to talk about it.

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Thus, my rule breaking.

Ok, with my caveat emptor out of the way, let’s get to it.

Shiver Inducer #1: The Nature of Work in the Enterprise is Changing

This first “shiver” is the only one of them that isn’t really good or bad, but just shiver-inducing big. While this acquisition is indicative of several things, one of them is that the nature of work in the enterprise is changing fast and for good.

There has been much talk during the pandemic about remote work, but the more significant shift may, in fact, be less about location and more about the nature of interaction.

According to the new Spiceworks Ziff Davis Workplace Communications Trends in 2020 report, there were significant, if unsurprising, upticks in the use of tools like Slack that enable these new forms of communication. For instance, the report found that the rate of businesses using business chat apps such as Slack and Microsoft Teams lept from 67% to 81% between 2019 and 2020, and found a similar growth rate in web conferencing apps.

Almost everyone has recognized this shift to new ways of working. The dangerous side of it is that there’s a good chance that you’re not responding fast enough, no matter which side of things you’re on. This acquisition is 27.7 billion proof points that this change is coming fast and hard.

Shiver Inducer #2: The Employee is Being Disempowered — and That’s Bad

Casey Newton wrote a fabulous piece in his Platformer newsletter on the acquisition. His big take away was that it represents a fundamental shift that disempowers employees.

“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,” he wrote. “Slack first succeeded with small teams who wanted to accelerate their work, and was often dragged into organizations by early adopters. But today, waves of consolidation are leaving people with fewer real choices.”

I completely agree.

The introduction of tools like Slack into the enterprise has ushered in one of the greatest periods of innovation in the enterprise that we’ve ever seen, fueling everything from the adoption of DevOps to advancements in artificial intelligence.

Employees were free to find the best tools for the job, bring them in, and experiment with them. This approach has fueled the rise of many of today’s leading tech companies. However, this acquisition may signal that this is no longer proving sustainable and that we’re headed back to a time in which those options don’t exist. As a result, this shift will incentive enterprise leaders to instead make safe technology bets.

Which leads to the third shiver-inducer.

Shiver Inducer #3: Tech Giants are Not Great for Innovation

There seems to be a belief that tech is synonymous with innovation. Of course, all the tech giants indeed have their roots in disruptive, innovative technologies.

While I’m not saying that big tech isn’t continuing to innovate, the reality is that the larger these companies get, the more risk-averse, bureaucratic, and lumbering they become.

They really can’t help it. Their sheer size makes them subject to many of the same constraints of their industrial age behemoth cousins. And the one thing that history has taught us is that those constraints are rarely good for innovation.

Much has been made about the fact that in the four years since it launched Teams, Microsoft was able to swamp Slack’s 12 million users and amass a self-reported user base of 115 million.

The implication is that they were able to rapidly respond to the market and, therefore, take a dominant position. But the reality is that the company almost entirely fueled this massive growth by giving Teams away for free to their already-captive customer base. There was virtually no innovation involved here — this was a cut-and-dry, copy and dump operation.

And it doesn’t bode well for the innovation-driven ethos that is supposedly at the heart of the tech community. “If there’s a lesson of the past four years, it’s that thoughtfulness and craftsmanship only got the company about 10 percent as far as Microsoft did by copy-pasting Slack’s basic design,” lamented Newton. “In its open letter, Slack famously told Microsoft: ‘You’ve got to do this with love.’ In 2020, looking at Slack’s size, the idea seems laughable. What’s love got to do with it?”

For enterprises to find ways to innovate and compete in an ever-evolving market, they need access to true innovation that will allow them to find new ways to compete. But if smaller tech companies cannot themselves compete against their tech giant competitors, innovation will suffer. Pure and simple.

Shiver Inducer #4: David vs. Goliath Ain’t a Fun Fight If You Don’t Have a Stone

Speaking of innovation, let’s talk about why tech company founders get out of bed each morning. Sure, everyone dreams of the big exit and a house on the beach, but let’s call a spade a spade: that’s not the real reason they’re doing it.

The fact is that tech founders love technology, innovation, and bringing new stuff to market. It’s all about the thrill and adrenaline rush of doing something new.

The founders of the tech giants were the same. The problem is that as they’ve become industrial age barrons v2.0, those same instincts push them to practices that are, at best, stifling, and at worst, predatory.

The recent antitrust actions against Facebook and Google, plus Apple’s dustup with Epic Games, are all indicative of an environment where smaller tech companies are finding it increasingly difficult to reasonably compete. Also, no bueno.

Now, I’m not saying that Salesforce was predatory in any way in its acquisition of Slack, but it’s clear that this was a defensive move on Slack’s part. There was simply no reasonable way that a mere mortal of a company, even one as wildly popular as Slack, could compete in the realm of the tech giants.

“Our free market trades on the assumption that good, innovative products will prevail over less effective ones released by entrenched firms like Microsoft,” wrote Liz O’Sullivan in a FastCompany article entitled The dark reality behind Slack’s billion-dollar sale to Salesforce. “But Slack’s decision to be acquired by Salesforce indicates that today, the exact opposite is true…If a company like Slack can’t stand up to the consolidation of corporate power, consumers’ ability to freely choose the best and most useful product is at risk.”

Today’s reality is making it harder for would-be tech innovators to want to get up in the morning to fight a fight they know there’s no way they can win. That’s a recipe for stagnation.

Shiver Inducer #5: Priorities are Becoming Misaligned

At the dawn of the digital era, the interests of the tech companies that would eventually become today’s tech giants were broadly aligned with their customers’ interests — and society’s interests in general. The tech companies wanted to build cool tech that could change the world, and the enterprises or consumers they were selling to wanted to buy it and participate in the change.

It was a classic win-win. And, there’s no doubt that this mostly symbiotic relationship has created tremendous improvements in our lifestyle, economic prosperity, and even arguably, our health.

But as these scrappy start-ups transformed into tech giants and, in most cases, became far larger than the companies they sell to — or almost anyone else, for that matter — those interests have become less aligned.

The recent brouhaha at Google over the departure of Timnit Gebru is a reflection of this growing misalignment. In this case, it has manifested itself in the conflict between academic and corporate research, as Wired’s Tom Simonite reported in The Dark Side of Big Tech’s Funding for AI Research.

“Ben Recht, an associate professor at University of California, Berkeley, who has spent time at Google as visiting faculty, says his fellow researchers sometimes forget that companies’ interest doesn’t stem only from a love of science. ‘Corporate research is amazing, and there have been amazing things that came out of the Bell Labs and PARC and Google,’ he says. ‘But it’s weird to pretend that academic research and corporate research are the same.’”

Ostensibly, Salesforce’s interest in Slack was to bridge the gap between the customer and employee experience by bridging the gap between customer and employee communication.

It may well do so.

But I think the more likely answer is that Salesforce needs to round out its offerings to create parity and do battle with Microsoft — and how well it can serve its customers is an afterthought. I fear that we — all of us: consumers, enterprise leaders, and smaller tech companies — are playing the role of the mere mortals in a Greek epic, watching the gods battle it out, unconcerned with whether or not they crush us in the process.

The Intellyx Take: What You Can and Should Do

I realize that this may not be exciting stuff to read amid what should be our season of good tidings and cheer.

But this is our reality. The question, however, is what can and should you do about it.

If you’re an enterprise leader, I think the answer is easy: take a chance and invest in smaller tech companies.

It’s sort of the tech version of “buy local.”

I know it can be easy — and safe — to go with these tech giants’ solutions. And, I get that there’s almost no way that you won’t do business with some or even all of them. But you CAN choose not to put all of your investment eggs in those few, large baskets.

Make a point of seeking out and finding the genuinely disruptive tech companies doing new and exciting things in the market. You’ll open yourself up to finding new tech-enabled competitive advantage, and you’ll help ensure that you’ll have new options in the future.

And if you’re a tech exec, you need to not lose sight of why you started down this road to begin with.

The Slack acquisition notwithstanding, the greatest advantage you have over the giants is your passion and fresh ideas. Don’t get lazy. Don’t stop innovating. And don’t stop telling your story to enterprise leaders.

Whether you realize it or not, you’re both in the same boat.

© 2020, Intellyx, LLC. Intellyx publishes the weekly Cortex and Brain Candy newsletters, and advises business leaders and technology vendors on their digital transformation strategies. Intellyx retains editorial control over the content of this document. At the time of writing, no parties mentioned in this story are Intellyx customers.


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