Hello and welcome to Three Shorts! Every Wednesday morning, I send you an email where we unpack the strategy behind the news in as few bullet points as possible.
This week we’ve got:
Why Salesforce bought Slack
Why Apple hired Josh Elman to improve app discovery
Why Axel Springer, the owner of Business Insider, wants to buy more media companies
Enjoy!
(And don’t forget to click the feedback thingy at the bottom 🙏)
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Salesforce’s acquisition of Slack — huge! 😮
What happened?
Salesforce is buying Slack for $27.7 billion dollars.
That’s a 64% premium over their $16.8b market cap from 11/24, the day before the rumors of the acquisition leaked.
Why? What’s the strategy?
For big news like this, I wanted to make sure I got the story right. So yesterday I talked to Ed Sim, founder of Boldstart Ventures!
Ed has deep experience in enterprise SaaS, and invested early in hit products such as Front, Superhuman, Kustomer (which just got acquired by Facebook for $1 billion), and many more.
My theory going into the call with Ed was that Slack was willing to sell because Microsoft Teams had damaged their business:
This chart, which I made from data in their Q3 earnings deck, says it all. Slack’s growth with large customers is slowing dramatically:
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Another scary metric: Teams just announced 115m daily active users, while Slack hasn’t disclosed DAU since October last year, when they had only 12m DAU.
Why is this happening? Microsoft offers a bundle with Teams (their version of Slack) for no additional charge to companies who already pay for Microsoft 365, which includes Word, Outlook, etc.
This changes the decision calculus dramatically for tons of businesses, especially large ones. Given that Teams is pretty equivalent to Slack, why spend hundreds of thousands of dollars a year on something you can already get for free?
Ed thought this was probably right, but also pointed me towards the huge upside that’s in it for Salesforce.
“It’s a brilliant buy,” he said. “For a couple reasons.”
“First, Slack is the digital nervous system for businesses. That’s a powerful position to be in, and Salesforce is currently dependent on integrations with these hubs. Now they own one.”
“Second, Slack benefits from bottoms-up, product-led adoption. This is a valuable contrast to Salesforce’s usual focus on big enterprise clients that require a lengthy sales process.”
I asked Ed: given how powerful the bundling strategy has been for Microsoft Teams, does he think Salesforce will create a bundle with Slack?
“I’d say I can see that definitely happening over time along with tighter integrations with Salesforce applications from the core CRM to Tableau and Quip.”
Here we’re seeing a sort of enterprise version of the ecosystem wars that Apple and Google are fighting in consumer. Each has their strengths, but there are many areas of competitive overlap.
Will it work?
Ed is bullish:
“It reminds me of Mulesoft — a fabulous acquisition by Salesforce in 2018.”
Much like Slack is a central nervous system for employee-facing information flows, Mulesoft ties together back-end data from various disparate systems.
At the time, most analysts thought Salesforce had overpaid for Mulesoft. But since then it’s been a huge hit — proving Salesforce’s ability to cross-sell high quality products they acquire to their large, existing customer base.
I’m inclined to agree. I think Salesforce can get a significant portion of their customers using Slack, and that will be a transformative thing for both companies.
What you can learn:
Bundling is magic.
Salesforce and Microsoft are the main two natural acquirers for any enterprise SaaS product.
If you control the right layer in the value chain — like a central hub for employee communication — the strategic value of your position might be worth more to acquirers than as a stand-alone money-printing business.
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Apple’s App Store hire — promising 🤞
What happened?
Josh Elman, a heavy-hitter in the product world, announced on Monday that he would be joining Apple to work on App Store discovery.
This move comes shortly after Apple announced, perhaps not unrelatedly, that they would be cutting fees for small developers.
Why? What’s the strategy?
To me the move to hire someone as senior as Elman suggests that Apple is getting serious about improving App discovery.
<Redacted>
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(You get it.)
The rest of this story is about how Apple can improve app discovery, and why it’s so critically important that they do so to maintain their pricing power with developers.
The last story is about Business Insider’s parent company, Axel Springer, and how they are set to go on an acquisition spree over the next year or two in the US digital media market.
This is the fourth week in a row that I’ve published Three Short on time, and my commitment is to keep publishing it every week.
I’ll cover the strategy behind the news in the concise bullet-point format — what happened? why? what’s the strategy? will it work? — so you can start to train your neural net on the most important strategy frameworks, while keeping up with latest happenings.
Just like a ML algorithm can learn object detection or face detection, you will learn strategy detection.
