Acquired - Slack + Salesforce Emergency Pod with Packy McCormick of Not Boring

Episode Date: December 2, 2020

Acquired is live on the scene covering Salesforce's blockbuster $27.7B acquisition of Slack, with the help of the internet's #1 Slack bull (and top internet analyst in his own right), Packy McCormick of Not Boring. We dissect the deal itself, Slack's relatively short life as a public company, the impact of Microsoft and Teams, and most importantly what this means for enterprise SaaS startups broadly. And oh yeah — we have a ton of fun too. :)Note: you can find our full June 2019 episode on Slack's history and their DPO here: https://www.acquired.fm/episodes/the-slack-dpo Sponsors:ServiceNow: https://bit.ly/acqsnaiagentsHuntress: https://bit.ly/acqhuntressVanta: https://bit.ly/acquiredvantaMore Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Merch Store!Playbook Themes from this episode are available on our website at https://www.acquired.fm/episodes/slack-salesforce-emergency-pod-with-packy-mccormick-of-not-boringLinks:Not Boring: https://notboring.substack.comPacky on Twitter: https://twitter.com/packyMPacky's bull thesis on Slack from November 2020: https://notboring.substack.com/p/slack-the-bulls-are-typing

Since I think I'm editing this one, I'm trying to make it as easy as possible. Yeah, we didn't actually talk about that. Thanks, Ben. Hopefully, we can just one-take this. Welcome to this emergency pod of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, and I'm the co-founder of Pioneer Square Labs, a startup studio and venture firm in Seattle. And I'm David Rosenthal, and I am an angel investor and independent advisor to startups based in San Francisco. And we are your hosts. Well, David, here we are live on the scene. We've got a special guest.

What are we talking about today? We are talking about Slack being acquired. And we have the best in the business, the number one internet and Twitter Slack bull out there. And probably, probably we're going to discuss how happy, but probably a very happy man here today, Paki McCormick of Not Boring. Welcome to the show. So great to be here and I'm both happy and sad, which I'm sure we'll dive into. He comes to us with mixed emotions. All right, David, you've got this lovely introduction written up here. Take us in.

This is non-traditional in so many ways because this is a big week here at Acquired. We've got DoorDash. We've got DoorDash. We've got Airbnb IPOs coming up. We're gearing up for those. We're going to be live on the scene for those. We have Roblox, which maybe we'll cover next season. A couple others happening. We literally just recorded an awesome special episode, which is coming out later this month,

but we knew this was happening. So last week we dialed up Paki on Twitter. We said, Hey, if this happens, can you come on the pod? Will you do an emergency pod with us? And here he is, super excited to do it. Yeah, why doesn't every company just like leak their acquisitions ahead of time? So that way we have a little bit of warning. I think we got totally blindsided, if I remember, with LinkedIn, with Whole Foods.

I woke up to like a frantic text from david uh around the whole foods acquisition i had just moved back to the bay area and uh i did it in my in-laws attic but linkedin was acquired for right around the same amount if i remember 24 billion that's right yeah i think that's probably the interesting comp um but i don't want to get too far ahead of myself. Okay, listeners, now is a great time to tell you about longtime friend of the show, ServiceNow. Yes, as you know, ServiceNow is the AI platform for business transformation. And they have some new news to share. ServiceNow is introducing AI agents. So only the ServiceNow platform puts AI agents to work across every corner of your business. Yep. And as you know from listening to us all year, ServiceNow is pretty remarkable about

embracing the latest AI developments and building them into products for their customers. AI agents are the next phase of this. So what are AI agents? AI agents can think, learn, solve problems, and make decisions autonomously. They work on behalf of your teams, elevating their productivity and potential. And while you get incredible productivity enhancements, you also get to stay in full control. Yep. With ServiceNow, AI agents proactively solve challenges from IT to HR, customer service, software development, you name it. These agents collaborate, they learn from each other, and they continuously improve, handling the busy work across your

business so that your teams can actually focus on what truly matters. Ultimately, ServiceNow and Agentic AI is the way to deploy AI across every corner of your enterprise. They boost productivity for employees, enrich customer experiences, and make work better for everyone. Yep. So learn how you can put AI agents to work for your people by clicking the link in the show notes or going to servicenow.com slash AI dash agents. So we've talked about Slack a little bit here on Acquired before. We did a full episode around their direct listing that we'll link in the show notes when this comes out as a podcast. If you want to remember Stuart's epic blog post, we don't sell saddles here, or perhaps... We've got Stuart growing up on a commune in British Columbia.

Yeah, we will not recount all that today. We'll focus more in on this transaction, but go check out the history there. Paki, you wrote a piece, you think, two weeks ago? Tell us what that was about. Two weeks ago yesterday. And so the piece was, I've been a long-suffering Slack bull. And the piece was, I'd kind of touched on Slack in a few different cases. And this one was, once and for all, I'm just going to put down my full bull case on the company because, you know, from its direct listing, it's kind of suffered.

It's tanked. It rises back up a little bit. It tanks again. So I wanted to put out there that I thought that the bears were wrong. And obviously the big knock on Slack was that Teams was just going to come in and kill it. It's actually reported really strong numbers, which just because the narrative has been so bearish, you look at Slack's numbers kind of through this lens of, ah, they're not doing so great because compared to Zoom, they're not growing or compared to company X, their net dollar retention isn't so good. But they're really one of the best SaaS companies in so many different category of metrics that, you know, just wanted to put that bear case out there.

Top quartile in just about every metric across the Bessemer Emerging Cloud Index, right? Exactly. And I mean, right, the fifth fastest growing company and the second best net dollar retention up there in terms of gross margin. So like all the things that you look for in a SaaS business,

plus the fact that pretty much any fast growing startup that you can name uses Slack. And as they grow, Slack grows with them. And Slack, as we'll discuss, I'm sure, just reported earnings and their numbers look good yet again. So it's one of these companies that has been underappreciated, but I think over time was going to build into a juggernaut. Well, so you hit publish on that not boring piece two weeks ago. You CC Mark Benioff. Although he's probably a subscriber at this point, i mean he's gotta be i i did i have to admit that i looked it up and he's he's not there are other he probably used an alias that's he didn't want to yeah because he didn't want to

preface the deal if you see like bruce wayne or sort of like a hawaii guy 72 just signed up so maybe maybe that's him love it so he got the memo he got the he got the he got the post today after in salesforce earnings 27.7 billion dollar total purchase price works out to i think 45 86 a share in cash and stock i think a little heavier on the stock than the cash piece, I think if I'm right. But roughly 50-50, like 55-57% stock. That's a 55% premium to where Slack was trading before the news was leaked last week. 85% premium to the most recent Slack stock price crash after their earnings in September. Yeah, we should be clear. Is this the first time slack stock price crash after their their earnings in september yeah we should be clear is this the first time that the price per share is above their the the price first day of trading i think so i think it might be certainly i don't think it's been this

high but so like reminiscent of dropbox in that way where it's sort of never really it kind of traded down and then flat and then down and then flat. And we've, we've been kind of in one of the flat spots for a while. And, and, uh, so let's see, Slack is going to remain independent. Uh, Stuart is staying with the company, staying as CEO of Slack, uh, deal is expected to close next year, still has to get shareholder approval from Slack shareholders which we might discuss might discuss packy's thoughts on that uh and it is the largest software deal since ibm bought red hat two years ago in 2018 wow is it really i guess yeah i guess you don't see these these public to public mergers that often yeah well i think though actually pure software deals

i can't yeah i can't think of anything else that's happened since yeah the the thing i i definitely feel like it's the most akin to linkedin at least the way that it's big you know 100 billion dollar plus valuation or market cap tech company buying something that um you know was started decades no probably one decade uh with yet multiple decades after their founding because one was salesforce salesforce was uh early 2000s right or i think it was late 90s it was to make 99 98 99 i think oh wow it was started yeah so they're sort of buying into the next uh next generation of enterprise software yep yep and of course um the other bidder for linkedin was salesforce salesforce and then they filed an antitrust suit against uh microsoft about it i think really i

think they sued to block the deal yeah well i think we're already on to this sort of early theme of this episode, which is going to be the battle with Microsoft. Yeah. First, Paki, let's unpack the emotions. How are you feeling? I'm like a sideline reporter here. Like, how are you feeling? Are you like, are you ready to go to Disney World? Are you declaring victory? Is this a tough loss? Is this both? What's going through your head right now? I think it's a little bit of both, right? When I wrote about the company, it was trading in the mid-20s. And so for anybody who bought after reading I'm Not Boring, awesome win for me, great win, love all of that. But my bull case was not to wherever this ends up in the $45 range, depending on where Salesforce trades. I mean, even if you look at just kind

of the other top quartile BVP cloud companies and how they've traded Slack, if, you know, assuming they just trade in line with those companies kind of from the beginning of the quarantine, I think that puts them in the low $50 share range. So, and that's right now. And I really think Slack's potential is long-term as they build and grow and they keep retaining and growing with customers. So, you know, I was really hoping that this was kind of a three to four x stock and it's just such a rarity right now during coronavirus to find a sas company that you think is somehow undervalued and so now i have to go back to the drawing board and find kind of what the next what the next slack is but you know underpriced s SaaS companies that are growing at 49% year over year are hard to come by right now.

Totally. I mean, that's like, I mean, we might as well just get right into it. Like what, what was the disconnect here? Because this is crazy. Like every other SaaS company out there, especially, you know, I work from home stock has been just off to the races. And like what has kept Slack so beaten down for so long? The biggest number one thing that has kept Slack beaten down is just the threat of Microsoft Teams. And not just kind of a specter of Microsoft Teams,

but Microsoft Teams and Microsoft generally has gone after Slack by name. And to hear Stuart talk about it, that's because if Slack threatens email, then Outlook is threatened, and then the whole Microsoft suite is threatened. And so they've put particular emphasis on the fact that they're crushing Slack. And so Slack has 12 million users or whatever. And then Microsoft reports that they're just flying by Slack. And when they release their charts showing that they're passing Slack, atypically, they put Slack's name

right on the chart and call them out. And according to Stewart, that's something that nobody except maybe Larry Ellison at Oracle a couple of decades ago ever would have done calling out a competitor by name. And so it was this like real kind of threat that Microsoft felt, again, according to Slack. And so they put everything that they had going after Slack. And so I think you can look at the numbers a couple of different ways. You can either say, Slack is growing faster than 49 of the 54 companies, or Slack and Zoom are really kind of the two most public-facing or consumery of all of the work-from-home stocks. And Zoom is growing at 300% and Slack's only growing at 49%. What's wrong with this company? That's one of the reasons that I love it so much long term.

I think switching costs and moats in general are these double-edged swords. And Zoom doesn't really have a moat, right? But it's really easy to hop on a Zoom. We don't have a shared Zoom account and we hopped on a Zoom in one link. And so it's really easy for Zoom to grow. Whereas Slack, you have to set up an org, you have to build your your integrations you have to do all those things that pay off over time so and there's no reason why anyone would join slack let alone join slack as a paid member unless you're part of a company whereas there are especially post-covid like a million use cases why you know like my parents have a paid slack as paid zoom account now like yeah if you

get sick of that 40 minute limit you're just gonna pay off it's only you know 14 bucks a month and so you go for it so i think that's been the big thing then there's other things like you know chat is just annoying and distracting and particularly right now people are like oh man another slack notification i'm sick of this but the real the real reason it's kind of suffered has been i think that that team's bear case yeah packy how muchaki, give us a sense of the relative user counts of Microsoft Teams versus Slack. And then on the Microsoft Teams one, you made a great point around, hey, it's actually more of a Zoom competitor than it is a Slack competitor. Can you dive into that a little bit?

Yeah, so I think let's say that Microsoft Teams has about 10 times the number of users as Slack doesn't cross maybe at the $100 million user range recently, whereas Slack's in that 12 million range and they haven't really reported numbers recently on that. They also have a really growing, and we'll talk about Slack Connect because I think that's one of the reasons Salesforce bought it, but this growing connection between companies and that's growing super, super fast. But Microsoft Teams, I mean, it's not architecture the same way that Slack is and that you can just continually add teams within your organizations and have different kind of sub-channels. It's limited in the number of teams that you can set up. You have to be really, really thoughtful from day one in

how you set up your channels and your teams within Teams. It's getting confusing with the nomenclature there. But it's not meant to be a 10,000 person org chat tool. It's meant to be the hub for kind of all things Microsoft within an organization. And so that's really good because you're able to grow. Microsoft is phenomenal at distribution. I don't use a PC, but my wife and my mother-in-law do. And I go to their computer sometimes when they're opening it. And Teams just pops up, even though they're not team users.

And so the active users count, I think, and Slack has called this out in the past, is potentially a bit inflated. Well, Microsoft's done this forever. I mean, back in the Azure days, they were including O365 in the Azure numbers. And so they'd report numbers to the stream, like, oh, Azure's on fire. And it's like, well, it's a little bit of a subscription. It was Microsoft's fastest business ever to a billion dollars in revenue, but I'm pretty sure that included the internal accounts

as revenue drivers. So they're up to their old tricks again. And in this case, depending on how you think Salesforce competes with Microsoft, it kind of worked, right? If you really do think an independent Slack is a threat, then Microsoft's strategy and Microsoft using its distribution kind of bully pulpit really kind of knocked out a competitor here. So what do you think? Yeah, this is super interesting. Why, we'll get back to Slack itself and Salesforce in a minute, but why do you think Microsoft,

why do we think Microsoft took this approach of so directly comparing Teams to Slack? Because it's, as you point out in your piece, and, you know, I think it's really not, like Zoom is the big competitor for Teams, and yet you don't hear Microsoft talking about Zoom at all. Like what's their thinking here? Zoom is not a platform and doesn't have line of sight to being a platform. Whereas if you're on Slack and you can use G Suite and it's integrated and you can use

Figma and it's integrated and you can use the 2400 different integrations that they have, then Slack all of a sudden becomes this hub for essentially an office suite that is comprised of best in class software and then all brought into one place together. And by the way, it potentially kills email, certainly internally and maybe increasingly externally. And so it's just a more direct threat whereas if people use zoom they use zoom but you're still going to go back and use excel and powerpoint and email and all the other things that you would have used otherwise so it doesn't it's not a threat to microsoft's cash cow in the way that slack would have been interesting because yeah that's, one of my big questions here, too, is like, why wasn't zoom the one that acquired slack here? Like, to me, that's a very compelling combination. Your stock is potentially trading at a value that's worth a lot more like it's cheap currency. Like, why wouldn't you use it to go make acquisitions? I read a whole piece on zoom. And this exact point that what do you do when you have a stock that is

by all measures, incredibly, incredibly expensive, when you have a stock that is by all measures incredibly, incredibly expensive and you have no moats? And the answer is you go out and acquire companies. I didn't have Slack as one of them, probably because I just wanted Slack to remain as an independent company. You didn't want to trade your shares in for Zoom shares? Not at that valuation, I didn't. But I mean, they've tanked a little bit over the past day or so. But yeah, I mean, I think Zoom should be more acquisitive here. Totally. But yeah, that's a good point on Microsoft.

Like their whole, it's always, even though, you know, it's new Microsoft under Satya and all that, and it totally is in many respects, the strategy remains the same same which is we have the best distribution channel in the world for enterprise software we have core use cases where we're the dominant app in the you know vast majority of businesses that exist in the world primarily being email but also word and excel and powerpoint too um and we feed stuff into that channel and so like the stuff that they feed into the channel is great and additive of which video is super important and that's why they're doing what they are with on the product side with teams but slack as small as it is compared to microsoft is actually like the one that's like hey we want and stored is said in many times like we want to be the next microsoft you don't hear

eric saying we want to be the next microsoft eric is happy having just a very well-running video product exactly yeah well i i do think and i can give a couple of more data points too. I mean, Microsoft, a couple of years ago decided to go all in on Teams. And so they're shutting down or rolling in Skype into Teams. They've, you know, Communicator and Link are long since sort of dead and rolled into the Skype brand. But all of that is sort of becoming Teams now. Same with a lot of what used to look like Office 365 dashboards. Teams is becoming that sort of central hub for everything. And I know they did a lot of internal reorgs too to kind of put a lot of people who are working on suite-wide or cross-platform things under the auspice of Teams. And so they really are looking at it like, well, we can bring a lot of users right away, even if they don't know that they're users, and then sort of increase time

in app and engagement and usefulness of this app over time. And I think, you know, Paki, the thing I go back to is, let's say Microsoft has that sort of 120, 130 million active Teams users. Most of them are probably using that either because they have Office 365 and it's a launcher of sorts, because their team technically uses it, even whether or not it's sort of their main mode of communicating. But more importantly, because we're all in work from home and they're using it for their video calls because it's the free and corporate approved video calling software that they can use. And so I really liked the point that you made, which is like it is a total red herring to continue comparing Slack's users to Teams users because it's complete apples and oranges and the Slack share price is depressed because it doesn't look good compared to this thing that you really shouldn't be comparing it to. Exactly right. Yeah. If you compare it to video products, when everybody is on seven video calls a day and it's very easy to set up, it's not going to look nearly as good as it would if you compared it to anything else. It's a little bit tougher to set up and involves the full team's participation. Yep. Well, I think my kind of thesis on this whole thing

is what we're really seeing is like the anti-Microsoft, I don't think it's like an alliance. It's really like the anti-Microsoft consolidation where if Microsoft is... This isn't like the rebel alliance here. This is like another empire stepping in right and i think uh a blog post just went up by aaron levy um talking about how uh this is a show of force from best in breed applications and whenever you see best in breed in the enterprise the way to sort of

decode speak that is microsoft is not best of breed. Microsoft is the full integrated system that's best at nothing. And I don't know if I totally want to make these my words, but this is the viewpoint of the best of breed argument. They're best at nothing, but they're the best integrated. And so if you're buying from one single provider, it's the proverbial enterprise, one throat to choke. It works best together. You can have one person for your support. You can have one rep. You can have one license. You get bundled pricing, all that stuff. And when you see best of breed, what that usually means is people buying from a bunch of different vendors, but it's the best purpose-built software

for each of those things. It's very interesting to start to see consolidation among best of breed applications being from one company. And one does have to wonder, is this the first of several? Slack might be the most important because it is the platform, the entry point, the place which you can branch out to many of the other apps from there. But if Zoom weren't so expensive, you know, would we see that? Is there some way that Salesforce has ambition to find other best of breed applications and bring them into the umbrella too? Yeah. Well, and, you know, you have to think, regardless of whatever Aaron and Box wants to do themselves, this is fantastic news for them, uh, and for their valuation, right? Because at a minimum, you know, file storage is going to be a big part of that puzzle.

Uh, so either box or maybe Dropbox is one of the next items on the list, uh, for Salesforce, or if not at a minimum, they just got a lot more strategic. And they can do, I'm sure they already have a partnership with Salesforce as a distribution channel, but that's going to become even more important. And if Salesforce is now going to be pushing this like, hey, best of breed, not easiest to buy for your IT department, this is going to be a tailwind to all other, I'll use this term, I don't mean it pejoratively, subscale software and productivity companies out there. I just mean subscale in that you're not Microsoft or Salesforce. This is just going to be, I think, great for their go-to-market and distribution yeah the

developer equivalent of this is the microsoft stack versus the open source ecosystem and now you sort of have the microsoft productivity stack versus the best of breed ecosystem of which salesforce is now the very credible centerpiece you know it in the open source ecosystem it was like well you know and this is a decade ago i use ph as my scripting language, which means there's this whole variety of open source vendors that I use for all the different pieces in my stack, or now Python or Node or whatever. And I think the way to think about that in the productivity world is like, well, yeah, we use Slack. And the question, this is the leap. It's like, we use Slack and sales for, like, the analogy starts to fall down for

me. So this is, I have this queued up. I need to quote this. Here's the key line in the press release. Combining Slack with Salesforce Customer 360 will be transformative for customers and the industry. The combination will create the operating system for the new way to work, uniquely enabling companies to grow and succeed in an all digital world. And then you scroll down and you see Slack will be deeply integrated into every Salesforce cloud as the new interface for Salesforce customer 360 Slack will transform how people communicate, blah, blah, blah, blah. So what does it mean to be this new interface to Salesforce customer 360? And like, like, what does that actually mean be this new interface to Salesforce Customer 360?

And what does that actually mean in practice? Does that mean that this Salesforce Customer 360 is the very best Slack bot to ever exist and people interact with 360? They're going to rebrand Slack bot to Salesforce bot. Oh, no. Oh, man. Benny off that. Yeah. I was talking to my friend about this deal earlier

and he was like, getting Salesforce as a company is like somebody giving you like the chassis of a car and then a box of parts and then having to figure out how to put them all together before you drive it. The last company I was at, the Salesforce implementation was one of those things that every month was about a month from being done.

And so it's really hard. And maybe that's why Slack over time becomes kind of the on-ramp to the whole Salesforce ecosystem. And they do figure out a way to integrate it because Slack, for all the work that they've had to do to make their onboarding a little bit easier, and they have struggled there,

it's certainly a much easier product to onboard to your organization than something like a little bit easier. I know they have struggled there. It's certainly a much easier product to onboard to your organization than something like a Salesforce might be. I don't know. I read all of that and I'm just like, that translates to me as Slack just upped their sales, their own sales force by like 100x in terms of headcount and power. And that's what that

translates to for me. Yeah. And in the sort of like classic acquisition category that we always do on episodes, I mean, this is a distribution deal, right? Like this is not like the product velocity is not going to change. Salesforce is probably not going to integrate the Slack product deeply into the existing Salesforce. I mean, they say they are, but it's unlikely. I think it looks a lot more LinkedIn where it's a totally separate thing and they leverage the Salesforce distribution to be able to get it into more enterprises. That sounds right. this point well several times slack's growth story over really its whole life as a company has been we get small innovative organizations to start using the product uh and and sometimes

that's um small innovative organization teams within larger companies uh but oftentimes it's startups we get them to start using the product and then it grows. As those companies grow, we grow. And you made the point that like, yeah, so you're spending all the sales and marketing to acquire these customers early on, but then as those customers grow and they retain and they expand with you, that's going to lead to a free cash flow monster, hopefully in the future. What's missing from that playbook is a credible way to go get the big organizations. And this feels like the unlock to that. Yeah, this makes sense.

The only question in my mind then is if you look at it like great, you know, sales, Slack is a great way to, you know, index startups. Basically, if you want to make a bet that startups grow and then have lots of money to spend in the future because they're cash generating machines and need lots of great tools like maybe the place that salesforce actually ends up investing is a migration path from you've loved slack and now we make it easy to onboard to the full you know salesforce crm suite um i just CRM suite. It's probably my product background, but I don't see that. It's hard for me to imagine what that bridge looks like where you're like,

oh, great, you and your teams have all been communicating in this place, and therefore somehow your Salesforce CRM implementation will now be easier. Well, I think the big thing here, and they mentioned it in the press release as well, is Slack Connect. And to the extent that you think that Slack Connect will be a way that teams can, that a company can communicate with all of the different partners or clients that it has,

then that makes a ton of sense for a Salesforce integration, where you're not just plugging into email and tracking your email conversations, but you have your lead right there. You click start a Slack Connect channel, and then you're in conversation right within the Salesforce product. So to the extent that there is an integration, that's where I see that happening. Slack just reported their numbers, and they grew, I think, from 380,000 Slack Connect endpoints to 520,000 Slack Connect endpoints in the last quarter alone.

And so this has been a huge area of focus for the business, maybe in retrospect, rearing up for a Salesforce acquisition, because this certainly does make them a lot more attractive as that kind of, I think Ben Thompson called it, the work social network. But certainly I think that's the most appealing piece of the product if I'm Salesforce.

Yeah, let's talk a little bit more about Slack Connect. Well, why is it so strategic for Slack? And I mean, this has been the drum that they've been beating basically, not their whole life as a public company, but most of it, right? Yeah, I think it's strategic for Slack. So when stewards talked about the product and how to describe it, and I wrote about this in the piece, I'm repeating myself here, but when they've talked about the product, they've always said, it's hard to explain, but when you try it, you know it. And so I think what Slack Connect represents is if you want to work with Stripe, or if you want to work with Amazon and the Stripe or Amazon team thinks it's a lot easier for you to communicate in a shared channel, then guess what?

Law firm, finance firm, lender, all of that, you're going to join Slack and then you're going to try it. And because the product is better than a Microsoft Teams, you're going to love the product. And then maybe you'll start paying for Slack and then maybe it'll spread in your organization. So I think more than anything, it's a way for people to kind of try before you buy the Slack product because your kind of innovative partner has told you that they want you to use that product. And it actually, you know, when I was at Breather before, Cushman and Wakefield, the first time that they used Slack was to set up a Slack channel to talk to us. And so I think like that, you know, that's that in action. And you can see that happening kind of writ large, just so the companies can kind of keep that whole conversation

in one place in one interface that they're familiar with. And how does shared channels between organizations play into that? So I think shared channels has kind of become a part of Slack Connect. And that's what Slack Connect is. So I think shared channels was just the first kind of iteration. But what Slack Connect is, is a bunch of shared channels between organizations. Yeah, that makes sense. I mean, for what it's worth, and we have a super unique use for Slack at Pioneer Square Labs, because we have one for the studio, and then we have one for every company. And it actually is very meaningful and helpful in the transition. We spin out a company to be able to have shared

channels until that company starts closing them off to us and then actually uses them on their own but at the very beginning you know we're the whole team except for the founders so it's it's great to have that um that bridge set up but yeah i do wonder you know i it has always seemed like um in slack's pre-public lifetime they were an internal tool and email was the external tool. And it seems more and more like Slack is trying to also find natural ways to be your external tool, which is kind of an interesting analogy to Salesforce, where Salesforce is an internal tool, but it measures all of your external communications and external deal status. And so there's got to be some, again,, again, loosey goosey on the actual product implementation. But you can see how that philosophically aligns with where Slack wants to go. And there's this great tweet,

and I think they are kind of trying to kill email at this point, but this great Slack tweet from 2013, there's like people saying we want email dead. If we wanted email dead, it'd be cold and in the ground. They've been kind of dancing with whether or not they're an email killer for a very long time but it seems like that's exactly what one of the best parts of your piece you had um used the wayback machine and you had slack's like marketing positioning and how to like you know i mean i think this is the to me this is the whole point of the story here which is like they and cons to Slack. And like, they've done some really good stuff for the past year, and they've done some not so good stuff. And I think one of the things they've done not so good on is like, the hell is this positioning? Like, I get Stuart's quote, like, I get it on Slack,

too. You got to use it to know. But like, come on, man, you're like an eight year old company. At this point, you're a public company, you got to be able to explain what you do succinctly. And like, even as a public company, they've been just iterating. That's just like iterating. They've been massively changing their main marketing message several times. Well, I give them credit for that.

I mean, they, they, they became, they went from a thing that was like trendy in startups to like useful in addition to all your other forms of communication to, Oh my God, we're all working from home and now it's essential.

So like they're, they're, they're full pivot to like where your virtual office, I can't remember exactly what the phrase is, but I think it transitioned from like where work happens to your virtual office. I, you know, more power to them for that. Fair enough. But there was the moment in there where it was like, we're the email killer. It's like, okay. Yeah. Totally. And that resonates with people though right like i think you know it doesn't describe fully what they do but something as simple as we kill email is something that people can really rally behind versus where where work happens people don't know what that means and so there is like maybe you know stewart was a philosophy major and and

you know logician and all of that and so maybe there is too much of an emphasis on getting those words exactly right versus just resonating with what people wanted the product to do. It is also a classic sort of PR move to describe a problem and let people assume you are the answer to it and assume it in their own way.

Because, you know, in fact, Salesforce has a great example of this. And we tweeted a snarky comment about their old no software slogan. Oh, yeah, that's right. People hated all the configuration that came with on-premise software. So they just made their tagline no software, you know, software with a thing crossed out of it. And like, that doesn't say what they are, but it does say, oh, yeah, I hate that. Like, awesome. You guys are the answer to that.

And you can imagine what the answer would be. And I, the, one of the funny things about enterprise software broadly and Salesforce specifically is unless you are an individual contributor whose job it is to use that software, you actually rarely get a glimpse of it. Like it's, it's not like, like indie developed software that proudly shows screenshots on the website. It's sort of like the UI is hidden from you until the very last moment when you actually have to use it. And often in sales demonstrations, it's not actually shown to you, especially if you're not the actual end user. So I guess this is a little bit of a roundabout way of me saying, have either of you ever

seen Salesforce's new Lightning interface? I've heard it talked about a lot. Have either of you seen it? No. I think that is in stark contrast to Slack's philosophy of everybody listening to this knows what Slack looks like. And even if you didn't use it at your company for a while, you were well aware of what the feature set of that software is. And Salesforce is the ultimate sort of embodiment of enterprise software sold through traditional

enterprise ways. We don't need to show you pixels until we absolutely need to, which is often post sale. And like, we're going to sell sell you on a dream i don't exactly know what point i was making there but yeah it is true though i mean i got i remember the first time that i actually used salesforce not the lightning uh interface whatever whatever that looks like i was just like appalled at how bad it was yeah but it but it wasn't software. And so whoever bought it- It's not pretty software. Whoever bought it sort of assumed that it would solve their problems.

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and the industry leader in managed detection and response again this summer. Yep. So if you want cutting edge cybersecurity solutions backed by a 24-7 team of experts who monitor, investigate, and respond to threats with unmatched precision, head on over to huntress.com slash acquired or click the link in the show notes. Our huge thanks to Huntress. Well, I think this is an interesting time to move into pricing and sort of conversation around, you know, they paid $27.7 billion. Let's contextualize that in the size of the business in revenue. And obviously, they're not profitable. Paki, you're, you know, one of the best educated people in the world on this having just done a bunch of research.

So how big of a business is this and then how reasonable of a price is it for that business? Yeah, so the business is, and they just again released their numbers for this quarter, so $235 million this quarter. Say next year, this is a billion dollar run rate company with 86% gross margins that just became free cash flow positive and grew from 10 million, I think, to 36 million in free cash flow

this quarter. So that's a really nice improvement from the company and kind of the thing that you expect to happen when you spend a lot of money to acquire customers upfront. And then over time, they retain and more of that cash drops to the bottom line. So it's a moderately sized business, right? Like you're paying 27.7 times next 12 months revenue. So it's not a, not a cheap multiple on the business there by any stretch of the imagination. I don't know. What is cheaper expensive these days? Like, I don't even know. Yeah. So it's, you know, it's not cheap. Nothing's cheap right now. You know, it depends. We'll see if you think it is strategic and if

they can just push it through the Salesforce distribution channel, but you're essentially paying 27, 28 times next 12 months revenue for this business, but a business that is still growing 40 to 50% year over year. A business that does have phenomenal margins and a business that is increasing its free cash flow at a pretty rapid rate here. What's the, I don't know if you had time to look yet at the, you said it was 240 revenue for this quarter or 235, something like that?

235, I believe, yeah. 235 million. Year over year growth rate, is that still sustaining in the 40% plus? So that might be why they, yeah, that might be why they sold. Last quarter, it was 49% year over year. This quarter, it was 39% year over year. So pretty dramatic growth slowdown. Yeah, that's, so they had a bunch of good news to announce this quarter in Slack Connect. But yeah, that's got to be a pretty concerning top line number. Because there's no reason that should be slowing, right? There should be tailwinds at the company's back.

They should still be getting net expansion. Now, in the beginning of the pandemic, that expansion got hit because companies were laying people off. And so that was leading to contraction in monthly revenue in their existing accounts. But I got to think most of that's behind them. So interesting. Yeah, paid customers up 140% year over year, Slack endpoints, connect endpoints up 240% year over year. I'm looking to see endpoints up 240% year over year. I'm looking to see if they talk about net expansion because that's obviously been something

that they've been pretty proud of that does not show up at least in the press release. And so maybe if that contracts again from 130 before the pandemic to 125 to now 120 and revenue slows a little bit, then that begins to paint a picture that maybe you want to get out before that happens. Yeah, well, because that's the,

to me, that's a big question here, which is like, okay, we've talked about a lot of the strategic reasons to do this deal. I'll make sense and whatnot. But they did just flip into cashflow positive territory, them being Slack. They were still growing rapidly. They're still top quartile in

all these best emerging cloud index metrics why sell you know like um i mean unless they just felt like they were going to continue to get hammered by wall street and didn't want to deal with that but like um it's a 55 premium david like i you know that's pretty rare as a public company to get we in the past we've looked at these and we've said like well 20 premium is basically baseline and if you can get up to 30 or 40 even like that you know that's good do the deal but if your stock price hasn't ever hit your listing price, and you've been basically flat, if not down over, you know, the 18 months or 16 months since being a public company, and someone offers you a 55% premium, it's hard not to take it.

I mean, I think that's true. Well, I want to hear Paki's thoughts. No, I mean, I think that's true. I think for me not having to sit inside of Slack and sell against Microsoft every day, I think this could be, you know a triple on its own in the next year or so. And so it's disappointing from that perspective. On the other side of the table to say, yeah, we're going to plug you into Salesforce's Salesforce. And you are going to be able to kind of match the distribution power, at least approach the distribution power of a Microsoft, and you're going to be able to do all of these things that you want to do to connect the full ecosystem of best-in-class products,

you can see that that's kind of a tempting thing to be able to do. And Microsoft, for the amount that they say that Microsoft isn't that big a threat, they also sued Microsoft for leveraging their distribution advantage against them. And so it's not as big. At the very least, it's a big annoyance and a pain to deal with a day in and day out. And so maybe if you combine that with the fact that it's a 55% premium, you're happy to take

that deal. Yeah. I think there, there has to be some, though, of just fatigue on Zoom's part to do this because... Slack? Sorry, Zoom is not fatigued on Slack's part to do this. Because again, to me, just like coming back to like, they just flipped to cash flow positive. So like, there's no gun to their head, you know, other than just people being mad at them. And I wouldn't have necessarily thought that they would care too much about that. On the other hand, I also don't think based on our episode, our main show episode that we did on Slack, I don't also don't think that adding several more billions to his net worth matters that much to Stuart. So maybe he was like, well, this is going to be the best chance to realize the mission the soonest.

But it's still a little perplexing to me. Yeah, you wonder if they couldn't have gone out and just acquired Frank Slootman to come in and rally the troops and rally the sales force and go out and sell against Microsoft. You know, Stuart's very much a product guy and not a sales guy and maybe maybe that's the other answer here and so instead of bringing on a new ceo who's really more of an enterprise sas guy you just sell the business and you know you have this successful exit out of 55 premium and all of that because i think that's another another people talk and start gets to continue being stewart and being the product guy and you know slack connect like it's a big vision and it's a big product and they've done really well from the product standpoint from that. And he doesn't have to go be Frank Sleepman and Benioff can be Frank Sleepman. Exactly. like we spent the last five to eight years in an era of well if you think back like 15 years ago

bring your own device happened and then the last five to eight years it was anybody with a credit card gets to buy any old sass service and there's subscription fatigue in a big way uh at at any company i mean we like we're a 22 person company at PSL. We have a spreadsheet to manage all the subscriptions that everybody signed up for. And then there's harassing at the end of every month who signed up for this on what card I can only imagine how painful that is at, at enterprises. And so you have to imagine too, if Salesforce is kind of saying, actually, we have the opportunity to run the Microsoft playbook here. Um, and, uh um and uh and we're going to continue to see more more consolidation here to alleviate the pain of procurement around um well basically people

going around procurement and i think yeah i don't know i think that's an interesting point and i can't imagine that you know as the companies that are used to buying microsoft and oracle and even salesforce and all those kind of age out that the new wave of startups is going to be like, you know what we'd really love to buy from is Salesforce. Or we'd really love to buy from Microsoft. And so maybe there's this transition period that we're in, which is like a five to ten year thing. But I think the way that that ends up getting solved is there are companies like Ramp on the corporate card side that is trying to show you your spend in one place and show you where you can save. And so whether it's a corporate card, whether it's a software solution that kind of comes in and kind of replaces the

spreadsheet there, I think there will be other solutions than companies, you know, growing tech companies are becoming a bigger and bigger part of the market. And I can't imagine that they enjoy working with Salesforce more than they hate managing all of those expenses. And Paki, you raise a great point too. I think it's sort of novice of me to suggest that the point of integration in 2021 would be the same as the point of integration in 2005. The rebundling won't happen in the same way that it got unbundled. The rebundling will be at the credit card level or, you know, in a, you know, not, someone's not going to go build the Microsoft bundle the way Microsoft built the Microsoft bundle. I think that's right.

Yeah. So it makes us fun. Indeed, indeed. Well, um, speaking of prognosticating about the future and strategic decisions in the landscape. I don't think we can leave this section without talking about what I think you wrote about really eloquently in your piece about your take on the bear case for Slack as an independent company um and this actually totally jives with um our friend jake zaper over at emergence is about to publish a blog post uh about this like the the flip of this being an investment theme he calls it deep collaboration but like that there are all these other workflow apps out there now whether it's fig Figma or Notion or whatever, that actually have chat and collaboration built into them. So you don't need to go over to Slack in order to collaborate on a Figma document or if you're working on a legal document with Ironclad or something like that. Let's talk about that because I think this is a really astute observation.

Yeah, that's fascinating. And a lot of this comes from Kevin Kwok, who's more astute than I am on these things. But the point being that his point that he makes in the great piece that he wrote on Slack is that Slack is really, once every piece of what a business does has a Figma-like software that has collaboration embedded, then Slack becomes this kind of like backup, use it for emergency, something has gone wrong in the collaboration tool, so let's go over to Slack and chat about it. Or it kind of becomes, you know, what email is today,

which is like we make a company announcement here or we do things that are more broad, but when we actually want to get work done, then you're right, we go into Figma or we go into, you know, Pitch to do our presentations together in there. So there's all these different things. I think that is, that does get a little bit confusing. His solution and one I think, you know,

is going to be a pretty hot target right now is something like a Discord that is a chat tool that exists on top of all of the other kind of collaboration tools. And you can be video chatting. I wrote about remote work and kind of all the work from home products that are being built natively for remote work yesterday. And there's five good options that I saw just in a couple of days of research that are trying to really kind of build something that feels like an HQ, both in terms of like, skeuomorphically, it feels and looks like an HQ. But then also, you know, there's different noise levels that you hear when you approach people or when you go further away from people, or you pull up the code that you're

working on in a, you know, right there on the screen and you all have your little video circles around that. So there's some really interesting software being built in the space. And so maybe that's, I mean, to me, that's the bear case, right? If your bull case on Slack, which mine is, is that they can acquire all the young, fast-growing companies and become this kind of like central hub for everything they do and grow with them, then the biggest threat to the company is that there's an even better kind of newer wave of software that comes in and cuts off that bottom and takes all of the younger companies that are coming in and maybe even starts going up and stealing the stripes in the other companies there. So to me, that's the big risk is that there's one collaboration software that people interact with directly, and then to the kind of next generation

of slacks that are built more for this world where we all have to be collaborating with kind of whatever that software is as the central hub versus as something that we chat with, chat with each other on in the office. I love that point point i think it's so astute that like the the worst nightmare for slack is that chat gets good in apps and and suddenly i'm like oh yeah slack uh i pop in there to like drop a gif in random um happy birthday is there something to be a big use case yeah right but yeah to the extent that work stops, I mean, it's funny where work happens to the extent that work gets federated and happens in apps rather than in the central, you know, communication nexus, they're in big trouble. And I love your idea of open up this, the Slack API, not in a way that's like build, build bots within Slack, but in a way that's like, embed Slack in your app so that you don't have to roll your own slack because it's a crap ton of work anytime anybody's like well let's implement chat like see zoom as example a it's chat is awful like sometimes randomly i'll paste a link and it won't hyperlink it

like i mean there's this is a massively successful company with a just uh a chat where every time i try and send a message to one person, I accidentally send it to everyone. And I think that there's huge defensive opportunity for Slack to be the way that you implement chat in your app. And they just started hitting at it too before this. He went on the 20 Minute VC with Harry Stebbings and talked about kind of being this connective tissue between different apps and really what the next level of integration looks like for Slack. And so that would have been an amazing way to do this,

I think, to be able to just embed Slack in different apps. Because to your point, everything that they've done that seems really simple and that makes chat seem really simple is really, really hard. Like I've included the graph of all of the decision tree that needs to happen to decide whether at 8 0 5 PM to send you a notification if I Slack you. And it's really complicated. And so like, there's all that stuff

that you can just offer as a service through other products that, you know, would have been interesting and maybe will still be interesting, uh, in the combined company. What, um, if, if either you are more knowledgeable than me, cause I've only used the product a little bit, can we double click on discord a bit and talk about how that's different? Uh, and why, uh, it's maybe more suited to this. I don't know. I want to get probably the wrong word, but embedded type use case or like coexisting with the actual apps. me first make my snarky comment which was if you thought slack was unintuitive to learn wait till you see discord it's the first piece of software that's really made me feel old using it and my my second you know the the the other side

of that which is viewed as a positive is it's much more customizable not like crazy i mean it's not myspace with an open html canvas but it's um you know it's the android to apple's iphone where it's much more customizable. Not like crazy. I mean, it's not MySpace with an open HTML canvas, but it's the Android to Apple's iPhone, where it allows far more extensibility in the chat canvas. So the question is, so their go-to markets have been entirely different, obviously gaming and influencer communities, rather than the enterprise. And in fact, Slack uh made it sort of difficult to use the product for any of that anything that's not the enterprise and have to sort of turn a blind eye to cough our acquired slack yeah oh my gosh i've been beating a drum with so many people there i've been like please give us some basic features we are evangelizing your product yeah uh and my favorite the you know long time acquired slack members will know that

my my uh particular b in my bottom around that is because we are using it as a community product um it doesn't like respect how adminny we want to be and so it will email like all users and tell them like oh you're hitting x limit and you're like what it's like thousands of people getting this email and it's reporting analytics like oh there's this many of you are active this month or this week and you're like why are you sharing that with all these random so um yeah no we're not going to pay you three million dollars a year or whatever we have to for our 6 000 people in the acquired slack but that is such a good point right it's not just product, it's also the way that they charge in the business model, where Discord makes people pay for upgraded features, like better video or different

things that maybe super users might want, but it doesn't penalize everybody else. And so I don't know how you do that if you're Slack and then how you communicate that to the enterprises that people are getting all these other... So it's more complicated than just do what Discord does, but certainly from a business model perspective discord handles those use cases a heck of a lot better much better yeah i mean so so there's the marketing side of it and like the ideal customer profile where um you know slack targets the enterprise and discord targets communities um but it's i think an overly simplistic view of the two products to call them similar or the same other than who they're sold to because i think when you think about all the

deeper features of each they're way different so like the ability to have a shared channel between two enterprises or the ability to create a slack bot around that communicates with a time tracking tool like that those are not the types of things that Discord has ever built toward. And I think it's like the classic enterprise software especially, but all software is that iceberg where 90% of the real hard work is below the surface. And I think it's only that 10% above the surface between Slack and Discord where it actually feels like the same thing. I think that's right. But I do think that this next generation, companies like Huddle,

are going to come out and combine the best of Discord with all of the below-the-surface-level features of Slack. It'll be interesting to see where those turn out, but I think there's some promise there. And frankly, if Slack was going to get cut off at the knees where someone else was going to be the tool for the new upstarts, if that was already true, being owned by Salesforce is going to make that way more true. If your bet on Slack is the same way that you would bet on Stripe, that the next great company is going to use this as an infrastructure choice, that has to be the bet that you that uh you can keep making and i would say salesforce buying it loosens my conviction in in um you know that dream scenario

staying true yeah i would assign a negative price to the rest of the salesforce 360 cloud yeah all right well packy there we go there's the remaining part of your upside is invest in in somebody that's gonna build the next messaging deep collaboration layer for the enterprise with discord type features for the enterprise there we go or as we all know and love we can just invent invest in tencent and own a little piece of discord that way yes uh what so the more i think about ted said and uh uh we should do a disclaimer we're all at least i'm a shareholder i think you are back i don't know about that um but uh uh it's kind of like i feel the same way about berkshire right is like i could go uh i can't even but if i could go invest in kkrR and Sequoia and all these funds and whatnot

that are going to give me great returns, right? But I'm going to pay two and 20 or three and 30 on that. Or I could just go buy Tencent shares or process shares, which is the spin out from NASPRs or Berkshire shares. I could pay no management fees and no carry to get access to equally good, if not better investors globally i looked this up yesterday coincidentally do you know how much since i wrote about ten cent call it you know in august since i wrote about ten cent how much the value of their holdings and their top 10 holdings has increased oh well i saw your tweet so go for it 55 billion dollars and it's 64 if you assume that epic has kind of grown

at the same rate that unity has and i would imagine that you know if it were public it would which is just wild meanwhile the share price has been you know it's like up a little bit but but relatively flat what do you know what the basis is like when you look at all the purchase prices of all those investments it was so i pulled 103 of their 700 investments by, you know, translating things in Google Translate from Mandarin to English. So even the fact that I have the ownership is crazy. I don't have the basis on a lot of them, but certainly they've been in companies for, you know, Snap, their investment just doubled, right?

And Tesla, they had 5%. And so that obviously has done phenomenal well. Spotify has doubled. Right. So like just all these massive companies that sit in their portfolio and have doubled, plus Epic, plus Roblox, which is about to IPO, plus Discord, which has had its valuation shoot up and is now even more attractive. So like any good company that you can think of and you're like, oh, I wonder who's invested in them. Tencent is probably there. Well, the good news for you is I don't think anybody's going to acquire Tencent. So I think you can let that ride for a long time. How do you think the U.S. government would feel if Amazon tried to acquire Tencent?

I feel like the U.S. government would be fine with that. Yeah. That's not the problem. Get off Amazon's back a little bit. True. Oh, man. All right. So let's try and get to some like, what's the bottom line here? There's been a lot of takes. I'm going to close my eyes on price for a minute and let's just talk about narrative bottom line. Like, Paki, if you had to summarize this and they're like, well, TLDR, tell me about, you know, is this acquisition interesting? And why and what's your take? After an hour here of talking about it, what do you think? I think the acquisition is interesting for a few reasons. I think the acquisition is interesting,

one, because as you guys pointed out, it gives Slack this massive professional sales force to go push their product into all the orgs where it's struggled to gain a foothold so far. I think product wise, it could potentially be interesting if they can figure out a way to integrate Slack Connect and Salesforce and make it really easy for people to communicate both with their clients and even with potential targets on big enough deals that they'd be willing to enter into a Slack channel together. And I think it's interesting because, and we haven't talked about this, but Salesforce is kind of the biggest acquirer

that didn't get dragged up in front of Congress. And so is Salesforce in this really unique position where they can be this under-the-radar company that just picks off all of the targets while everyone else is kind of exposed to antitrust scrutiny? No, Microsoft didn't. Did they? They were involved in some of it, right? They were. Oh, maybe in the later one.

Yeah, they were. That's a fair point, maybe in the more, in the later one. Yeah, they were. That's a fair point. They certainly, for antitrust reasons, they're probably the only one who actually could not have acquired Slack, whereas everyone else, maybe optically it wouldn't look good. Plus Microsoft's got to have such a hangover from the DOJ. They do. I, well, my data is eight years old, but yes. Well, actually, Ben, you could talk.

It's been like, what are the internal processes and controls within Microsoft to make sure that you never write the word monopoly in a document? It wasn't as bad as you would think. It's only if something really gets elevated to serious discussion of a big strategic move that it gets considered. It's not really at the IC level.

I will say there was a thing, there was a whole milestone, and I'm trying to remember how long Microsoft's milestones were, maybe six months in Office where it was like the documentation milestone or the cleanup milestone or something like that around the Office file format because a lot of the DOJ stuff was around,

wait, you claim to have this open file format, but you're the only ones who have any documentation on how the file format because a lot of the doj stuff was around wait you claim to have this open file format but you're the only ones who have any documentation on how the file format works so so i do know like that there's entire sort of like billions of dollars that had to go into the manpower of cleanup after that so then there's there's some processes in place but um no it's there's not like a thing that blinks at you at your computer computer. If you type the wrong word company game night, you can play anything but monopoly. Yes. I'm, I'm envisioning like, uh, the, um, uh, it was too big now, but when, uh, the days when, uh, uh, Gates used to have all the interns over to his backyard, just like have like a, like he'd get

up on stage and be like, all right, here's your orientation. Like you must absolutely not say these things. Do these things. Our enemy is the government. Well, let me, let me come in with my, so Paki, great. I think great three points. The one other point that I would make that that's sort of the thing I've been noodling on that we didn't really talk about is this notion of growing by acquisition, which is something that we've talked about, especially on the LP show with with Will Thorndyke, author of The Outsiders. It's a famous sort of move by media companies and other outsider CEOs where the core business has growth, but not insane growth. And you grow the company by acquiring high growth assets. And again, we can debate whether Slack is a high

growth asset relative to some of these other SaaS companies these days. But they're a large enough enterprise company where if what Salesforce wants to do is meaningfully grow their enterprise revenue quarter over quarter, they got to acquire their way into new revenue streams to do that. And where are there possibly large future revenue streams that they could acquire? Slacks. So I think that's a, if I sort of had to describe why would you do this deal if there's not real product integration to be done, but you sure as heck can increase their growth through your own Salesforce? But because the market is relatively underpenetrated with this Slack product, that's how I would describe what Salesforce is up to here. David, anything else? else um i think the only thing is uh we could do a quick what would have happened otherwise on uh other potential interested acquirers probably namely google if we touched on zoom a little bit

maybe we can circle back to that too let's do let's do google and zoom google google i wrote about actually a couple months ago i wrote about a google slack acquisition i think that one i mean you know part of the press around this is that it's now Salesforce versus Microsoft. I don't think that's really the case unless people start using Quip documents to replace Word and whatever else. But I do think that a Google plus a Slack with Google's distribution really is a powerful combination. When you have G Suite, you have Gmail as your Outlook competitor. You have Google Sheets, which maybe the finance team still needs Excel, but most of the other rest of the company can use Google Sheets and Google Docs and all those things, then you really have this suite

that you can onboard a new company by just signing up for Google plus Slack plus Looker, which I like better than Tableau. And like there's, you know, it just really it feels like they're building kind of this new wave office bundle versus even Tableau. Like I love Looker, my brother loves Looker, my dad loves Tableau. And so I think it does make a little bit more sense in that Google suite of products, which is what I thought they're building. And Google hasn't been, you know, Google's actually, to me, been maybe the most disappointing thing in terms of their kind of innovation or their growth, unless one of the other bets pays off. But they have, you know, this ad business, which for now is spitting off a ton of cash. The idea that they wouldn't play in this,

I don't even know how to read that, but it just seems like such an obvious move for Google to come in. And then there's Amazon on the other is the other one. They had a partnership where, you know, they powered Slack's video product and Slack used AWS and all of that. So that's another one. But Google, to me, makes a ton of sense. Yeah. Do we know, was Google a bidder at all in this? I didn't see anything about that. Nor did I. sense for them, especially when you consider like the startup productivity stack. And I would say not the bleeding edge pre chasm crossing startup stack that's like Notion and Airtable. But you think about like the like, you know, 500 to 5000 person companies. It's a Google Docs company that uses Slack for internal communication like that. That is. That's sort of a natural bundle.

Yeah, the Google suite is, the G Suite is really one of the best integrated things into Slack, where the Docs pop up. It really is one of the nicest integrations in the product. Which is custom, by the way. That I would have been happy about. There was a CEO conversation to custom build some stuff there, especially around the different types of sharing and how you can grant access from within Slack. That was custom work that Google had to do in order to enable that in Slack. All that work down the drain.

That's the acquisition that should have been. And that's the kind of thing, for the founders listening to this who have never sold a company before, that is the typical kind of thing that forms a relationship between companies that then leads to acquisition. Like that's the way to do a dance where you're like, well, you know, let's do a partnership. No, not like a bundle distribution, go to market partnership. What's an interesting product thing that we could do that would provide value for both of our users? Companies get to know each other, they get to understand each of their user bases. And then that's the kind of thing that tends to lead to a deal. So Paki, now that you bring it up, like it

is surprising to me that we aren't seeing Google's name here. Yeah, boring one out for that deal. Especially since I hear you, Ben, that like, you know, 55% premium that is good. But when I think about relative to the potential of Slack, and the multiples for some of these other SaaS companies out there i this price does not feel high to me right and what if what if google makes what if google makes free slack an ad product right would you guys accept ads to to get rid of sending emails to everybody maybe uh probably um but and also you know the other pieces here is um financing so like a salesforce is taking out debt to finance this um now of course they have a strong balance sheet they

can do this it's not like a problem for them google's just got like literally an infinite amount of money sitting there uh spending you know what it's 27.7 billion purchase price for sales for google could have spent 35 40 billion no problem wouldn't have made a dent in their treasury when do the documents get disclosed uh david you probably know this with like party a party b how how the deal went down uh probably when it'll come to a vote to slack shareholders okay so we'll know in the next quarter next next few months um if there were if there was a bidding process here other discussions yeah i love public mergers yeah and then i think the the other question we touched on it at the top of the show is is zoom right like what's zoom's market cap now

gosh if i recollect is 130 ish billion maybe a little more um sounds right and so this would be a big chunk to do a stock deal with zoom uh it would it would be a pretty big chunk which is probably why it didn't happen i mean maybe slack didn't want zoom stock at this price could be but i also you know if if you're if you work at zoom and know the answer to this i think david and i and packy would would love to know personally but i would also chalk it up to like in all likelihood zoom has an underdeveloped corp dev function where like this would have to be a eric wants to do this deal and is going to shovel other other stuff off of his plate to pursue doing this deal and and you know look this up they have a two-person or at least you know two months ago or a month ago when i wrote about it they have a two-person corp dev team that's

both you know a couple months old at the company right oh yeah so it's like slammed for a company of that level of maturity it would have to be a ceo pet project in order to make a make any progress on it and it feels like they'll want to do video. There's plenty to do in the video space. And that has always been kind of their strong suit is how focused they've been on video. And that actually, I would, this would be fun, maybe we could do a sidebar here. I would disagree with you a little bit, Paki, on the view on Zoom. I think that view makes sense if you think of Zoom as a enterprise productivity tool, which I think a lot of people do. But to me, it's actually much broader. And the opportunity is this that we're doing on Zoom right now. It's

like, yeah, they're good. Great enterprise productivity product. Make a lot of money on that. Perfect. But like the huge opportunity is they are the video platform for the entire economy. And so I could totally see Eric being like, that's our focus. That's what we're doing. I'm not going to get distracted on this. I completely, completely.

There should be a million startups built on top of Zoom instead of Agora in the next year. And so their focus should be on becoming a platform. Yep, yep. We want to thank our longtime friend of the show, Vanta, the leading trust management platform. Vanta, of course, automates your security reviews and compliance efforts. So frameworks like SOC 2, ISO 27001, GDPR, and HIPAA compliance and monitoring,

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Grading? Grading. Let's do it. Okay, so we thought let's do two separate gradings here to bring it home. One, we'll grade Slack's tenure as a public company. I'll render a grade on that over the past, was it 15, 16 months or so? And then two, we'll do our looking forward forward let's paint an a plus c and f scenario for the next five years of slack within salesforce all right so taking slack's tenure as a public

company i'll go first oh i mean it's really hard for me to come up with reasons not to grade this pretty harshly. Which, for those of you who don't know David Rosenthal personally, that is David being mean. Like, David can't say it. David can't come out and say, like, they've done terribly. Like, you won't hear him say that. So this is like... This is not in my DNA. This is pretty bad.

So I'm going to go with a C- tenure as a public company. Maybe it deserves to be worse, but the outcome here is above the DPO, the first day of trading on the direct public listing. So it's not like they destroyed value in the public markets. On the other hand, like didn't come close in trading to, um, in a, you know, 15, 16 months as a public company to meeting that day one price or let alone eclipsing it. Um, and I think, you know, let, maybe it would have been impossible to fight this Microsoft teams bullying

narrative. Um, so maybe this was an unwinnable battle, but like they lost it, right? Like, you know, at the point like Paki,

I think you have great points. Like teams is not the competitor here. And this is a great company with great metrics. And yet, uh, they let this become the narrative that like, Teams is just gonna destroy these guys. And I think that's why we ended up here. Yeah, I mean, it's interesting, because it's not actually, if we're grading the performance

as a public company, the stock price movement is a failing of the CEO's ability to give the market confidence in the future of this company. If we were to take a, I think Hamilton points this out in Seven Powers, and Paki, I know you're an avid reader of Hamilton's work with Seven Powers too, and so I think it's worth bringing up. Public market investors are not short-sighted. They over-index on recent signal, but the reason is because the stock's price and the enterprise value of the company is primarily formed by an investor's view of what the next 30 years of cash flows are going to be. And they, of course, over-index on recent signal if it paints a picture of how those 30 years are going to go. And so what we're seeing here is,

despite relatively strong performance as a business, the market doubted the business's long-term prospects, even though the business did even better quarter over quarter over quarter as a public company. So it's interesting, like, you know, depending on what we're grading here, you'd sort of grade different things. Like I'm in camp B-ish, B plus as actual like execution on their goals. But, you know, F on the ability to, you know, generate, you know, value for shareholders. Well, not F, I guess, because it didn't go down, but like C minus. Yeah, I think it's interesting that this communications company's biggest problem was communications and telling its own its own story. But I think my answer actually changes, right? Like I've suffered through this kind of just like bouncing in the 25 to 30 down to 16, like range as a public company below the DPO price

and been fine with it because I thought that there was, you know, that they shared the long-term vision that I had for the company. In which case, if you just asked me to grade it on the spot, I'd say it's totally fine. Everybody's misjudging it. They also see that this thing just compounds over time and compounds over time and compounds over time. Obviously, this deal changes my perception of how they view themselves. And so in that case, you know, I kind of have to give it somewhere in the C range as a public company just because it stayed pretty flat, which is, you know, it's average. It's C and it's underperformed the market pretty significantly and particularly at a time where people are more you know you're discounting future cash flows for those 30 years which should be slacks you know to slacks great benefit you're discounting it at this tiny tiny tiny discount rate and yet it's not being reflected

in the stock price if they're not taking that long-term view then i think you know it can't be any better than a c for me unfortunately fortunately uh, you kept buying, not just at the DPO, right? And I mean, that's part of their legacy as well, right? The biggest DPO to date. Yeah. Direct listing, yeah. I don't know if Slack or Spotify was bigger. They might have been about the same size.

And Spotify is, well, Spotify had doldrums for a long time, but it's performed excellently recently. So the, the, the one thing I will say is like, uh, how I was, whatever I was there,

B or B, B minus, uh, C plus on, on execution. Um, I, but Packy,

before reading your piece and before talking with you was much more negative. In fact, I had like a joke I was about ready to make on Twitter. Um, that, uh, actually let me get it word for word for word for word uh slack has basically stopped updating the product and when they do we all complain about the new worse ui i think they'll fit in just fine at salesforce

and i ended up not tweeting it because i think like the work that they are doing is the 90 work that's below the surface where like, you know, it feels like I haven't gotten an update other than, you know, shared channels and multiple workspaces since 2015. But like, if you look at the app ecosystem, and the way that that's been strategic for their business, that's actually huge. So I think I, I want to like wave my arms around and say, I think anybody who's knocking slack for decreasing product velocity is just looking in the wrong place.

Completely agree with you there. All right. So A plus, C and F scenarios within Salesforce for the next five years. I mean, the F is always obvious, right? And to be totally clear, this is how good of a use of $28 billion was this for Salesforce versus the history of other uses of capital by companies,

both in internal and external investments. Well, maybe the F is not obvious. I think the F, to me, we can all debate is they're wrong strategically that building a uh you know what we decide to call it not a arm the rebels but an alliance an alternative alliance anti-microsoft alliance best of breed alliance is actually not the right strategy um big enterprises don't really care about that anymore they They're still happy to buy on credit cards distributed across the organization. It turns off all the startups and innovative high growth companies are like,

ew, Slack is part of Salesforce. I don't want that anymore. I'm moving over to Discord or whatever. That feels like the F to me. Yeah, I don't know. I don't think that sort of like stench is real or is going to meaningfully impact people's decisions whether to adopt or not. But what I do think is real along those same lines is this decreases the likelihood that Slack comes out with that next innovative, I don't know, feature or user

experience that makes people go, oh my god, I have to use this product. Yeah, I think the F to me is trying to integrate Slack and Salesforce, the products, and failing and turning Slack more into Salesforce than Salesforce more into Slack. I think that's an F for me. And I think another potential F is I do think there's a stench if all of a sudden you start getting cross-sold Salesforce when you sign up for Slack and the acquired FM Slack starts getting hit up with emails for Salesforce 360 and Lightning and all of that. Oh, look at this Lightning interface. Right? Which I think happens. If the distribution channel

goes one way and it's just pushing Slack to Salesforce, then those are corporate buyers anyway, whatever. But if it goes the other way, then I think that could be pretty ugly. And I think the risk of this is very low, to be clear.

Like, you look at Salesforce's other acquisitions. Like, did users of Quip start getting sold, you know, Salesforce and the 365 interface? And, did users of Quip started getting sold, you know, Salesforce and the 365 interface? And, you know, did Heroku users start? No, like, you didn't even know that Salesforce was the parent companies of those things. Now, did they both atrophy? Absolutely. Like, why wasn't Quip Notion? You know, why wasn't... Or Coda, really?

Yeah, great. But yeah, that's actually the better comp. Or why is it that every startup that we start now at PSL is started on AWS directly? Like we no longer, you don't need to use Heroku. You don't need that middleman that makes it easier to spin up a cloud app. Amazon actually has made it both more confusing and easier. They've made it more complex, but then they've also created relatively simple on-roads.

So to be fair, that's probably not Salesforce's fault. Heroku and all the past players were probably dead anyway. But that's the thing. Why did they buy them? Did they think they were buying the next generation of category leader among those things that was going to surpass Microsoft in those ways or not? And if they're looking at Slack to be, you know, is this their third attempt or maybe even more than that to buy the next generation tool? You know, are they buying it at the peak and it's going to product atrophy from here and therefore people are going to go, you know, startups are going to go use the next generation of, you know, of collaboration software. That is the biggest existential risk in the F scenario.

A plus? Yeah, let's let's do a plus, we'll do we'll do the exciting stuff. A plus to me is that Slack on its own has been a reasonably high growth SaaS company, and they were six and Salesforce is successful at buying fast growing SaaS revenue. And now they get to pump it through their channel and their channel receives it well and they just like are able to massively increase the revenue growth uh for slack and have more and more companies adopt it um in fact they may even be able to convince um large companies maybe not enterprise but large companies um that uh you know it's now a trustworthy vendor uh it's not some startup they're buying with the you the full seal of approval from Salesforce. And that comes with a Microsoft-like, not quite Microsoft, but Microsoft-like level of, yes, I authorize this use at the 30,000 to 50,000 seats throughout my organization.

So maybe there's a new market unlock there. I think that makes sense i think actually the to me that's like a a a minus to a probably a i think the a plus is this catalyzes a the salesforce the anti-microsoft alliance centered around salesforce as a totally viable and successful new distribution channel for best of breed SaaS companies. And we see superhuman, uh, go into the fortune 100 and we see Coda go into the fortune 100, uh, and, um, and notion and Fma and well figma doesn't need any help but uh you know uh all of those new sass products now use this as a distribution channel whether salesforce acquires them or not probably not but now this opens up the door to whole new markets for them i like that

take yeah i think mine is somewhere similar and it just revolves a little bit more around slack connect really being what they think it's going to be and not just creating the work kind of social network or this horizontal layer, but also making being a target in Salesforce a better experience, kind of like humanizing the whole sales process a little bit versus getting hit in some awful drip campaign. So to me, if it can make the sales process writ large a little bit more enjoyable, then that's a win while creating all these links between all these companies and really kind of building these network effects up. Awesome. Well, I think that, listeners, is the complete set of opinions that we have on the deal with the facts that we have today, a mere two hours after the deal was announced. Any closing thoughts before we wrap up and do our little closing here? This was a blast. Yeah, it was super fun.

First time being on YouTube too. If you're listening to the pod, it's fun. We tried YouTube live here, so I got to read some of the comments in real time. And maybe for future emergency pods, we will do the same. Well, first of all, thank you to Packy. Where can listeners find you and subscribe to Not Boring? Sure. So they can subscribe at notboring.substack.com. Or I'm on Twitter at at Packy M P A C K Y M. Thank you guys for having me. This has been a blast. Of course. So fun. We're so glad you could join. And yeah, definitely subscribe to Not Boring and follow Paki on Twitter. You are one of the best followers on Twitter, especially tech Twitter. Thank you. We didn't mention the LP program this time, but I think most folks probably know what it is.

And if you liked this a little bit more informal type conversation, we get to have a lot of this conversation. And Paki, you've been in those Zoom calls. How's it been for you? It's an absolute blast. I told you guys after the last one, but doing the Outsiders Book Club with Will Thorndyke after having written about the Outsiders and being obsessed with the book is just such a cool opportunity with a bunch of smart people. So yeah, total blast. Highly recommend it. Cool. Well, if you've been teetering on the edge, you can join.

And we have a link in the show notes to become an LP at acquired.fm slash LP. I think that's it. We talked a lot about Slack this episode. We've got one of those. You can join it. Acquired.fm slash Slack. And with that, listeners, have a good one. We'll see you next time.