Slack + Salesforce Emergency Pod with Packy McCormick of Not Boring

[0] Since I think I'm editing this one, trying to make it as easy as possible.

[1] Yeah, we didn't actually talk about that.

[2] Thanks, Ben.

[3] Hopefully we can just one take this.

[4] Welcome to this emergency pod of Acquired, the podcast about great technology companies and the stories and playbooks behind them.

[5] I'm Ben Gilbert and I'm the co -founder of Pioneer Square Labs, a startup studio and venture firm in Seattle.

[6] And I'm David Rosenthal, and I am an angel investor and independent advisor to startups based in Sanford, Disco.

[7] And we are your hosts.

[8] Well, David, here we are live on the scene.

[9] We've got a special guest.

[10] What are we talking about today?

[11] We are talking about Slack being acquired.

[12] And we have the best in the business, the number one internet and Twitter Slack Bull out there.

[13] And probably, probably we're going to discuss how happy, but probably a very happy man here today.

[14] Paggy McCormick of Not Boring.

[15] Welcome to the show.

[16] It's so great to be here, and I'm both happy and sad, which I'm sure we'll dive into.

[17] He comes to us with mixed emotions.

[18] All right, David, you've got this lovely introduction written up here.

[19] Take us in.

[20] This is non -traditional in so many ways, because this is a big week here at Acquired.

[21] We've got DoorDash.

[22] We've got Airbnb IPOs coming up.

[23] We're gearing up for those.

[24] We're going to be live on the scene for those.

[25] We have Roblox, which maybe we'll cover next season, a couple others happening.

[26] We literally just recorded an awesome special episode, which is coming.

[27] out later this month.

[28] But we knew this was happening.

[29] So last week, we dialed up Paki on Twitter.

[30] We said, hey, if this happens, can you come on the pod?

[31] Will you do an emergency pod with us?

[32] And here he is.

[33] Super excited to do it.

[34] Yeah, why doesn't every company just like leak their, you know, their acquisitions ahead of time?

[35] So that way, we have a little bit of warning.

[36] I think we got totally blindsided if I remember with LinkedIn, with Whole Foods.

[37] I woke up to like a frantic text from David around the Whole Foods acquisition.

[38] I had just.

[39] moved back to the Bay Area and I did it in my in -law's attic.

[40] LinkedIn was acquired for right around the same amount.

[41] If I remember 24 billion?

[42] That's right.

[43] Yeah, I think that's probably the interesting comp.

[44] But I don't want to get too far ahead of myself.

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[50] I was at NVIDIA's GTC earlier this year, and Jensen brought up ServiceNow and their partnership many times throughout the keynote.

[51] So why is Service Now so important to both NVIDIA and Microsoft, companies we've explored deeply in the last year on the show.

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[57] It's pretty incredible that ServiceNow built AI directly into their platform.

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[59] So if you want to learn more about the ServiceNow platform and how it can turbocharge the time to deploy AI for your business, go over to ServiceNow .com slash Acquired.

[60] And when you get in touch, just tell them Ben and David sent you.

[61] Thanks, ServiceNow.

[62] So we've talked about Slack a little bit here on Acquired before.

[63] We did a full episode around their direct listing that will link in the show notes when this comes out as a podcast.

[64] You can, you know, if you want to remember Stewart's epic blog post we don't sell saddles here or uh or perhaps start growing up on a commune in british columbia yeah we will we will not recount all that today we'll focus more in on this transaction um but go check out the the history there packy you wrote a piece you think two weeks ago uh tell us what that was about two weeks ago yesterday and so the piece was i've been a long suffering slack bowl and the piece was i 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 bowlcase 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.

[65] So I wanted to put out there that I thought that the bears were wrong.

[66] And obviously, the big knock on Slack was that Teams was just going to come in and kill it.

[67] 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, 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.

[68] 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 that barecase.

[69] Yeah, I mean, they're top quartile in just about every metric across the Bessemer emerging cloud index, right?

[70] Exactly.

[71] And I mean, right, that the fast, the fastest growing company and the second best net dollar retention up there in terms of gross margins.

[72] 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.

[73] And as they grow, Slack grows with them.

[74] And, you know, Slack, as we'll discuss, I'm sure, just reported earnings and their numbers look good yet again.

[75] So, you know, it's one of these companies that has been underappreciated, but I think over time was going to build into a juggernaut.

[76] Well, so you hit publish on that not -boring piece two weeks ago.

[77] You CC, Mark Benny off.

[78] And although he's probably a subscriber at this point, right?

[79] I mean, he's got to be.

[80] I did.

[81] 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 because he did he didn't want to preface the deal with you see like bruce wayne or sort of like uh 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 sales force earnings 27 .7 billion dollar total purchase price works out to i think 4586 a share in cash and stock, I think a little heavier on the stock than the cash piece, I think, if I'm right.

[82] But roughly 50 -50, like 55, 57 % stock.

[83] 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.

[84] Yeah, we should be clear.

[85] Is this the first time that the price per share is above their the first day of trading?

[86] I think so.

[87] I think it might be.

[88] Certainly, I don't think it's been this high.

[89] 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.

[90] And we've been kind of in one of the flat spots for a while.

[91] That's right.

[92] And so let's see.

[93] Slack is going to remain independent.

[94] Stewart is staying with the company, staying as CEO of Slack.

[95] deal is expected to close next year, still has to get shareholder approval from Slack shareholders, which we might discuss.

[96] We might discuss Packy's thoughts on that.

[97] And it is the largest software deal since IBM bought Red Hat two years ago in 2018.

[98] Wow, is it really?

[99] I guess you don't see these public -to -public mergers that often.

[100] Yeah.

[101] Well, I think though actually pure software deals, I can't, yeah, I can't think of anything else that's happened since.

[102] Hmm.

[103] Yeah, the thing, I definitely feel like it's the most akin to LinkedIn, at least the way that it's big, you know, $100 billion plus valuation or market cap tech company buying something that, you know, was started decades, no, probably one decade, yeah, multiple decades after their founding, because one was Salesforce.

[104] Salesforce was early 2000s, right?

[105] No, I think it was late 90s.

[106] It was to make $98 .99.

[107] Oh, wow.

[108] So they're sort of buying into the next generation of enterprise software.

[109] Yep, yep.

[110] And of course, the other bidder for LinkedIn was Salesforce.

[111] Salesforce.

[112] And then they filed an antitrust suit against Microsoft about it, I think.

[113] Really?

[114] I think they sued to block the deal, yeah.

[115] 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.

[116] Yeah.

[117] First, Packy, let's unpack the emotions.

[118] How are you feeling?

[119] I'm like a sideline reporter here.

[120] Like, how are you feeling?

[121] Are you like, are you ready to go to Disney World?

[122] Are you declaring victory?

[123] Is this a tough loss?

[124] Is this both?

[125] What's going through your head right now?

[126] I think it's a little bit of both, right?

[127] When I wrote about the company, it was trading in the mid -20s.

[128] And so for anybody who bought after reading a not boring, awesome, win.

[129] For me, great win.

[130] Love all of that.

[131] But my bullcase was not to, you know, wherever this ends up in the $45 range, depending on where Salesforce trades.

[132] 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.

[133] So, and that's right now.

[134] And I really think Slack's potential is long term as they build and grow and they keep retaining and growing with customers.

[135] So, you know, I was really hoping that this was kind of a three to four X stock.

[136] And it's just such a rarity right now during coronavirus to find a SaaS company that you think is somehow undervalued.

[137] And so now I have to go back to the drawing board and find kind of what the next, what the next slack is.

[138] But, you know, underpriced SaaS companies that are growing at 49 % year over year are hard to come by right now.

[139] Totally.

[140] I mean, that's like, I mean, we might as well just get right into it.

[141] Like, what What was the disconnect here?

[142] Because this is crazy.

[143] Like every other SaaS company out there, especially, you know, I work from Homestock has been just off to the races.

[144] And like what has kept Slack so beaten down for so long?

[145] 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.

[146] name.

[147] And to hear Stewart talk about it, that's because if Slack threatens email, then Outlook is threatened, and then the whole Microsoft suite is threatened.

[148] And so they've put particular emphasis on the fact that they're crushing Slack.

[149] And so Slack has 12 million users or whatever.

[150] And then Microsoft reports that they're just flying by Slack.

[151] And when they release their charts showing that they're passing Slack, you know, atypically, they put Slack's name right on the chart and call them out.

[152] And according to Stewart, that's something that's something that.

[153] Nobody except maybe Larry Ellison at Oracle a couple of decades ago ever would have done calling out a competitor by name.

[154] And so it was this like a real kind of threat that Microsoft felt, again, according to Slack.

[155] And so they put everything that they had going after Slack.

[156] And so I think you can look at the numbers a couple of different ways.

[157] You can either say, you know, 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.

[158] And Zoom is growing at three, 300 % and Slack's only growing at 49 % what's wrong with this company.

[159] That's one of the reasons that I love it so much long term is, you know, there's, I think switching costs and moats in general are these double -edged swords and Zoom doesn't really have a moat, right?

[160] But it's really easy to hop on a Zoom.

[161] We don't have a shared Zoom account and we hopped on a Zoom in one link.

[162] And so it's really easy for Zoom to grow.

[163] Whereas Slack, you have to set up an org, you have to build your integrations.

[164] You have to do all those things that pay off over time.

[165] 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.

[166] Yeah, if you get sick of that 40 -minute limit, you're just going to pay out.

[167] It's only, you know, 14 bucks a month and so you go for it.

[168] So I think that's been the big thing.

[169] Then there's other things like, you know, chat is just annoying and distracting in particularly right now.

[170] People are like, oh, man, another Slack notification.

[171] and I'm sick of this, but the real reason it's kind of suffered has been, I think, that team's spare case.

[172] Yeah, Packy, how much of, give us a sense of the relative user counts of Microsoft Teams versus Slack.

[173] 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.

[174] Can you dive into that a little bit?

[175] Yeah.

[176] So I think let's say that Microsoft Teams has about 10 times the number of users as Slack doesn't I think they've crossed maybe with the $100 million user range recently, whereas Slack's in that 12 million range, and they haven't really reported numbers recently on that.

[177] 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.

[178] 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.

[179] It's limited in the number of teams that you can set up.

[180] You have to be really, really thoughtful from day one in how you set up your channels and your teams within teams.

[181] It's getting confusing with the nomenclature there.

[182] But it's not meant to be a 10 ,000 -person org chat tool.

[183] It's meant to be the hub for kind of all things, Microsoft within an organization.

[184] And so that's really good because you're able to grow.

[185] Microsoft is phenomenal at distribution.

[186] I don't use a PC, but my wife and my mother -in -law.

[187] on due, and I go to their computer sometimes when they're opening it, and teams just pops up, even though they're not team users.

[188] And so, you know, the active users count, I think, and Slack has called this out in the past, is potentially a bit inflated.

[189] Well, Microsoft's done this forever.

[190] I mean, back in the Azure days, they were including 0365 in the Azure numbers.

[191] And so they'd report numbers to the street, like, oh, Azure's on fine.

[192] And it's like, well, it was, it was it was, it was Microsoft's fastest business ever to a billion dollars in revenue, but I'm pretty sure that included the internal accounts as, yeah, as revenue drivers.

[193] So they're up to their, you know, they're up to their old tricks again.

[194] And in this case, depending on how you think Salesforce competes with Microsoft, kind of worked, right?

[195] 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.

[196] So what do you think, like, yeah, this is super interesting.

[197] Why, we'll get back to Slack itself in 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?

[198] Because it's, as you point out in your, in your piece, and, you know, I think it's really not, like Zoom is the big competitor for teams.

[199] And yet you don't hear Microsoft talking about Zoom at all.

[200] Like, what's, what's their thinking here?

[201] 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 2 ,400 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.

[202] and by the way, it potentially kills email certainly internally and maybe increasingly externally.

[203] 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.

[204] So it doesn't, it's not a threat to Microsoft's Cash Cow in the way that Slack would have been.

[205] Interesting.

[206] Because yeah, that's like one of my big questions here too is like, why wasn't Zoom the one that acquired Slack here?

[207] Like to me, that's a very, very compelling combination.

[208] Your stock is potentially trading it a value that's worth a lot more like it's cheap currency.

[209] Like why wouldn't you use it to go make acquisitions?

[210] 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 and you have no moats?

[211] And the answer is you go out and acquire companies.

[212] I didn't have Slack as one of them probably because I just wanted Slack to remain as an independent company.

[213] You don't want to trade your shares in for Zoom shares?

[214] Not at that valuation.

[215] I didn't.

[216] But I mean, they've tanked a little bit over the past day or so.

[217] But yeah, I think Zoom should be more acquisitive here.

[218] Totally.

[219] But yeah, that's a good point on Microsoft.

[220] 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, 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 two 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 on the product side with teams.

[221] But Slack, as small as it is compared to Microsoft, is actually like the one that's like, hey, we want, and Stuart has said in many times, like, we want to be the next Microsoft.

[222] You don't hear Eric saying, we want to be the next Microsoft.

[223] Eric is happy having just a very well -running video product.

[224] Exactly.

[225] Yeah.

[226] Well, I do think, and I can give a couple of more data points too.

[227] I mean, Microsoft, a couple of years ago, decided to go all in on Teams.

[228] And so they're shutting down or rolling in Skype into Teams.

[229] They've, you know, the 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.

[230] Same with a lot of their, what used to look like Office 365 Dashboards.

[231] Teams is becoming that sort of central hub for everything.

[232] thing.

[233] 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.

[234] And so they really are, you know, 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.

[235] And I think, you know, Packy, the thing I go back to is let's say Microsoft has that sort of 120, 130 million active teams users.

[236] 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.

[237] 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.

[238] 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.

[239] Exactly right.

[240] 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.

[241] It's a little bit tougher to set up and involves the full team's participation.

[242] Yep.

[243] Well, I think the, my kind of thesis on this whole thing is what we're really seeing is like the, the anti -Microsoft, I don't think it's like an alliance.

[244] It's really like the anti -Microsoft consolidation where if Microsoft is, this isn't like the Rebel Alliance here.

[245] This is like another empire stepping in.

[246] Right.

[247] And I think a blog post just went up by Aaron Levy talking about how this is, this is the, a show of force from best and breed applications.

[248] And whenever you see best in breed and the enterprise, the way to sort of decode speak that is Microsoft is not best of breed.

[249] Microsoft is the full integrated system that's best at nothing.

[250] 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.

[251] They're best at nothing, but they're the best integrated.

[252] And so if you're buying from one single provider, it's the proverbial enterprise one throat to choke, you know, it works best together.

[253] You can have one person for your support.

[254] You can have one rep. You can have one license.

[255] You get bundled pricing, all that stuff.

[256] 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, you know, purpose -built software for each of those things.

[257] It's very interesting to start to see consolidation among best -of -breed applications being from one company.

[258] And one does have to wonder, is this the first of several?

[259] Slack might be the most important because it is the platform, the entry point, the place which all, you know, you can branch out to many of the other apps from there.

[260] But if Zoom weren't so expensive, you know, would we see that?

[261] Is there some way that Salesforce has ambition to find other best of breed applications and bring them into the umbrella too?

[262] Totally.

[263] Well, and, you know, you have to think, uh, regardless of whatever Aaron and Box wants to do themselves, this is fantastic news for them and for their valuation, right?

[264] Because at a minimum, you know, file storage is going to be a big part of that puzzle.

[265] So either Box or maybe Dropbox is one of the next items on the list for Salesforce.

[266] Or if not, at a minimum, they just got a lot more strategic.

[267] 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.

[268] And if Salesforce is now going to be pushing this like, hey, best of breed, not easiest to buy for your IT department, you know, this is going to be a tailwind to all other, you know, I'll use this term, I don't mean it pejoratively, subscale software and productivity companies out there.

[269] I just mean subscale in that, like, you're not Microsoft or Salesforce, this is just going to be, I think, a great for their go -to -market and distribution.

[270] Yeah, the developer equivalent of this is the Microsoft stack versus the open -source ecosystem.

[271] 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.

[272] You know, in the open -source ecosystem, it was like, well, you know, and this is a decade ago, I use PHP 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 a Python or node or whatever.

[273] And I think the way to think about that in the productivity world is like, well, yeah, we use Slack.

[274] And the question, this is the leap.

[275] It's like we use Slack and sales for like the analogy starts to fall down for me. So this is, I have this cute up.

[276] I need to quote this.

[277] Here's the key line in the press release.

[278] Combining Slack with Salesforce customer 360 will be transformative for customers and the industry.

[279] 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.

[280] 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.

[281] So what does it mean to be this new interface to Salesforce customer 360 and like like what does that actually mean in practice does that mean that this sales force customer 360 is like the very best slack bot to ever exist and people interact with 360 like they're gonna rebrand slack bot to uh sales force pot oh no benny off that yeah i was talking to my friend about about this deal earlier and he was like getting getting sales force 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.

[282] The last company I was at, the Salesforce implementation was one of those things that every month was about a month from being done.

[283] And so it's really hard.

[284] And maybe that's why, you know, Slack over time becomes kind of the on -ramp to the whole Salesforce ecosystem.

[285] And they do figure out a way to integrate it.

[286] 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.

[287] It's certainly a much easier product to onboard to your organization than something like a Salesforce might be.

[288] I don't know.

[289] 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 head count and power and that's what that translates to for me. Yeah.

[290] And in the sort of like classic acquisition category that we always do on episodes.

[291] I mean, this is a distribution deal, right?

[292] Like, this is not, like, the product velocity is not going to change.

[293] Salesforce is probably not going to integrate the Slack product deeply into the existing Salesforce.

[294] I mean, they say they are, but it's unlikely.

[295] 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.

[296] That sounds right.

[297] you know, Becky, I think you made this point, well, several times.

[298] Slack's growth story over really its whole life as a company has been we get small, innovative organizations to start using the product.

[299] And sometimes that's small innovative teams within larger companies.

[300] But oftentimes it's startups.

[301] We get them to start using the product.

[302] And then it grows as those companies, grow, we grow.

[303] 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, like that's going to lead to a free cash flow monster, hopefully in the future.

[304] What's missing from that playbook is a credible way to go get the big organizations.

[305] And this feels like the unlock to that.

[306] Yeah, this makes sense.

[307] The only question in my mind then is if you look at it like great you know sales uh 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 sales force 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 sales force CRM suite um i just don't it's probably my product background, but I don't see that.

[308] 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.

[309] Well, I think the big thing here, and they mentioned it in the press release as well, is Slack Connect.

[310] 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.

[311] So to the extent that there is an integration, that's where I see that happening.

[312] 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.

[313] 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.

[314] But certainly I think that's the most appealing piece of the product, if I am Salesforce.

[315] Yeah, let's talk a little bit more about Slack Connect.

[316] Well, why is it so strategic for Slack?

[317] 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?

[318] Yeah, I think it's strategic for Slack.

[319] So when Stewart's 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.

[320] 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?

[321] Law firm, finance firm, lender, all of that, you're going to join Slack and then you're going to try it.

[322] And because the product is better than a Microsoft Teams, you're going to love the product.

[323] And then maybe you'll start paying for Slack and then maybe it'll spread in your organization.

[324] So I think more than anything, it's a way for people to kind of try before you try before you buy the Slack product because your kind of innovative partner has told you that they want you to use that product.

[325] And it actually, you know, when I was at Breeder before, Cushman and Wakefield, the first time that they used Slack was to set up a Slack channel to talk to us.

[326] And so I think like that, you know, that's that in action.

[327] And you can see that happening kind of writ large just so the companies can kind of keep that whole conversation in one place and one interface that they're familiar with.

[328] And how does that, you know, and how does that is shared channels between organizations play into that?

[329] So I think shared channels has kind of become a part of Slack Connect, and that's what Slack Connect is.

[330] So I think shared channels was just the first kind of iteration, but what Slack Connect is is a bunch of share channels between organizations.

[331] Yeah, that makes sense.

[332] 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.

[333] We spend 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.

[334] But at the very beginning, we're the whole team except for the founders.

[335] So it's great to have that bridge set up.

[336] But yeah, I do wonder, you know, it has always seemed like in Slack's pre -public lifetime, they were an internal tool and email was the external tool.

[337] And it seems more and more like Slack is trying to also find natural ways to be your, 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.

[338] And so there's got to be some, you know, again, loosey -goosey on the actual product implementation, but you can see how that philosophically aligns with where Slack wants to go.

[339] And there's this great tweet, and I think they are kind of trying to articulate email at this point, but this great Slack tweet from 20, 13, those like people saying we want email dead, if we wanted email dead, it'd be cold and in the ground.

[340] So, like, you know, 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 they're trying to do.

[341] One of the best parts of your piece, you had used the way back 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're pros 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.

[342] And I think one of the things they've done not so good on is like, the hell is this positioning.

[343] Like I get Stor's quote.

[344] Like I get it on Slack too.

[345] You got to use it to know.

[346] But like come on man. You're like an eight year old company at this point.

[347] You're a public company.

[348] You got to be able to explain what you do succinctly.

[349] And like even as a public company, they've been just iterating.

[350] Not just like iterating.

[351] They've been massively changing their main marketing message several times.

[352] Well, I give them credit for that.

[353] 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 yeah yeah totally and and that resonates with people though, right?

[354] 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 work happens.

[355] People don't know what that means.

[356] And so there is, like, maybe, you know, Stuart was a philosophy major and, you know, a logician and all of that.

[357] 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.

[358] It is also a classic sort of PR move to, um, 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.

[359] And we tweeted a snarky comment about their old no software slogan.

[360] But yeah, that's right.

[361] People hated all the configuration that came with on -premise software.

[362] So they just made their tagline no software.

[363] You know, software with a thing crossed out of it.

[364] And like that doesn't say what they are, but it does say, oh, yeah, I hate that.

[365] Like, awesome.

[366] You guys are the answer to that.

[367] and you can imagine what the answer would be.

[368] And 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.

[369] Like, it's not like indie developed software that proudly shows screenshots on the website.

[370] It's sort of like the UI is hidden from you until the very last moment when you actually have to use it.

[371] And often in sales demonstrations, it's not.

[372] actually shown to you, especially if you're not the actual end user.

[373] So I guess this is a little bit of a roundabout way of me saying, like, have either of you ever seen Salesforce's new lightning interface?

[374] Like, I've heard it talked about a lot.

[375] Have either of you seen it?

[376] No. I think that's, that is in stark contrast to Slack's sort of like philosophy of everybody listening to this knows what Slack looks like.

[377] And even if you, you know, 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.

[378] 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 you on a dream.

[379] I don't exactly know what point I was making there, but yeah.

[380] It is true, though.

[381] I mean, I got, I remember the first time that I actually used Salesforce, not the lightning interface, whatever that looks like.

[382] I was just like appalled at how bad it was.

[383] Yeah, but it wasn't software.

[384] And so whoever bought it.

[385] It's not pretty software.

[386] Whoever bought it sort of assumed that it would solve their problems.

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[408] Well, I think this is an interesting time to move into pricing and sort of conversation around, you know, they paid $27 .7 billion.

[409] Let's contextualize that in the size of the business in revenue.

[410] And obviously, they're not profitable.

[411] Paki, you're, you know, one of the best educated people in the world on this, having just done a bunch of research.

[412] So how big of a business is this?

[413] And then how reasonable of a price is it for that business?

[414] Yeah.

[415] So the business is, and they just again released their numbers for this quarter.

[416] So $235 million this quarter.

[417] Say next year, you know, 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.

[418] 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 up front and then over time they retain and more of that cash drops to the bottom line.

[419] So it's a moderately sized business, right?

[420] Like you're paying 27 .7 times next 12 months revenue.

[421] So it's not a not a cheap multiple on the business there by any stretch of the imagination.

[422] What is cheaper expensive these days?

[423] Like I don't even know.

[424] Yeah.

[425] So it's, You know, it's not cheap.

[426] Nothing's cheap right now.

[427] You know, it depends.

[428] We'll see if you think it is strategic and if they can just push it through the, the Salesforce distribution channel.

[429] 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 percent year every year, a business that does have phenomenal margins and a business that is, you know, increasing its free cash flow at a pretty rapid rate here.

[430] 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 $2 .35, something like that?

[431] $2 .35, I believe.

[432] $2 .35 million.

[433] Year over year -year growth rate.

[434] Is that still sustaining in 40 % plus?

[435] So that might be why they, yeah, that might be why they sold.

[436] Last quarter, it was 49 % year every year.

[437] This quarter was 39 % year every year.

[438] So pretty dramatic growth slowdown.

[439] Yeah, that's.

[440] So they had a bunch of good news to announce this quarter in Slack Connect.

[441] but yeah that's that's got to be a pretty concerning top line number like if you're because there's no reason that should be slowing right like um there should be tailwinds at the company's back they should still be getting net expansion now in the beginning of the pandemic uh that expansion got hit because companies were laying people off and so that was leading to contraction in monthly revenue uh in their existing accounts but I got to think most of that's behind them.

[442] So, hmm, interesting.

[443] Yeah, paid customers up 140 % year every year, Slack endpoints, connect endpoints up 240 % year every year.

[444] 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.

[445] And so maybe, you know, if that contracts again from 130 before the pandemic to 125 to now 120 and revenue slows a little bit, then that begins to, a, you know, paint a picture that maybe you want to get out before that happens.

[446] Yeah.

[447] 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.

[448] I'll make sense and whatnot.

[449] But they did just flip into cash flow of positive territory, them being slack.

[450] They were still growing rapidly.

[451] They're still top quartile in all these best emergent cloud index metrics.

[452] Why sell?

[453] you know, like, 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, it's a 55 % premium, David.

[454] Like, you know, that's pretty rare as a public company to get.

[455] We, in the past, we've looked at these and we've said, like, well, 20 % premium is basically baseline.

[456] And if you can get up to 30 % or 40 % even like that, you know, that's good, do the deal.

[457] But if your stock price has, ever hit your listing price.

[458] And you've been basically flat, if not down over the 18 months or 16 months since being a public company.

[459] And someone offers you a 55 % premium.

[460] It's hard not to take it.

[461] I mean, I think that's true.

[462] Well, I want to hear Paki's thoughts.

[463] No, I mean, I think that's true.

[464] I think for me, not having to sit inside of Slack and sell against Microsoft every day, I think this could be, you know, triple on its own in the next year or so.

[465] 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're 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, you know, to connect the full ecosystem of best -in -class products.

[466] You can see that that's kind of a tempting thing to be able to do in Microsoft, you know, for the amount that they say that Microsoft isn't that big a threat, they also sued Microsoft for kind of, you know, for leveraging their distribution advantage against them.

[467] And so it's not as big, at the very least, it's a big annoyance and a pain to deal with day in and day out.

[468] And so maybe if you combine that with the fact that it's a 55 % premium, you're happy to take that deal.

[469] Yeah.

[470] I think there has to be some element, though, of just fatigue on Zoom's part to do this because slack.

[471] Or sorry, yes.

[472] Let's see.

[473] Zoom is not fatigued on Slack's part to do this because again to me just like they're coming back to like they just flip 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 on Slack um I don't also don't think that adding several more billions to his net worth matters that much to Stewart.

[474] So maybe he was like, well, this is going to be the best chance to realize the mission the soonest.

[475] But it's still a little perplexing to me. Yeah, you wonder if they couldn't have gone out and just acquired Frank Slutman to come in and rally the troops and rallied the sales force and go out and sell against Microsoft.

[476] You know, Stuart's very much a product guy and not a sales guy.

[477] And maybe that's the other answer here.

[478] And so instead of bringing on a new CEO who's really more of an enterprise SaaS guy, you just sell the business and, you know, you have the successful exit out of 55 % premium and all of that.

[479] That's a good point.

[480] And that's another one of the people talk.

[481] And Stuart gets to continue being Stewart and being the product guy and, you know, Slack Connect.

[482] Like, it's a big vision and it's a big product.

[483] And they've done really well for the product standpoint from that.

[484] And he doesn't have to go be Frank Sleepman.

[485] And Benioff can be Frank Sleepman.

[486] Exactly.

[487] You have to wonder if this is the beginning.

[488] of the re -bundling of enterprise sales.

[489] 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.

[490] And then the last five to eight years, it was anybody with a credit card gets to buy any old SaaS service.

[491] And there's subscription fatigue in a big way at any company.

[492] I mean, we're a 22 -person company at PSL.

[493] We have a spreadsheet to manage all the subscriptions that everybody signed up for.

[494] harassing at the end of every month.

[495] Who signed up for this?

[496] On what card?

[497] I can only imagine how painful that is at enterprises.

[498] And so you have to imagine, too, if Salesforce is kind of saying, actually, we have the opportunity to run the Microsoft Playbook here.

[499] And we're going to continue to see more consolidation here to alleviate the pain of procurement around, well, basically people going around procurement.

[500] And I think, yeah, I don't know.

[501] I think that's an interesting point.

[502] 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.

[503] And so maybe there's this transition period that we're in, which is like a five to 10 year thing.

[504] But I think the way that that ends up getting solved is, you know, their companies like ramp on the corporate card side that that is trying to show you your spend in one place and show you where you can save.

[505] 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.

[506] And I can't imagine that they enjoy working with Salesforce more than they hate managing all of those expenses.

[507] And Packy, you raise a great point too.

[508] 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, like the re -bundling won't happen in the same way that it got unbundled.

[509] The re -bundling will be at the credit card level or, you know, someone's not going to go build the Microsoft bundle the way Microsoft built the Microsoft bundle.

[510] I think that's right.

[511] Yeah.

[512] So it makes this fun.

[513] Indeed, indeed.

[514] Well, 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 bare case for Slack as an independent company.

[515] And this actually totally jives with our friend Jake Saper over at Emergence is about to publish a blog post about this, like the flip of this being an investment theme.

[516] he calls it deep collaboration but like that there are all these other workflow apps out there now whether it's 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 um let's talk about that because i think this is this is a really astute observation yeah that's fascinating a lot of this comes from Kevin Kwok, who's more, more astute than I am on these things.

[517] But the point being that, you know, his point that he makes in a great piece that he wrote on Slack is that Slack is really, you know, 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.

[518] So let's go over to Slack and chat about it.

[519] or it kind of becomes 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.

[520] We go into Figma or we go into pitch to do our presentations together in there.

[521] So there's all these different things.

[522] I think that does get a little bit confusing.

[523] 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.

[524] and you can be video chatting.

[525] I wrote about remote work and kind of all the work from home products that are being built natively for remote work yesterday.

[526] 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 schmorphically it feels and looks like an HQ, but then also 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 right there on the screen and you all have your little video circles around that.

[527] So there's some really interesting software being built in the space.

[528] And so maybe that's, I mean, to me, that's the bare case, right?

[529] 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 steal it.

[530] the stripes and the other companies there.

[531] So to me, that's the big risk is that there's one collaboration software that people interact with directly, and then two, 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.

[532] I love that point.

[533] I think it's so astute that, like, the worst nightmare for Slack is that chat gets good in apps.

[534] and suddenly I'm like, oh, yeah, Slack, I pop in there to, like, drop a GIF in random.

[535] Happy birthdays or something to be a big use case.

[536] Right.

[537] But yeah, to the extent that work stops, I mean, it's funny, where work happens, the extent that work gets federated and happens in apps rather than in the central, you know, communication nexus, they're in big trouble.

[538] And I love your idea of open up this Slack API, not in a way that's like 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.

[539] Because it's a crap ton of work anytime anybody's like, well, let's implement chat.

[540] Like, see Zoom as example A. Its chat is awful.

[541] Like sometimes randomly I'll paste a link and it won't hyperlink it.

[542] Like, I mean, there's, this is a massively successful company with a just a chat where every time I try and send a message to one person, I accidentally send it to everyone.

[543] And I think that, like, there's huge defensive opportunity for Slack to be the way that you implement chat in your app.

[544] And they just started hitting at it, too, before this.

[545] And he was on, he went on the 20 -minute VC with Harry Stebbings and talked about kind of being this connective tissue between different apps and, like, really, like, what the next level of integration looks like for Slack.

[546] And so that would have been an amazing way to do this, I think, to be able to just embed Slack in different apps.

[547] Because to your point, everything that they've done that seems really simple and that makes chat seem really simple is really, really hard.

[548] I included the graph of all of the decision tree that needs to happen to decide whether at 8 .05 p .m. to send you a notification if I slack you.

[549] And it's really complicated.

[550] 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 we'll still be interesting in the combined company.

[551] what um if if either you are more knowledgeable than me because 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 let me first make my snarky comment which was if you thought slack was unintuitive to learn wait till you see discord um It's the first piece of software that's really made me feel old, using it.

[552] And my second, you know, the other side of that, which is viewed as a positive, is it's much more customizable.

[553] Not like crazy.

[554] I mean, it's not MySpace with an open HTML canvas, but it's, you know, it's the Android to Apple's iPhone, where it allows far more extensibility in the chat canvas.

[555] So the question is, so their go -to markets have been entirely different, obviously gaming and influencer communities.

[556] rather than the enterprise.

[557] And in fact, Slack has made it sort of difficult to use the product for any of that, anything that's not the enterprise and have sort of turned a blind eye to...

[558] Cough our acquired Slack.

[559] Yeah.

[560] Oh my gosh.

[561] I've been beating a drum with so many people there.

[562] I've been like, please give us some basic features.

[563] We are evangelizing your product.

[564] Yeah.

[565] And my favorite, you know, longtime acquired Slack members will know that my particular B and my bottom around that is because we are using it as a community product.

[566] It doesn't like respect how admini we want to be.

[567] And so it will email like all users and tell them like, oh, you're hitting X limit.

[568] And you're like, what?

[569] It's like thousands of people getting this email and this reporting analytics.

[570] Like, oh, there's this many of you are active this month or this week.

[571] And you're like, why are you sharing that with all these random?

[572] So, um, yes.

[573] I know we're not going to pay you $3 million a year or whatever we have to for our 6 ,000 people in the acquired slack.

[574] But that is such a good point, right?

[575] It's not just the product.

[576] 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.

[577] 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.

[578] So it's more complicated than just do what Discord does.

[579] But certainly from a business model perspective, Discord handles those.

[580] use cases a heck of a lot better.

[581] Much better.

[582] Yeah.

[583] I mean, so there's the marketing side of it and like the ideal customer profile where, you know, Slack targets the enterprise and Discord targets communities.

[584] 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.

[585] So like the ability to have a shared channel between two enterprises or the ability to to create a Slackbot that communicates with a time tracking tool.

[586] Those are not the types of things that Discord has ever built toward.

[587] And I think it's like the classic, you know, enterprise software especially, but all software is that iceberg where 90 % of the real hard work is below the surface.

[588] And I think it's only that 10 % above the surface between Slack and Discord where it actually feels like the same thing.

[589] I think that's right.

[590] But I do think that this next generation, you know, companies like Huddle, are going to come out and kind of combine the best of Discord with all of the below the surface level kind of features of Slack.

[591] It'll be interesting to see where those turn out, but I think there's some promise there.

[592] 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.

[593] Like, if your bet on Slack is to, you know, the same way that you would bet on Stripe, like that the next great company is going to use this as an infrastructure choice, like, that has to be the bet that you, that, uh, you can keep making.

[594] And I would say Salesforce buying it loosens my conviction in, in, um, you know, that dream scenario, staying true.

[595] Yeah, I would assign a negative price to the rest of the Salesforce 360 cloud.

[596] Yeah.

[597] All right.

[598] Well, Packy, there we go.

[599] There's the remaining part of your upside is invest in, in somebody that's going to build the next messaging, deep collaboration layer for the enterprise with Discord -type features for the Enterprise.

[600] There we go.

[601] Or as we all know in love, we can just invest in Tencent and own a little piece of Discord that way.

[602] Yes.

[603] So the more I think about Tencent and we should do a disclaimer or at least I'm a shareholder, I think you are back out of my pen.

[604] But it's kind of like, I feel the same way about Berkshire, right?

[605] Like, I could go, I can't even, but if I could go invest in KKR and Sequoia and like all these funds and whatnot that are going to give me great returns, right?

[606] But I'm going to pay two and 20 or three and 30 on that.

[607] Or I could just go buy 10 cents shares or process shares, which is the spinout from NASPR's or Berkshire shares.

[608] I could pay no management fees and no carry to get access to equally good, if not better, investors globally.

[609] I looked this up yesterday, coincidentally, do you know how much, since I wrote about 10 cent, call it, you know, in August, since I wrote about 10 cent, how much the value of their holdings and their top 10 holdings has increased?

[610] Oh, well, I saw your tweet, so go for it.

[611] $55 billion.

[612] And it's $64, if you assume that Epic is kind of grown at the same rate that Unity has, and I would imagine that, you know, if it were public, it would.

[613] Which is just wild.

[614] Meanwhile, the share price has been, you know, it's like up a little bit.

[615] but relatively flat.

[616] Do you know what the basis is, like when you look at all the purchase prices of all those investments?

[617] It was, I pulled 103 of their 700 investments by, you know, translating things in Google translate from Chinese, from Mandarin to English.

[618] So even the fact that I have the ownership is crazy.

[619] 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?

[620] And Tesla, they had 5%.

[621] And so that obviously has done phenomenal well.

[622] Spotify has doubled.

[623] So like just all these massive companies that that's 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.

[624] So like any good company that you can think of and you're like, oh, I wonder who's invested in them.

[625] Tencent is probably there.

[626] Well, the good news for you is I don't think anybody's going to acquire Tencent.

[627] So I think you can let that ride for a long time.

[628] How do you think the U .S. government would feel if Amazon tried to do.

[629] require Tencent.

[630] I feel like the U .S. government would be fine with that.

[631] Yeah.

[632] That's not the problem.

[633] Get off Amazon's back a little bit.

[634] True.

[635] Oh, man. All right, so let's try and get to some, like, what's the bottom line here?

[636] There's been a lot of takes.

[637] I'm going to close my eyes on price for a minute and just, and let's just talk about, like, narrative bottom line.

[638] Like, Packy, if you had to summarize this and they're like, well, TLDR, tell me about, you know, why is this acquisition interesting?

[639] and why and what's your take after an hour here of talking about it.

[640] What do you think?

[641] I think the acquisition is interesting for a few reasons.

[642] I think the acquisition is interesting.

[643] One, because as you guys pointed out, it gives Slack this massive professional Salesforce to go push their product into all the orgs where it struggled to gain a foothold so far.

[644] 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.

[645] And I think it's interesting because, and we haven't talked about this, but Salesforce is kind of the biggest acquireer that didn't get dragged up in front of Congress.

[646] 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?

[647] No, Microsoft didn't.

[648] They were involved.

[649] They were.

[650] Oh, maybe in the later one.

[651] Yeah, they were.

[652] That's a fair point.

[653] 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 have looked good.

[654] Plus, Microsoft's got to have such a hangover from the DOJ.

[655] They do.

[656] Well, my data is eight years old, but yes.

[657] Well, actually, Ben, you could talk about it.

[658] Like, what are the internal processes and controls within Microsoft to make sure that, like, you never write the word monopoly in a document.

[659] It wasn't as bad as you would think.

[660] It's only like if something really gets elevated to serious discussion of a big strategic move that it gets considered.

[661] It's not really at sort of the IC level.

[662] I will say there was a thing, there was a whole milestone.

[663] I'm trying to remember how long Microsoft 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.

[664] 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.

[665] So I do know, like, there's entire sort of like billions of dollars that had to go into the manpower of cleanup after that.

[666] So then there's some processes in place.

[667] But no, there's not like a thing that blinks at your computer if you type the wrong word.

[668] Company game night, you can play anything but monopoly.

[669] Yes.

[670] I'm envisioning like the, well, it's too big now, but when, the days when Gates used to have all the interns over to his backyard, just like have like, like, he'd get up on stage and be like, all right, here's your orientation.

[671] Like, you must absolutely not say these things.

[672] Right.

[673] Our enemy is the government.

[674] Well, let me come in with my, so Packy, great, I think great three points.

[675] The one other point that I would make, 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 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.

[676] And, you know, you grow the company by acquiring high growth assets.

[677] And, you know, again, we can debate whether Slack is a high growth asset relative to some of these other SaaS companies these days.

[678] 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.

[679] And where are there possibly large future revenue streams that they could acquire slacks?

[680] 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 you know increase their their growth through your own um sales force but because the market is relatively under penetrated with this slack product uh that's how i would describe um what sales force is up to here david anything 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.

[681] If we touched on Zoom a little bit, maybe we can circle back to that too.

[682] Let's do Google and Zoom.

[683] Google, Google I wrote about, actually a couple months ago, I wrote about a Google Slack acquisition.

[684] I think that one, I mean, you know, part of the press around this is that it's now Salesforce versus Microsoft.

[685] I don't think that's really the case unless people start using quip documents to replace Word and whatever else.

[686] 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.

[687] You have Google Sheets, which maybe the finance team still needs Excel, but most of the rest of the company can use Google Sheets and Google Docs and all of those things.

[688] 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.

[689] 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.

[690] Like, I love Looker.

[691] My brother loves Looker.

[692] My dad loves Tablo.

[693] 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.

[694] And Google hasn't been, you know, Google's actually, to me, been maybe the most disappointing fang in terms of their kind of innovation or their growth unless one of the other bets pays off.

[695] But they have, you know, this ad business, which for now is spitting off a ton of cash.

[696] 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.

[697] And then there's Amazon on the other is the other one.

[698] They had a partnership where, you know, they powered Slack's video product and Slack used AWS and all of that.

[699] So that's another one.

[700] But Google, to me, makes a ton of sense.

[701] Yeah, do we know, was Google a bitter at all in this?

[702] Or I didn't see anything about that.

[703] Nor did I. You're right.

[704] It makes a ton of sense for them.

[705] when you consider like the the startup productivity stack, and I would say not the bleeding edge pre -Casem crossing startup stack that's like Notion and Airtable, but you think about like the like, you know, 500 to 5 ,000 person companies.

[706] It's a Google Docs company that uses Slack for internal communication.

[707] Like that is a, that's sort of a natural bundle.

[708] Yeah, the Google suite is, the G Suite is really like one of the best integrated things.

[709] into Slack, where the docks pop up, and it really is one of the nicest integrations in the product.

[710] That would be happy about it.

[711] There was like CEO conversation to custom build some stuff there, like, especially around the different types of sharing and how you can grant access from within Slack.

[712] That was custom work that Google had to do in order to enable that in Slack.

[713] All that work down the drain.

[714] That's the acquisition that should have been.

[715] And that's the kind of thing, like, you know, 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.

[716] Like that's the way to do a dance where you're like, well, you know, let's do a partnership.

[717] No, not like a bundle distribution, go to market partnership.

[718] What's an interesting product thing that we could do that would provide value for both of our users?

[719] Companies get to know each other.

[720] They get to understand each of their user bases.

[721] And then that's the kind of thing that tends to lead to a deal.

[722] So Packy, now that you bring it up, like it is surprising to me that we Yeah, we aren't seeing Google's name here.

[723] Yeah, boring one out for that deal.

[724] Especially since, I hear you bend at like, you know, 55 % premium, that is going to, but when I think about relative to the potential of Slack and the multiples for some of these other class SaaS companies out there, this price does not feel high to me. Right.

[725] And what if Google makes free Slack an ad product, right?

[726] Would you guys accept ads to get rid of sending emails?

[727] to everybody?

[728] Maybe.

[729] Probably.

[730] And also, you know, the other pieces here is financing.

[731] So like Salesforce is taking out debt to finance this.

[732] Now, of course, they have a strong balance sheet.

[733] They can do this.

[734] It's not like a problem for them.

[735] Google's just got like literally an infinite amount of money sitting there spending, you know, what is this, 27 .7 billion purchase price for Salesforce.

[736] Google could have spent $35, $40 billion.

[737] No problem wouldn't have made a dent in their treasury.

[738] When did the documents get disclosed?

[739] David, you probably know this with like party A, party B, how the deal went down.

[740] Probably when it'll come to a vote to Slack shareholders.

[741] Okay.

[742] So we'll know in the next quarter, next few months, if there was a bidding process here.

[743] If there were other discussions, yeah.

[744] I love public and public mergers.

[745] Yeah.

[746] And then I think the other question, we touched on it at the top of the show, is Zoom, right?

[747] Like, what's Zoom's market cap now?

[748] Gosh, if I recollect is $130 -ish billion, maybe a little more.

[749] Sounds right.

[750] And so this would be a big chunk to do a stock deal with Zoom.

[751] It would be a pretty big chunk, which is probably why it didn't happen.

[752] I mean, maybe Slack didn't want Zoom stock at this price.

[753] Could be.

[754] But I also, you know, if you work at Zoom and know the answer to this, I think David and I and Packy would love to know personally.

[755] 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 stuff off of his plate to pursue doing this deal.

[756] And, you know, they look this up.

[757] 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 of the company.

[758] Right.

[759] Oh, yeah.

[760] So it's like 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.

[761] And it feels like they want to do, yeah, video.

[762] There's plenty to do in the video space.

[763] And that has always been kind of their strong suit is how focused they've been on video.

[764] Yep.

[765] And that actually, I would, uh, this would be if maybe we could do a sidebar here.

[766] Uh, I would disagree with you a little bit, Packy on, uh, the view on Zoom.

[767] Um, I, um, I, think that view makes sense if you think of Zoom as a enterprise productivity tool, which I think a lot of people do.

[768] But to me, it's actually much broader.

[769] And the opportunity is this that we're doing on Zoom right now.

[770] It's like, yeah, they're good.

[771] Great.

[772] Enterprise productivity product.

[773] Make a lot of money on that.

[774] Perfect.

[775] But like the huge opportunity is they are the video platform for the entire economy.

[776] And so I could totally see Eric being like, that's our focus.

[777] That's we're doing.

[778] I'm not going to get distracted on this.

[779] I completely, completely, there should be a million startups built on top of Zoom instead of Agora in the next year.

[780] And so their focus should be on becoming a platform.

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[812] Grading?

[813] Grading.

[814] Let's do it.

[815] Okay.

[816] So we thought, let's do two separate gratings here to bring it home.

[817] One, we'll grade Slack's tenure as a public company.

[818] I'll render a grade on that over the past, was it 15, 16 months or so.

[819] And then two, we'll do our looking forward, let's paint an A plus C and F scenario for the next five years of Slack within Salesforce.

[820] all right so taking slack's tenure as a public company i'll go first i mean it's really hard for me to come up with reasons not to grid this pretty harshly um the 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 that you won't hear him say that That's just not in my DNA.

[821] This is pretty bad.

[822] So I'm going to go with a C -minus tenure as a public company.

[823] Maybe it deserves to be worse.

[824] But, you know, like the outcome here is above the DPO, the first day of trading on the direct public listing.

[825] So it's not like they destroyed value in the public markets.

[826] On the other hand, like didn't come close in trading to.

[827] in a, you know, 15, 16 months as a public company to meeting that day one price or let alone eclipsing it.

[828] And I think, you know, let, maybe it would have been impossible to fight this Microsoft Teams bullying narrative.

[829] So maybe this was an unwinnable battle, but like, they lost it, right?

[830] Like, you know, at the point, like, Packy, I think you have great points.

[831] Like, Teams is not the competitor here.

[832] And this is a great company.

[833] with great metrics, and yet they let this become the narrative that like Teams is just going to destroy these guys.

[834] And I think that's why we ended up here.

[835] 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.

[836] If we were to take a, I think Hamilton points this out in Seven Powers.

[837] And Pachian, I know you're a avid reader of Hamilton's work with Seven Powers, too.

[838] And, you know, so I think it's worth bringing up.

[839] Public market investors are not short -sighted.

[840] 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.

[841] And they, of course, over index on recent signal if it paints a picture of how those 30 years are going to go.

[842] 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.

[843] So it's interesting, like, you know, depending on what we're grading here, you'd sort of grade different things.

[844] Like, I'm in Camp B -ish, B -plus as actual, like, execution on their goals.

[845] But, you know, F on the ability to, you know, generate, you know, value for shareholders.

[846] Well, not F, I guess, because it didn't go down, but, like, C -minus.

[847] Yeah, I think it's interesting that this communications company's biggest problem was communications and telling its own story.

[848] But I think my answer actually changes.

[849] I've suffered through this kind of just like bouncing in the 25 to 30 down to 16 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.

[850] In which case, if you just ask me to grade it on the spot, I'd say it's totally fine.

[851] Everybody's misjudging it.

[852] they also see that this thing just compounds over time and compounds over time and compounds over time.

[853] Obviously, this deal changes my perception of how they view themselves.

[854] 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.

[855] And particularly at a time where people are more, you know, you're discounting future cash flows for those 30 years, which should be Slack's, you know, to Slack's great benefit, you're discounting it at this tiny, tiny, tiny discount rate.

[856] And yet, it's not being reflected in the stock price.

[857] If they're not taking that long -term view, then I think, you know, you can't be any better than a C for me, unfortunately.

[858] Fortunately, for you, you kept buying not just at the DPO, right?

[859] And, I mean, that's part of their legacy as well, right?

[860] The biggest DPO to date.

[861] Yeah.

[862] Direct listing.

[863] Yeah.

[864] I don't know if Slack or Spotify was bigger.

[865] It might have been about the same size.

[866] And Spotify has performed.

[867] Well, Spotify had doldrums for a long time, but it's performed excellently recently.

[868] The one thing I will say is like how I was, whatever I was there, B or B minus C plus on execution.

[869] I, Pachy, before reading your piece and before talking with you, was much more negative.

[870] In fact, I had like a joke I was about ready to make on Twitter that, actually, let me get it word for here.

[871] word for word.

[872] Slack has basically stopped updating the product and when they do, we all complain about the new worse UI.

[873] I think they'll fit in just fine at Salesforce.

[874] 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 works spaces since 2015.

[875] But like if you look at the app ecosystem and the way that that's been strategic for their business, that's actually huge.

[876] So I think 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.

[877] Completely agree with you there.

[878] All right.

[879] So A plus C and F scenarios within Salesforce of the next five years.

[880] I mean, the F is always obvious, right?

[881] And to be totally clear, this is how good of a use of 28 billion dollars was this for Salesforce versus the history of other uses of capital by companies, um, both in internal and external investments.

[882] Or actually, well, maybe the F is not obvious.

[883] I think the F, to me, we can all debate is, um, they're wrong strategically that building a, uh, you know, what did we decide to call it?

[884] Not a, arm the rebels, but an alliance, an alternative alliance, uh, anti -microsoft alliance, uh, Alliance, best -of -breed alliance is actually not the right strategy.

[885] Big enterprises don't really care about that anymore.

[886] They're still happy to buy on credit cards distributed across the organization.

[887] It turns off all the startups and innovative high -growth companies are like, ew, Slack is part of Salesforce.

[888] I don't want that anymore.

[889] I'm moving over to Discord or whatever.

[890] That feels like the F to me. Yeah.

[891] I don't know.

[892] don't think that sort of like stench is real or is it's going to meaningfully impact people's decisions whether to adopt or not.

[893] 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.

[894] Yeah, I think the F to me is, you know, trying to integrate.

[895] Slack and Salesforce the products and failing and turning Slack more into Salesforce than Salesforce more into Slack.

[896] I think that's enough for me. And I think another, you know, potential F is, I do think there's a stench of all of a sudden you start getting cross -sold Salesforce when you sign up for Slack and, you know, the acquired FM Slack starts getting hit up with emails for Salesforce 360 and lightning and all of that.

[897] Oh, look at this lightning interface.

[898] Right?

[899] Which I think it happens.

[900] I think if the distribution channel It could be bad.

[901] One way, and it's just pushing Slack to Salesforce, then those are corporate buyers anyway, whatever.

[902] But if it goes the other way, then I think that could be pretty ugly.

[903] And I think the risk of this is very low, to be clear.

[904] Like, you look at Salesforce's other acquisitions.

[905] Like, did users of QIPP started getting sold, you know, Salesforce and the 365 interface and, you know, did Heroku users start?

[906] No, like, you didn't even know that Salesforce was the parent companies of those things.

[907] Now, did they both atrophy?

[908] Absolutely.

[909] Like, why wasn't Quip Notion?

[910] You know, why wasn't...

[911] Or Cota, really?

[912] Yeah, great.

[913] But that's actually the better comp.

[914] Or why is it that every startup that we start now at PSL is started on AWS directly?

[915] Like, we no longer, like, you don't, you don't need to use Heroku.

[916] You don't need that middleman that makes it easier to spin up a cloud app.

[917] Amazon actually has made it, you know, both more confusing and easier.

[918] You know, they've made it more complex, but then they've also created relatively simple onroads.

[919] So, um, to be fair, that's probably not Salesforce's fault.

[920] Heroku and all the past players were probably dead anyway.

[921] But that's the thing.

[922] Why did they buy them?

[923] Like, did they think they were buying the next generation of category leader among those things that was going to, you know, surpass Microsoft in those ways or not?

[924] 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?

[925] 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.

[926] That is the biggest existential risk in the F scenario.

[927] A -plus?

[928] Yeah, let's do A -plus.

[929] We'll do the exciting stuff.

[930] A -plus to me is that Slack on its own has been a reasonably high -growth SaaS company and they were six, and sales force is successful at buying fast -growing SaaS revenue, and now they get to pump it through their channel and their channel receives it well.

[931] And they just are able to massively increase the revenue growth for Slack and have more and more companies adopt it.

[932] In fact, they may even be able to convince large companies, maybe not an enterprise, but large companies that, you know, it's now a trustworthy vendor.

[933] It's not some startup.

[934] They're buying with the, you know, full seal of approval from Salesforce.

[935] And that comes with a Microsoft -like, not quite Microsoft, but Microsoft -like level of, yes, I authorized this use at the, you know, 30 to 50 ,000 seats throughout my organization.

[936] So maybe there's a new market unlock there.

[937] I think that makes sense.

[938] I think actually the, to me that's like a, A minus to A, probably A. I think the A plus is this catalyzes a, the Salesforce, the anti -microsoft alliance centered around sales force as a totally viable and successful new distribution channel for best of breed SaaS companies and we see superhuman go into the Fortune 100 and we see Coda go into the Fortune 100 and Notion and Figma and well Figma doesn't need any help but, you know, all of those new SaaS 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.

[939] I like that take.

[940] 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, you know, a target in sales force a better experience, kind of like humanizing the whole sales process a little bit versus getting hit in some awful drip campaign.

[941] So to me, it's, you know, if it can make the sales process writ large a little bit more enjoyable, then that's a win while, you know, creating all these links between all these companies and really kind of building these network effects up.

[942] Awesome.

[943] 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.

[944] the deal was announced.

[945] Any closing thoughts before we wrap up and do our little closing here?

[946] This was a blast.

[947] Yeah, it was super fun.

[948] First time being on YouTube, too.

[949] If you're listening to the pod, it's fun.

[950] 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.

[951] Well, first of all, thank you to Packy.

[952] Where can listeners find you and subscribe to Not Boring?

[953] Sure, so they can subscribe at not boring.

[954] substack .com or I'm on Twitter at at Packy M, P -A -C -K -Y -M.

[955] Thank you guys for having me. This has been a blast.

[956] Of course.

[957] So fun.

[958] We're so glad you could join.

[959] And yeah, definitely subscribe to Not Boring and follow Packy on Twitter.

[960] You are one of the best followers on Twitter, especially Tech Twitter.

[961] Thank you.

[962] We didn't mention the LP program this time, but I think most folks probably know what it is.

[963] And if you liked this a little bit more informal type conversation.

[964] We get to have a lot of this conversation.

[965] And Packy, you've been in those Zoom calls.

[966] How's it been for you?

[967] It's an absolute blast.

[968] 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.

[969] So yeah, total blast.

[970] Totally recommend it.

[971] Cool.

[972] Well, if you've been teetering on the edge, you can join.

[973] And we have a link in the show notes to become an L .P. at acquired .fm slash LP.

[974] I think that's it.

[975] We talked a lot about Slack this episode.

[976] We've got one of those.

[977] You can join it, Acquired FM slash Slack.

[978] And with that, listeners, have a good one.

[979] We'll see you next time.