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The dark reality behind Slack’s billion-dollar sale to Salesforce

December 13, 2020
Borderless Future

Slack wanted to stay independent. But in a landscape dominated by tech giants, that proved impossible.

Last week, and with much fanfare, Slack announced that it would sell itself to tech behemoth Salesforce for a whopping $27.7 billion. By many measurements, this should be an incredible achievement and success story. In reality, it represents a decisive about-face for Slack, which had previously made clear that, despite new competition from Microsoft’s largely copycat product Teams, it wanted to remain independent.

Our free market trades on the assumption that good, innovative products will prevail over less effective ones released by entrenched firms like Microsoft. But Slack’s decision to be acquired by Salesforce indicates that today, the exact opposite is true. Slack is but one of many stories in Silicon Valley of a “defensive” acquisition, where a company is no longer able to compete independently against the tech giants. These giants, armed with nearly limitless funds and extensive client relationships, frequently abuse their advantage and bully smaller upstarts into oblivion. Even Slack, which built an incredibly powerful product and operated with notorious efficiency, could not stay independent in a match-up against Microsoft. And if a company like Slack can’t stand up to the consolidation of corporate power, consumers’ ability to freely choose the best and most useful product is at risk.

I’ll never forget the shock I felt reading fundraising headlines in the 2010s. How could Slack, as “just another messenger app,” raise hundreds of millions of dollars when its product had no real way to defend itself against Big Tech? But using Slack made me a believer. Miraculously, the product made work fun. Becoming a Slack user after the desert that was Microsoft Outlook was like a fresh drink of water after a long drought. By focusing on the user experience, and offering intuitive design, Slack helped change the paradigm of chat. The simple “emoji react” options we see now on Facebook posts, Twitter DMs, and even Microsoft Teams can all trace their lineage to this impactful design change.

Slack made the best product, and it was such a good one that it gained a million users in a mere 18 months following launch. But this growth slowed starting in 2016, and even though the company’s user base has still tripled in size in the four years since then, this represented a growth factor that fell far short of the founders’ stated ambition. Most startups would love to see that kind of growth; it’s not easy by any means—but the slowdown revealed that Slack had a big problem on its hands.

In 2016, Microsoft, which already had the customer base and sales force to conquer the market, decided to essentially copy Slack and make it free by bundling it with the Microsoft professional suite. In those same four years where Slack’s user base tripled, Microsoft Teams claims it gained 115 million users, showing the world that product quality can’t save a startup when Big Tech wants a piece.

As Matt Stoller notes in his newsletter “BIG“, Microsoft has a track record of giving “away its new product for no or low cost to existing clients, and [bundling] it with existing product lines. In a society with functional antitrust laws, such activity would be illegal.” This practice landed the company in trouble with federal antitrust regulators in the 1990s, and Microsoft has deployed the same playbook here as well—leading to Slack’s antitrust complaint against Microsoft in the EU earlier this year.

But Slack’s leaders must have decided that the courts wouldn’t be able to act quickly enough, and instead planned to save the company another way. In order to keep pace with Microsoft, Slack needed a bigger enterprise sales team, which they found in tech giant Salesforce, leading to an acquisition I’m quite sure was bittersweet.

Slack is hardly the first company to have its business undermined by a relatively low-lift action like copying an interface or changing terms of use. There are so many horror stories of businesses suffering from this monopolistic power disparity. One of these is Vevo, which was forced to shutter most of its offering in 2018 due to increased pressure from YouTube. Even more interesting in that case is that YouTube had previously invested in Vevo—a practice many startup founders consider to be Big Tech “hedging its bets” on the off chance a rival can overcome the vast power differentials between them and succeed.

When startups begin to gain traction in an area the giants perceive as a threat to their business, vindictive firms with huge coffers target them to stop them becoming future competitors of significance. Instagram is perhaps the most famous example of this. Private conversations between Instagram cofounder Kevin Systrom and investor Matt Cohler show the predatory relationship between tech giant executives and upstart rivals. As Instagram became more and more beloved by users, alleged threats of Mark Zuckerberg’s desire to “destroy” the app grew stronger. Facebook’s acquisition of Instagram now forms the basis of a new antitrust inquiry from dozens of states and federal regulators, announced yesterday.

The last few years have shown a remarkable bipartisan interest in curbing the overwhelming power of big tech companies, even leading to calls to break them up. However, while American lawmakers quibble about perceived anti-political bias during antitrust hearings, our regulators continue to approve huge acquisitions, showing that they won’t protect our free market from its true threat: an untouchable degree of power that is enshrined in the massive amounts of money, customer relationships, and workforce labor these companies have amassed over time. Notably, despite how Slack’s situation demonstrates Microsoft’s unchecked power in the enterprise market, Microsoft has not been part of the many antitrust hearings happening on Capitol Hill.

Slack’s situation, amid a backdrop of many other recent acquisitions, tells but one tiny fraction of a story that founders live through every day. When speaking to potential investors, every startup founder now has to answer a fundamental question: “How will you compete with the tech giants?” That this question is so commonplace should be a flashing red light to us all.

It’s true that big innovations come from tech behemoths, but they also come from smaller companies with narrow missions, expertise, and goals. For startups and consumers both, the consolidation of innovative startups into the hands of just a few large firms should be troubling. It means we could soon lose the ability to choose our preferred tools based on merit alone. And unless we want a future where all digital products come from just a few companies, it’s time to rebalance the playing field.

By Liz O’Sullivan

Source: fastcompany.com

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