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

0:00Since I think I'm editing this one, trying to make it as easy as possible. Yeah, we didn't actually talk about that. Thanks, Ben. Hopefully we can just one take this. Welcome to this emergency pod of acquired. The podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I'm the co-founder of Pioneer Square Labs, a startup studio and venture firm in Seattle. And I'm David Rosenthal and I am an angel investor and independent advisor to startups.

0:39based in San Francisco. And we are your hosts. Well, David, here we are live on the scene. We've got a special guest. What are we talking about today? We are talking about Slack being acquired. And we have the best in the business, the number one internet and Twitter Slack bull out there and probably probably we're going to discuss how happy but probably a very happy man here today.

1:06Pack your McCormick. I'm not boring. Welcome to the show. So great to be here. And I'm both happy and sad, which I'm sure we'll dive into. So it comes to us with mixed emotions. All right, David, you've got this lovely introduction written up here. Take us in. This is a non-traditional in so many ways, because this is a big week here at Acquired. We've got door to ash.

1:25We've got Airbnb, IPOs coming up. We're gearing up for those. We're gonna be live on the scene for those. We have row blocks, which maybe we'll cover next season, a couple of those happening. We literally just recorded an awesome special episode, which is coming out later this month, but...

1:40We knew this was happening. So last week, we dialed up Packey on Twitter. We said, Hey, if this happens, can you come on the pod? Will you do an emergency pod with us? And here he is. Super excited to do it. Yeah, why doesn't every company just like leak there, you know, there.

1:57acquisitions ahead of time. So that way we have a little bit of warning. I think we got totally blindsided if I remember with LinkedIn with Whole Foods. I woke up to like a frantic text from David around the Whole Foods acquisition. I just moved back to the Bay Area and I did it in my in-laws attic. But LinkedIn was acquired for right around the same amount. If I remember 24 billion, that's right. Yeah, I think that's probably the interesting comp. But I don't want to get too far ahead of myself. All right, listeners.

2:27Now is a great time to talk about a new partner of ours here on Acquired. Lagora, the agentic operating system that is redefining how the world's best legal teams work. Yup, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Lagora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

2:55So the founders did exactly what great founders do operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love like tabular review where you.

3:14drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Lagores Bed here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work, and this means that the pie can grow even as each individual task takes less time.

3:34And they recently launched LaGora agent offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And LaGora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early LaGora numbers essentially speak for themselves when they have a head-to-head pilot with their top competitor they win 70% of the time. Legora now has over a hundred thousand lawyers on the platform from 1200 legal teams in 50 countries and crazily they went from one million to a hundred million in ARR in about 18 months. Truly insane numbers and that is the real test.

4:26Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm, or you're in-house at a company, you can learn more at logora.com slash acquired and just tell them that Ben and David sent you.

4:47So we've talked about Slack a little bit here on Acquired before we did a full episode around their direct listing that will link in the show notes when this comes out as a podcast you can you know if you want to Remember Stewart's epic blog post. We don't sell saddles here or or perhaps story growing up on a commune in British Columbia Yeah, we will we will not recount all that today We'll focus more in on on this transaction, but go check out the the history there packy you wrote a piece You think two weeks ago tell us what that was about? Two weeks ago yesterday and so the piece was I've been a long suffering slack bowl and the piece was I'd kind of touched on slack in a few different cases and this one was once and for all I'm just going to put down my full bowl case on the company because you know from its direct listing it's kind of suffered it's tanked it rises back up a little bit it tanks again so I wanted to

5:43put out there that I thought that the bears were wrong and obviously the big knock on Slack was that teams was just going to come in and kill it. It's actually reported really strong numbers, which just because the narrative has been so bearish, you look at Slack's numbers kind of through this lens of, eh, they're not doing so great because compared to Zoom, they're not growing or compared to company X, their net dollar attention isn't so good but they're really one of the best SaaS companies and so many different.

6:09category of metrics that you know just wanted to put that that bear case yeah top quartile in just about every metric across the best marketing cloud interest index, right? Exactly. The fastest growing company and the second best net dollar retention up there in terms of gross margins. All the things that you look for in a SaaS business plus the fact that pretty much any fast growing startup that you can name uses Slack and as they grow, Slack grows with them. Slack as we'll discuss, I'm sure, just reported earnings and their numbers look good yet again. It's one of these companies has been under appreciated, but I think overtime was going to build into a juggernaut. Well, so you hit publish on that not boring piece two weeks ago. You see, see Mark Benioff. And although he's probably a subscriber at this point, right? I mean, he's got to be. I did. I have to admit that I looked it up and he's he's not. There are other. He probably used an alias. That's he didn't want. Yeah, because he didn't want to preface the deal. He's like Bruce Wayne or sort of like a

7:11Why are you guys 72 just signed up? So he got the memo. He got the post today in Salesforce earnings $27.7 billion total purchase price works out to I think $45.86 a share in cash and stock. I think a little heavier on the stock than the cash piece. I think if I'm right, but roughly $50.50, like $55.

7:4157% stock. That's a 55% premium to where Slack was trading before the news was leaked last week. 85% premium to the most recent Slack's stock price crash after their earnings in September. Yeah, we should be clear. Is this the first time that the price per share is above their first day of trading? I think so. I think it might be. Certainly, I don't think it's been this high.

8:09So reminiscent of Dropbox in that way, where it never really kind of traded down, and then flat, and then down, and then flat. And then we've been kind of in one of the flat spots for a while. And so let's see. Slack is going to remain independent. Stewart is staying with the company, staying a CEO of Slack. Deal is expected to close next year. Still has to get shareholder approval from Slack shareholders, which we might discuss. We might discuss package thoughts on that.

8:39And it is the largest software deal since IBM bought Red Hat two years ago in 2018. Wow, is it really? I guess. Yeah, I guess you don't see these, these public to public mergers that often. Yeah. Well, I think though, actually pure software deals, I can't, yeah, I can't think of anything else that's happened since.

9:02Yeah, 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, maybe, no, probably one decade with, yeah, multiple decades after their founding because one was Salesforce. Salesforce was early 2000s, right? I think it was late 90s, so it was to made 99.

9:319899. Oh wow. It was started. Yeah. So they're sort of buying into the next generation of enterprise software. Yep. Yep. And of course, the other bidder for LinkedIn was Salesforce. Salesforce. And then they filed an antitrust suit against Microsoft about it, I think. Really? I think they sued to block the deal. Yeah. Well, I think we're already on to this sort of early theme of this episode, which is going to be the battle with Microsoft. Yeah. First, packy.

10:01Let's unpack the emotions. How are you feeling? I'm like a sideline reporter here. How are you feeling? Are you ready to go to Disney World? Are you declaring victory? Is this a tough loss? Is this both? What's going through your head right now? I think it's a little bit of both. When I wrote about the company, it was trading in the mid-20s. For anybody who bought after reading and not boring, awesome win for me, great win, love all of that. But my bull case was not to...

10:29You know, wherever this ends up in the $45 range, depending on where Salesforce trades, even if you look at... just kind of the other top quartile BBP cloud companies and how they've traded Slack if you know assuming they just trade in line with those companies kind of from the beginning of the quarantine I think that puts them in the low $50 share range so and that's right now and I really think Slack's potential is long-term as they build and grow and they keep retaining and growing with customers so you know I was really hoping that this was kind of a 3-4x stock and it's just such a rarity right now during coronavirus to find a SaaS company that you think is somehow undervalued. And so now I have to go back to the drawing board and find kind of what the next, what the next slack is. But, you know, underpriced SaaS companies that are growing at 49% year-over-year are hard to come by right now. Totally. I mean, that's like, I mean, we might as well just get right into it. Like, what was the disconnect here? Because this is crazy. Like every other...

11:27SaaS company out there, especially, you know, a work from Homestock, has been just off to the races. And like, what has kept Slack so beaten down for so long? The biggest number one thing that has kept Slack beaten down is just the threat of Microsoft Teams and not just kind of a specter of Microsoft Teams, but Microsoft Teams and Microsoft generally has gone after Slack.

11:51by name, and to hear Stuart talk about it, that's because if Slack threatens emailed, and Outlook is threatened, and then the whole Microsoft suite is threatened, and so they've put particular emphasis on the fact that they're crushing Slack, and so Slack, you know, has 12 million users or whatever, and then Microsoft reports that they're just flying by Slack, and when they release their charts showing that they're passing Slack, you know...

12:14A, typically, they put Slack's name right on the chart and call them out. And according to Stuart, that's something that nobody except maybe Larry Ellison at Oracle a couple of decades ago, ever would have done calling out a competitor by name. And so it was this like real kind of threat that Microsoft felt, again, according to Slack. And so they put everything that they had going after Slack. And so I think you can look at the numbers a couple of different ways. You can either say, 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, and Zoom is growing at 300% and Slack's only growing at 49% was wrong with this company. That's one of the reasons that I love it so much long-term is, you know, there's, I think, switching costs and motes in general are these double-edged swords, and Zoom...

13:03doesn't really have a moat, right? But it's really easy to hop on a zoom. We don't have a shared zoom account, and we hopped on a zoom in one link, and so it's really easy for zoom to grow. We're a Slack, you have to set up an org, you have to build your integrations, you have to do all those things that pay off over time. 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 pay, it's like, as a paid Zoom account now. Yeah, if you get sick of that 40-minute limit, you're just gonna pay off. It's only, you know, 14 bucks a month, and so you go for it. So I think that's been the big thing. And then there's other things, like, you know, chat is just annoying and distracting, and particularly right now, people are like, oh man, another Slack notification, I'm sick of this, but the real reason it's kind of suffering has been, I think that team's fair case. Yeah, Packie, how much?

13:56of give us a sense of the relative user counts of Microsoft Teams versus Slack and then on the Microsoft Teams one, you made a great point around, hey, it's actually more of a Zoom competitor than it is a Slack competitor. Can you dive into that a little bit? Yeah, so I think let's say that Microsoft Teams has about 10 times the number of users as Slack doesn't make.

14:19cross maybe at $100 million or $100 million user range recently, whereas Slack's in that 12 million range and they haven't really reported numbers recently on that. They also have a really growing, and we'll talk about Slack Connect because I think that's one of the reason Salesforce bought it, but this growing connection between companies and that's growing super, super fast. But Microsoft Teams, I mean, it's not architecture the same way that Slack is and that you can just continually...

14:45add teams within your organizations and have different sub-channels. It's limited in the number of teams that you can set up. You have to be really, really thoughtful from day one in how you set up your channels and your teams within teams. It's getting confusing with the nomenclature there. But it's not meant to be a 10,000 person or chat towards. It's meant to be the hub for all things, Microsoft, within an organization.

15:11really good because you're able to grow Microsoft is phenomenal at distribution. I don't use a PC but my wife and my mother-in-law do and I go to their computer sometimes when they're opening it and teams just pops up even though they're not team users and so you know the active users count I think and then Slack has called this out in the past is potentially a bit inflated but it's also really forever I mean back in the Azure days they were including Oh, 365 in the Azure numbers. And so they'd report numbers to the street, like, oh, Azure's on fine. It's like, well, 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. So they're up to their, you know, they're up to their old tricks again. And in this case, depending on how you think Salesforce competes with Microsoft, kind of worked, right? Like, if you really do think an independent Slack,

16:04is a threat than Microsoft's strategy and Microsoft using its distribution kind of bully pulpit, really kind of knocked out a competitor here. So what do you think? Like, yeah, this is super interesting. Why? We'll get back to Slack itself in Salesforce in a minute, but why do you think Microsoft? Why do we think Microsoft?

16:24took this approach of so directly comparing teams to Slack, because as you point out in your piece, and I think it's really not like Zoom is the big competitor for Teams, and yet you don't hear Microsoft talking about Zoom at all. What's their thinking here? Zoom is not a platform and doesn't have a line of sight to being a platform, whereas if you're on Slack and you can use G Suite and it's integrated and you can use Figma and it's integrated and you can use the 2400 different integrations that they have. Then Slack all of a sudden becomes this hub for essentially an office suite that is comprised of best in class software and then all brought into one place together. And by the way, it potentially kills email certainly internally and maybe increasingly externally. And so it's just a more direct threat whereas if people use Zoom.

17:18They assume that you're still going to go back and use Excel and PowerPoint and email and all the other things that you would have used otherwise. So it doesn't, it's not a threat to Microsoft's cash cow in the way that Slack would have been. Interesting. Because yeah, that's like one of my big questions here too is like...

17:35why wasn't Zoom the one that acquired Slack here? To me, that's a very compelling combination. Your stock is potentially trading at a value that's worth a lot more like its cheap currency. Why wouldn't you use it to go make acquisitions?

17:50I wrote 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 modes? And the answer is you go out and acquire companies. I didn't have Slack is one of them probably because I just wanted Slack to remain in a company. But you don't have to trade your shares in for Zoom shares? Not at that, not at that valuation I didn't, but I've been, they've tanked a little bit over the past, the past day or so. But yeah, I mean, I think Zoom should be more positive here.

18:19Totally. But yeah, that's a good point on Microsoft. It's always, even though it's new Microsoft, 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 vast majority of businesses that exist in the world, primarily being email but also word and Excel and PowerPoint too. And we feed stuff into that channel. And so the stuff that they feed into the channel is great and additive of which video is super important. And that's why they're doing what they are with on the product side with teams. But Slack as small as it is

19:14compared to Microsoft is actually the one that's like, hey, we want and stored as said in many times, like, we want to be the next Microsoft. You don't hear Eric saying we want to be the next Microsoft. Eric is happy having some very well-running video product. Exactly. Yeah. Well, I do think and I can give a couple of more data points too. I mean, Microsoft.

19:36A couple of years ago decided to go all in on teams. And so they're shutting down or rolling in Skype into teams. They've communicated in length our long sense, sort of dead and rolled into the Skype brand. But all of that is sort of becoming teams now. Same with a lot of there, what used to look like Office 365 dashboards team is becoming that sort of central hub for everything. And I know they did a lot of internal reorgs too to kind of put a lot of people who were working on sweet wide or cross platform things under the auspice of teams. And so that they really are 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 increase time and app and engagement and usefulness of this app.

20:30over time. And I think, you know, Paki, the thing I go back to is let's say Microsoft has that sort of 120, 130 million active teams users. Most of them are probably using that either because they have Office 365 and it's a launcher of sorts, because their team technically uses it, even whether or not it's sort of their main mode of communicating. But more importantly, because we're all in work from home and they're using it for their video calls because it's the free and corporate approved video calling software that they can use. And so, I really liked the point that you made which is like it is a total red herring to continue comparing slacks users to teams users because it's complete apples and oranges and the slacks share price is depressed because it doesn't look good compared to this thing that you really shouldn't be comparing it to. Exactly right. Yeah, if you compare it to video products when everybody is on 7 video calls a day and it's very easy to set up, it's not going to look.

21:26nearly as good as what if you compared it to anything else that's a little bit tougher to set up and involves the full team's participation. Yep. 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. It's really like the anti-microsoft consolidation where.

21:48If microsoft is this isn't like the rebel alliance here. This is like Right another empire stepping in right and I think a blog post just went up by Aaron levy talking about how This is a show of force from best and breed applications and whenever you see best and breed in the enterprise the way to sort of decode speak that is Microsoft is not best of breed. Microsoft is the full integrated system that's best at nothing, and I don't know if I totally want to make these my words, but this is the viewpoint of the best of breed argument.

22:26they're best at nothing, but they're the best integrated. And so if you're buying from one single provider, it's the proverbial enterprise one throat to choke. You know, it works best together. You can have one person for your support. You can have one rep. You can have one license. You get bundled pricing, all that stuff. And when you see best of breed, what that usually means is people buying from a bunch of different vendors, but it's the best You know purpose built software for for each of those things. It's very interesting to start to see consolidation among best of breed Applications being from one company and one does have to wonder is this the first of several Slack might be the most important because it is the platform the entry point the place Which all you know you can branch out to many the other apps from there, but

23:12If Zoom weren't so expensive, would we see that? Is there some way that Salesforce has ambition to find other best of breed applications and bring them into the umbrella too? Well, you have to think regardless of whatever Aaron and Box wants to do themselves.

23:33This is fantastic news for them and for their evaluation, right? Because at a minimum, you know, file storage is going to be a big part of that puzzle. So either box or maybe drop box is one of the next items on the list for Salesforce. Or if not, at a minimum, they just got a lot more strategic.

23:58and they can do, I'm sure they already have a partnership with Salesforce as a distribution channel, but that's going to become even more important. And if Salesforce is now going to be pushing this, like, hey, best of breed, not easiest to buy for your IT department, 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 of subscale.

24:26software and productivity companies out there. I just mean subscale in that like you're not Microsoft or Salesforce. This is this is just going to be I think a great for there.

24:36go to market and distribution. Yeah, the developer equivalent of this is the Microsoft stack versus the open source ecosystem. And now you sort of have the Microsoft productivity stack versus the best of breed ecosystem of which Salesforce is now the very credible centerpiece. You know, it in the open source ecosystem, it was like, well, you know, and this is a decade ago, I use 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 Python or node or whatever. And I think the way to think about that

25:05that in the productivity world is like, well, yeah, we use Slack. The question, this is the leap. It's like we use Slack and sales for, like, the analogy is to fault that for me. So this is, I have this cute up. I need to quote this. Here's the key line in the press release. Combining Slack with Salesforce customer 360 will be transformative for customers in the industry. The combination will create the operating system for the new way to work, uniquely enabling companies to grow and succeed in an all digital world.

25:38and 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. So what does it mean to be this new interface to Salesforce customer 360? And like, what does that actually mean in practice? Does that mean that this Salesforce customer 360 is like The very best slack bot to ever exist and people interact with 360, like, like, they could have ran slack bot to, uh, Salesforce bot. Oh, no. Oh, Danny off that. Yeah. Yeah, I was talking to my friend about about this deal earlier. And he was like, getting.

26:22Getting Salesforce as a company is like somebody giving you like the chassis of a car and then a box of parts and then having to figure out how to put them all together before you drive it The last company I was at the Salesforce implementation was one of those things that Every month was about a month from being done and so it's really hard and maybe that's why you know Slack over time becomes kind of the on ramp to the whole Salesforce ecosystem and they do figure out a way to integrate it because Slack for all the work that they've had to do to make their onboarding a little bit easier and they have struggled there. It's certainly a much easier product onboard to your organization than something like a sales force might be. I don't know. I read all of that and I'm just like, that translates to me as slack just up to their sales, their own sales.

27:10a force by like a hundred X in terms of headcount and power and that's what that translates to for me. Yeah, and in the sort of like classic acquisition category that we always do on episodes, I mean, this is a distribution deal, right? Like, this is not...

27:28The product velocity is not going to change. Salesforce is probably not going to integrate the Slack product deeply into the existing Salesforce. I mean, they say they are, but it's unlikely. I think it looks a lot more LinkedIn, where it's a totally separate thing, and they leverage the Salesforce distribution to be able to get it into more enterprises. That sounds right. You know, Becky, I think you made this point several times. Slack's growth story.

27:56over really its whole life as a company has been we get small innovative organizations to start using the product and sometimes that's small innovative organization teams within larger companies but oftentimes it's startups we get them to start using the product and then it grows as those companies grow We grow and you made the point that like yes 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 and they expand with you like that's going to lead to a free cash flow monster hopefully in the future. What's missing from that playbook is a credible way to go get the big organizations and this feels like the unlock to that.

28:45Yeah, this makes sense. The only question in my mind then is if you look at it like great, you know, sales Slack is a great way to, you know, index startups. Basically, if you want to make a bet that startups grow and then have lots of money to spend in the future because they're cash generating machines and need lots of great tools, like maybe the place that Salesforce actually ends up investing is a migration path from you've loved Slack and now we make it easy to onboard to the full sales for CRM suite. I just don't, it's probably my product background, but I don't see that. It's hard for me to imagine what that bridge looks like where you're like, oh great, you and your teams have all been communicating in this place, and therefore somehow your sales for CRM implementation will now be easier. Well, I think the big thing here, and they mentioned it in the press release as well, is Slack Connect. And to the extent that you think that Slack Connect will be a way that teams can

29:42that a company can communicate with all of the different partners or clients that it has, then that makes a ton of sense for a Salesforce integration where you're not just plugging into email and tracking your email conversations, but you have your lead right there, you click start a Slack Connect channel and then you're in conversation right within the Salesforce product. So to the extent that there is an integration, that's where I see that happening. Slack just reported their numbers and they grew, I think, from 380,000 Slack connect endpoints to 520,000 Slack connect endpoints in the last quarter alone. And so this has been a huge area of focus for the business, maybe in retrospect, rearing up for a Salesforce acquisition because this certainly does make them a lot more attractive as that kind of I think Ben Thompson called it the work social network. But certainly I think that's the most appealing piece of the product if I'm Salesforce.

30:37Let's talk a little bit more about Slack Connect. Well, why is this so strategic for Slack? And I mean, this has been the drum that they've been beating. Basically, not their whole life as a public company, but most of it, right? Yeah, I think it's strategic for Slack. For someone's stewards talked about the product and how to describe it. And I wrote about this in the piece for beating myself here.

31:03When they've talked about the product, they've always said it's hard to explain, but when you try it, you know it. And so I think what Slack Connect represents is, if you want to work with Stripe, or if you want to work with Amazon, and the Stripe or Amazon team, thinks it's a lot easier for you to communicate in the shared channel, then guess what? Law firm, finance firm.

31:22blender all of that you're going to join Slack and then you're going to try it and because the product is better than a Microsoft Teams you're going to love the product and then maybe you'll start paying for Slack and then maybe it'll spread in your organization so I think more than anything it's a way for people to kind of try before you try before you buy the Slack product because your kind of innovative partner has told you that they want you to use that product and it actually you know when I was at breather before Cushman and Wakefield, the first time they used Slack was to set up a Slack channel to talk to us. And so I think like that, you know, that's that in action. And you can see that happening kind of writ large just so the companies can kind of keep that all conversation in one place in one interface that they're familiar with. And how does shared channels between organizations play into that? So I think shared channels has kind of become a part of...

32:09Slack Connect, and that's what Slack Connect is. I think shared channels with just the first kind of iteration, but what Slack Connect is is a bunch of shared channels between organizations. Yeah, that makes sense. I mean, for what it's worth, and we have a super unique...

32:22use for Slack at Pioneer Square Labs because we have one for the studio and then we have one for every company and it actually is very meaningful and helpful in the transition. We spin out a company to be able to have shared channels until that company starts closing them off to us and then actually uses them on their own. But at the very beginning, you know, we're the whole team except for the founders. So it's great to have that bridge set up. But yeah, I do wonder, you know, it has always seemed like in Slack's pre-public lifetime, they were an internal tool, an email was the external tool, and it seems more and more like Slack is trying to also find natural ways to be your external tool, which is kind of an interesting analogy to Salesforce, where Salesforce is an internal tool, but it measures all of your external communications and external deal status. And so there's got to be some

33:15you know, again, Lucy Goosey on the actual product implementation, but you can see how that philosophically aligns with where Slack wants to go. And there is this great tweet, and I think they are kind of trying to take an email at this point, but this is a great Slack tweet from 2013. There's like, people saying we want email dead. If we want to email dead, it'd be cold in the ground. 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 it. What are the best parts of your PC head up?

33:44use the way back machine and you had slacks 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, their 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. And I think one of the things they've done not so good on is like, the hell is this positioning like I get storage quote like I get it on slide to you gotta use it to know but like come on man you're like an eight year old company at this point your public company you gotta be able to explain what you do succinctly and like even as a public company they've been just iterating that's just like iterating they've been massively changing their main marketing message several times well I give them credit for that I mean they they they be they went from a thing that was like trendy in startups to like useful

34:30in 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 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. You know, more power to them for that. Fair enough, but there was the moment in there where I was like where the email killer. Yeah, yeah.

34:55That resonates with people, though, right? Like, I think, you know, it doesn't describe fully what they do, but something as simple as we kill email is something that people can really rally behind versus we're where we're capins, people don't know what that means. And so there is, like, maybe, you know, Stuart was a philosophy major and...

35:12you know, a logician and all of that and so maybe there is too much of an emphasis on getting those words exactly right versus just resonating with what people wanted the product to do. It is also a classic sort of PR move to describe a problem and let people assume you are the answer to it and assume it in their own way.

35:33because, you know, in fact Salesforce has a great example of this, and we tweeted a snarky comment about their old no software slogan. But people hated all the configuration that came with on-premise software, so they just made their tagline no software, you know, software with a thing crossed out of it. And like that doesn't say what they are, but it does say, oh yeah, I hate that. Like awesome, you guys are the answer to that, and you can imagine what the answer would be.

35:59One 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.

36:13Indie developed software that proudly shows screenshots on the website. It's sort of like the UI is hidden from you until the very last moment when you actually have to use it. And often in sales demonstrations, it's not actually shown to you, especially if you're not the actual end user. So I guess this is a little bit of a roundabout way of me saying like, have either of you ever seen Salesforce's new lightning interface? Like I've heard it talked about a lot, have either of you seen it?

36:43No. I think that is in stark contrast to Slack's sort of like philosophy of everybody listening to this knows what Slack looks like. And even if you didn't use it in 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...

37:04Enterprise software sold through traditional enterprise ways. We don't need to show you pixels until we absolutely need to which is often post sale and like we're gonna sell you on a dream. I don't exactly know what point I was making there but yeah. It is true though. I mean I got I remember the first time that I actually used Salesforce not the lightning interface whatever whatever that looks like. I was just like appalled at how bad it was.

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39:28Well, I think this is an interesting time to move into pricing and sort of conversation around, you know, they paid 27.7 billion dollars. Let's contextualize that in the size of the business in revenue. And obviously they're not profitable. Packier, you know, one of the best educated people in the world on this having just done a bunch of research. So how big of a business in this and then how reasonable of a price is it for that business?

39:58Yeah, so the business is in a digesting and release their numbers for this quarter, so $235 million this quarter. It's saying next year, you know, this is a billion dollar run rate company with...

40:0986% gross margins that just became free cash flow positive and grew from 10 million I think the 36 million in free cash flow this quarter So that's a really nice improvement from the company and kind of the thing that you expect to happen when you spend a lot of money to acquire customers upfront and then over time they retain and more of that cash drops to the bottom line So it's a moderately sized business right like you're paying 27.7 times next 12 months revenue. So it's not a cheap multiple on the business there by any stretch of the imagination. What is cheaper expensive these days? Like, I don't even know. Yeah. So it's, you know, it's not cheap. Nothing's cheap right now. You know, it depends. We'll see if you think it is strategic and if they can just push it through the...

40:58Salesforce, just a recent channel, but you're essentially paying 27, 28 times next one months revenue for this business, but a business that is still growing 40 to 50% year-over-year, a business that does have phenomenal margins and a business that is increasing its free cash flow to pretty rapid right here. What's the, I don't know if you had time to look yet at the You said it was 240 revenue for this quarter or 235 something like that. 235. 235 million. What year-over-year growth rate is that still sustaining in the 40%. So that might be why they, yeah, that might be why they sold a last quarter. It was 49% year-over-year. This quarter was 39% year-over-year. So pretty dramatic growth. Yeah, that's so they had a bunch of good news to announce this quarter in Slack Connect. But

41:50Yeah, that's got to be a pretty concerning top line number. Because there's no reason that should be slowing, right? There should be tailwinds at the company's back. They should still be getting net expansion. Now, in the beginning of the pandemic, that expansion got hit because companies were laying people off, and so that was leading to contraction in monthly revenue in their existing accounts.

42:19But I got to think most of that's behind them, so interesting. Yeah, paid customers up 140% year-over-year, Slack endpoints, connect endpoints up to 140% year-to-year. I'm looking to see if they talk about net expansion, because that's obviously been something that they've been pretty, pretty proud of that doesn't not show up at least in the press release. And so maybe, you know, if that contracts again from...

42:42130 before the pandemic to 125 to now 120 and revenue slows a little bit. Then that begins to, you know, paint a picture that maybe you want to get out before that happens. Yeah, well, because that's that's the, um, to me, that's a big question here, which is like, okay, we've talked about a lot of the strategic reasons to do this deal. I'll make sense of what not, but they did just flip into cash flow of positive territory than being slack. Um, They were still growing rapidly. They're still top quartile in all these Best American Merging Cloud index metrics. Why sell? 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.

43:32That's pretty rare as a public company to get. In the past, we've looked at these and we've said, well, 20% premium is basically baseline and if you can get up to 30% or 40% even, that's good to do the deal, but if your stock price hasn't ever hit your listing price and you've been basically flat if not down over the 18 months or 16 months since being a public company and someone offers you a 55% premium, it's hard not to take it.

44:00I mean, I think that's true. Well, I want to hear Becky's thoughts. No, I mean, I think that's true. I think for me, not having to sit inside of Slack and sell against Microsoft every day, I think this could be triple on its own in the next year or so. And so it's disappointing from that perspective. On the other side of the table to say, yeah, we're going to plug you into Salesforce's.

44:20Salesforce. 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. 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 the Microsoft isn't that big a threat. They also...

44:44sued Microsoft for leveraging their distribution advantage against them. 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. Maybe if you combine that with the fact that it's a 55% premium, you're happy to take that deal. I think there has to be some element, though, of just fatigue on Zooms part to do this because. Slack?

45:12All right, sorry. Zoom is not fatigued. Slacks part to do this. Because again, to me, just like they're coming back to like, they just flipped a 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...

45:39episode or main Joe episode that we did on on Slack. I don't also don't think that adding several more billions to his net worth matters that much to store. So maybe he was like, well, this is going to be the best chance to realize the mission, the soonest. But it's still a little perplexing to me. Yeah, you wonder if they couldn't have gone out and just acquired Frank Slutman to come in and.

46:03and rally the troops and rally the Salesforce and go out and sell against Microsoft. You know, Stuart's very much a product guy and not a sales guy and maybe that's the other answer here. And so instead of bringing out a new CEO who's really more of an enterprise SaaS guy, you just sell the business and you know, you have this successful exit out of 55% premium and all of that. That's a good point. Another thing that people don't have. And Stuart gets to continue being Stuart and being the product guy.

46:29You know, it's like connect like it's a big vision and it's a big product and they've done really well for the product standpoint from that. And he doesn't have to go be Frank sleepman and Betty off can be Frank sleepman. Exactly. You have to wonder if this is the beginning of the rebundling of enterprise sales. Like we spent the last five to eight years in an era of well, If you think back like 15 years ago bring your own device happened, and then the last five to eight years it was anybody with a credit card gets to buy any old SaaS service and there's subscription fatigue in a big way at any company. I mean we like.

47:06or a 22-person company at PSL, we have a spreadsheet to manage all the subscriptions that everybody signed up for, and then there's harassing at the end of every month. Who signed up for this on what card? I can only imagine how painful that is at enterprises. And so you have to imagine, too, if Salesforce is saying, actually, we have the opportunity to run the Microsoft Playbook here. And we're going to continue to see more consolidation here to alleviate the pain of procurement around Well, basically people going around procurement. And I think, yeah, I don't know. I think that's an interesting point. And I can't imagine that, you know, as the companies that are used to buying Microsoft and Oracle and even Salesforce and all those kind of age out that the new way of the startups is going to be like, you know, we'd really love to buy from is.

47:56Salesforce or we really love to buy from Microsoft and so maybe there's this transition period that we're in which is like a five to ten year thing but I think the way that that ends up getting solved is is you know their company is 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 and so whether it's a corporate card whether it's a software solution that kind of comes in and and kind of replaces the spreadsheet there I think there will be other solutions then companies you know growing tech companies are becoming a bigger and bigger part of the market. And I can't imagine that they enjoy working with Salesforce more than they hate managing all of those expenses. And pack you raise a great point too. I think it's sort of novice of me to suggest that the point of integration in 2021 would be the same as the point of integration in

48:442005, like the re-bundling won't happen in the same way that it got unbundled. The re-bundling will be at the credit card level or, you know, you know, someone's not going to go build the Microsoft bundle, the way Microsoft built the Microsoft bundle. I think that's right. Yeah. So it makes us fun. Indeed, indeed. Well, speaking of prognosticating about the future and strategic decisions in the landscape, I don't think we can leave this section without talking about what I think you wrote about really eloquently in your piece about your take on the bear case for Slack as an independent company and this actually totally jives with

49:31Our friend Jake Saper, over at Emergence, is about to publish a blog post about the flip of this being an investment theme. He calls it deep collaboration, but 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.

50:03Let's talk about that, because I think this is a really astute observation. Yeah, that's fascinating. And a lot of this comes from Kevin Kwaku's more astute than I am on these things. But the point being that, you know, his point that he makes in the 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.

50:29use it for emergency something has gotten wrong in the collaboration tools so let's go over to Slack and chat about it or it kind of becomes you know what email is today which is like we make a company announcement here or we do things that are more broad but we actually want to get work done then get right we go into Figma or we go into you know pitch to do our presentations together in there so there's all these different things I think that is that does get a little bit confusing his solution and one I think you know is it going to be a pretty hot target right now is something like a discord that is a chat tool that exists on top of all of the other kind of collaboration tools. And you can be video chatting. I wrote about remote work and kind of all the work from home products that are being built natively for remote work yesterday. And there's five good options that I saw just in a couple days of research that are trying to really kind of build something that feels like an HQ both in terms of like schemorphically it feels and looks like an HQ, but then also

51:26there'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'll have your little video circles around that so that there's some really interesting software being built in the space and so maybe that's I mean to me that's the bear case right if your bull case on Slack which mine is is that they can acquire all the young fast growing companies and become this kind of like central hub for everything they do and grow with them then the biggest threat to the company is that

51:56there's an even better kind of newer wave of software that comes in and cuts off that bottom and takes all of the younger companies that are coming in and maybe even starts going up and stealing the stripes and the other companies there. So to me, that's the big risk, is that there's one collaboration software that people interact with directly and then to the kind of next generation of slacks that are built more for this world where we all have to be collaborating with kind of whatever that software is as the central hub versus as something that we chat with.

52:25Chat with each other on in the office. I love that point. I think it's so astute that like the the worst nightmare for Slack is that chat gets good in apps And and suddenly I'm like, oh, yes, like I pop in there to like drop a gift and random Happy birthday is just having a big use case. Yeah, but yeah to the extent that work stops I mean, it's funny where work happens to the extent that work work gets federated and happens in apps rather than in the central, you know, communication nexus or in big trouble. And I love your idea of open up this, this Slack API not in a way that's like build, build bots within Slack, but in a way that's like embed Slack in your apps so that you don't have to roll your own.

53:09slack because it's a crap ton of work anytime anybody's like well let's implement chat like see zoom as example a it's chat is awful like sometimes randomly I'll paste a link and it won't hyperlink it like I mean there's this is a massively successful company with just a chat where every time I try and send a message to one person I accidentally send it to everyone and I think that like there's there's huge defensive opportunity for Slack to be the way that you implement chat in your app.

53:54way to do this, I think, to be able to just embed Slack in different apps. Because to your point, everything that they've done that seems really simple and that makes chat seem really simple is really, really hard. I included the graph of all the decision tree that needs to happen to decide whether at 805 PM to send you a notification if I slack you. And it's really complicated. And so like, there's all that stuff that you can just offer as a service through other products that What have been interesting and maybe we'll still be interesting in the combined company? 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 and why it's maybe more suited to this, I don't know, it's probably the wrong word, but embedded type use case or like coexisting with

54:47The actual apps. Let me first make my snarky comment, which was if you thought Slack was unintuitive to learn, wait till you see Discord. It's the first piece of software that's really made me feel old using it. And my second, the other side of that, which is viewed as a positive, is it's much more customizable. Not like crazy. I mean, it's not my space with an open HTML canvas, but it's the Android to Apple's iPhone, where it allows far more extensibility in the chat canvas.

55:17So the question is, so their go-to markets have been entirely different, obviously gaming and influencer communities, rather than the enterprise. And in fact, Slack 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. Our acquired Slack. Oh my gosh, I've been beaten to drum with so many people there have been like, please give us some basic features. We are evangelizing your product. Yeah.

55:46My favorite, you know, a long time acquired Slack members will know that my particular B and my bond around that is because we are using it as a community product, it doesn't.

55:57like respect how ad mini we want to be and so it will email like all users and tell them like, oh, you're hitting X limit. And you're like, what? It's like thousands of people getting this email and it's reporting analytics like, oh, there's this many of you are active this month or this week. And you're like, why are you sharing that with all these random? So, um, yes, no, we're not going to pay you $3 million a year, whatever we have to provide.

56:226,000 people in the acquired Slack. But that is such a good point, right? It's not just the product. It's also the way that they charge in the business model where Discord makes people pay for upgraded features like better video or different things that maybe super users might want, but it doesn't penalize everybody else. And so I don't know how you do that if you're Slack and then how you communicate that to the enterprises that people are getting all these other, so it's more complicated than just do what Discord does, but certainly from a business model perspective, Discord handles those use cases a heck of a lot better. Yeah. So there's the marketing side of it and the ideal customer profile where Slack targets the enterprise and Discord targets communities. 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.

57:19So like the ability to have a shared channel between two enterprises or the ability to create a Slack bot or the communicates with a time tracking tool. Like those are not the types of things that Discord has ever built toward. And I think it's like the classic enterprise software especially but all software is that iceberg where 90% of the real hard work is below the surface. And I think it's only that 10% above the surface between Slack and Discord where it actually feels like the same thing.

57:48I think that's right, but I do think that this next generation 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. It'll be interesting to see where those turn out, but I think there's some promise there. And frankly, if Slack was going to get cut off at the knees where someone else was going to be the tool for the new upstarts, if that was already true, being owned by Salesforce is going to make that way more true.

58:16If your bet on Slack is to the same way that you would bet on Stripe, the next great company is going to use this as an infrastructure choice. That has to be the bet that you can keep making. I would say Salesforce buying it loosens my conviction in that dream scenario, staying true. I would assign a negative price to the rest of the Salesforce 360 cloud.

58:46I will pack you there we go. There's the remaining part of your upside is invest in somebody that's going to build the next messaging deep collaboration layer for the enterprise with discord type features for the enterprise. There we go. Or as we all know in love, we can just invest in Tencent and own a little piece of discord that way. Yes. So the more I think about Tencent, we should do a disclaimer.

59:13Well, at least, I'm a shareholder, I think you are back out of my pen. But it's kind of like, I feel the same way about Berkshire, right? Is 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 gonna give me great returns, right? But I'm gonna pay two and 20 or three and 30 on that.

59:38Or I could just go buy Tencent shares or process shares, which is the spin-off from Nassburgs, or Brickshire shares. I could pay no management fees and no carry to get access to equally good, if not better, investors globally. I looked this up yesterday, coincidentally. Do you know how much, since I wrote about Tencent, call it, you know, August, since I wrote about Tencent, how much the value of their holdings and their top ten holdings has increased? Oh, well, I saw your tweet, so go for it. 55.

1:00:08Billion dollars 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 the public it would which is just a wild meanwhile the share price has been you know it's like up a little bit but but relatively flat Do you know what the basis is like when you look at all the purchase prices of all those investments It was, so I pulled 103 of their 700 investments by, you know, translating things in Google Translate from China and from Mandarin to English. So even the fact that I have the ownership is crazy. I don't have the basis on a lot of them, but certainly they've been in companies for, you know, snap their investment just.

1:00:48Double right and Tesla they had 5% and so that obviously has done phenomenal well Spotify is doubled right so like just all these massive companies that that sit in their portfolio and have doubled plus Epic plus Roblox which is about to IPO plus discord which has had its valuation shoot up and is now even more attractive So like any good company that you can think of and you're like I wonder who's invested in them 10 cent is probably there Well the good news for you is I don't think anybody's gonna acquire Tencent, so I think you can let that ride for a long time. How do you think the US government would feel if Amazon tried to acquire Tencent? I feel like the US government would be fine with that. Yeah. That's not true. Get off Amazon's back a little bit. True. Oh man. Alright, so let's try and get to some like, what's the bottom line here?

1:01:36There's been a lot of takes. I'm going to close my eyes on price for a minute and just and let's just talk about like narrative bottom line like packy if you had to summarize this and they're like well TLDR tell me about you know why is this acquisition interesting and why and what's your take after an hour here of talking about it what do you think. I think the acquisition is interesting for a few reasons I think the acquisition is interesting one because as you guys pointed out.

1:02:00it gives Slack this massive professional Salesforce to go push their product into all the orgs where it's struggled to gain a foothold so far. I think product-wise it could potentially be interesting if they can figure out a way to integrate Slack Connect and Salesforce and make it really easy for people to communicate with both with their clients and even with potential targets on big enough deals that they'd be willing to enter into a Slack channel together. And I think it's interesting because And we haven't talked about this, but Salesforce is kind of the biggest acquirer that didn't get dragged up in front of Congress. And so is Salesforce in this really unique position where they can be this under the radar company that just picks off all of the targets while everyone else is, is kind of exposed to antitrust scrutiny? I don't know. They were involved in, right? Oh, maybe in the later one. Yeah, they were.

1:02:50That's a fair point. They certainly for any dress reasons, they're probably the only one who actually could not have acquired. Yeah. Slack, whereas everyone else may be optically, it wouldn't have looked good. Plus Microsoft's got to have such a hangover from the DOD. Yes, they do. Well, my date is eight years old, but yes. Well, actually, Ben, you could do it. It's been like, like, what are the internal processes and controls within Microsoft to make sure that like, You never write the word monopoly in a document. It wasn't as bad as you would think. It's only like if something really gets elevated to a serious discussion of a big strategic move that it gets considered. It's not really at that sort of the IC level. I will say there was a thing, there was a whole milestone. I'm trying to remember how long Microsoft's milestones were, maybe six months in office where it was like the documentation milestone or the cleanup milestone or something like that.

1:03:44that around the office file format, because a lot of the DOJ stuff was around, wait, you claim to have this open file format, but you're the only ones who have any documentation on how the file format works. So I do know that there's entire sort of like billions of dollars that had to go into the manpower of cleanup after that. So then there's some processes in place, but no, there's not like a thing that blinks at your computer if you type the wrong word. Company game night, you can play anything but monopoly.

1:04:13Yes. I'm envisioning like the it was 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 like you must absolutely not say these things do these things.

1:04:37Our enemy is the government. Well, let me come in with my, it's a packy, great, I think, great three points. The one other point that I would make that's sort of the thing I've been doodling 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 Thorndike author of The Outsiders. It's a famous sort of move by media companies and other outsider CEOs where the core business has growth but not insane growth. And you grow the company by acquiring high growth assets. And again, we can debate whether Slack is a high growth asset relative to some of these other SaaS companies these days. But they're a large enough enterprise company where if what Salesforce wants to do is meaningfully grow their enterprise revenue quarter over quarter,

1:05:32They got to acquire their way into new revenue streams to do that. And where are there possibly large future revenue streams that they could acquire slacks? So I think that's a, if I sort of had to describe why would you do this deal? If there's not real product integration to be done, but you sure as heck can increase their growth.

1:05:53through your own Salesforce, but because the market is relatively underpenetrated with this Slack product, that's how I would describe what Salesforce is up to here. David, anything else? I think the only thing is we could do a quick, what would have happened otherwise on other potential interested acquires, probably namely Google, if we touched on Zoom a little bit, maybe we can circle back to that too. Let's see, let's see Google in Zoom.

1:06:19Google I wrote about actually a couple months ago. I wrote about a Google Slack acquisition. I think that one, I mean, you know, part of the press around this is that it's now sales force versus Microsoft. I don't think that's really the case unless people start using quip documents to replace Word and whatever else, but I do think that a Google plus a Slack with Google's distribution.

1:06:42Really is a powerful combination when you have G Suite. You have Gmail as your Outlook competitor. You have Google Sheets, which maybe the finance team still needs Excel, but most of the rest of the company can use Google Sheets and Google Docs and all those things. Then you really have this suite that you can onboard a new company.

1:07:00by just signing up for Google Plus Slack Plus Looker, which I like better than Tableau. And it just really feels like they're building kind of this new wave office bundle versus even Tableau. I love Looker, my brother loves Looker, my dad loves Tableau. And so I think it does make a little bit more sense in that Google suite of products, which is what I thought they're building. And Google hasn't been, Google's actually, to me, been maybe the most disappointing.

1:07:26fang in terms of their kind of innovation or their growth unless one of the other bets pays off, but they have, you know, this ad business, which for now is spitting off a ton of cash. The idea that they wouldn't play in this, I don't even know how to read that, but it just seems like such an obvious move for Google to come in. And then there's Amazon and the other is the other one. They had a partnership where, you know, they powered Slack's video product and Slack used AWS and all of that. So that's another one, but Google, to me, makes...

1:07:55A ton of sense. Yeah, do we know was Google a bit or at all in this or I didn't see anything about that. Nor did I. You're right. It makes a ton of sense for them, especially when you consider like the startup productivity stack. And I would say not the bleeding edge pre-casm crossing startup stack that's like notion and air table, but you think about like the like you know, 500 to 5,000 person companies, it's a Google Docs company that uses Slack for internal communication. Like that is a, that's sort of a natural bundle. Yeah, the Google, Google suite is, the G Suite is really like one of the best integrated things into Slack where the docs pop up and it really is one of the nicest integrations in the product. Which is custom. That I would be happy about.

1:08:43There was CEO conversation to custom build some stuff there, especially around the different types of sharing and how you can grant access from within Slack. That was custom work that Google had to do in order to enable that in Slack. All that worked on the drain. That's the acquisition that should have been.

1:09:05You 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. Like that's the way to do a dance where you're like, well, you know, let's do a partnership. No, not like a bundle distribution, go to market partnership. What's an interesting product thing that we could do that would provide value for both of our users? Companies get to know each other, they get to understand each other, user bases, and then that's the kind of thing that tends to lead to a deal. So, Paki, now that you bring it up, like it is surprising to me that we aren't seeing Google's name here.

1:09:34Yeah, boring went out for that deal. Especially since I hear you bend at like, you know, 55% premium, that is good. But when I think about relative to the potential of Slack and the multiples for some of these other closed SaaS companies out there, this price does not feel high to me. Right. And what if Google makes, what if Google makes free Slack an ad product, right? Would you guys accept ads to get rid of sending emails to everybody?

1:10:04Maybe, probably. And also, the other pieces here is financing. So Salesforce is taking out debt to finance this. Now, of course. They have a strong balance sheet. They can do this. It's not like a problem for them. Google's just got like literally an infinite amount of money sitting there, spending, you know, this 27.7 billion purchase price for Salesforce. Google could have spent 35, 40 billion. No problem. Wouldn't have made a dent in their treasury. Hmm. What did the documents get disclosed? David, you probably know this with like a party A, party B, how the deal went down.

1:10:46Probably when it'll come to a vote to Slack shareholders. Okay, so we'll know in the next quarter, next few months, if there was a bidding process here. Other discussions, yeah. And then I think the other question we touched on it at the top of the show is Zoom. Zoom's market cap now, gosh, if I recollect, 130-ish billion, maybe a little more. Sounds right. And so this would be a big chunk to do a stock deal with Zoom. It would be a pretty big chunk, which is probably why it didn't happen. I mean, maybe Slack didn't want Zoom stock at this price. Could be. But I also, you know, If you work at Zoom and know the answer to this, I think David and I and Packey would love to know personally, but I would also chalk it up to like, in all likelihood, Zoom has an underdeveloped CorpDev 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. And, you know, if it's if 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 CorpDev team that's both, you know, a couple months old of the company.

1:12:01Right. For a company of that level of maturity, it would have to be a CEO pet project in order to make a making progress on it. And it feels like they want to do video. There's plenty to do in the video space. And that has always been kind of their strong suit is how focused they've been on video. And that actually, I would, this would be if I maybe we could do a sidebar here. I would disagree with you a little bit, Packey, on the view on Zoom.

1:12:29I think that view makes sense if you think of Zoom as a enterprise productivity tool, which I think a lot of people do. But to me, it's actually much broader and the opportunity is this that we're doing on Zoom right now. It's like, yeah, they're good, great enterprise productivity product. Make a lot of money on that, perfect. But like the huge opportunity is they are the video platform for the entire economy. And so I could totally see Eric being like, That's our focus. That's what we're doing. I'm not going to get distracted on this. I completely, completely, there should be a million startups built on top of Zoom instead of Agora in the next year. And so their focus should be on becoming a platform. Yep, yep. All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part.

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1:14:52So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com slash acquired and tell them that Ben and David sent you. Grading? Grading. Let's do it. Okay, so we thought, let's do two separate greetings here to bring it home. One will grade Slack's tenure as a public company.

1:15:15All render a grade on that over the past was the 15, 16 months or so. And then two, we'll do our looking forward, let's paint an A plus, see an F scenario for the next five years of Slack within Salesforce. All right, so taking Slack's tenure as a public company, I'll go first. I mean, it's really hard for me to come up with reasons not to grade 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. So this is not in my DNA. Yeah. This is pretty bad. So I'm going to go with a C minus 10 year as public company. I maybe it deserves to be worse. But, um,

1:16:10you know, like the outcome here is above the DPO, the final, the first day of trading on the direct public listing. So it's not like they destroyed value in the public markets. On the other hand, like didn't come close in trading to, you know, 15, 16 months as a public company to meeting that day one price or let alone eclipsing it. And I think, you know, Let maybe it would have been impossible to fight this Microsoft teams bullying narrative So maybe this was an unwinnable battle, but like they lost it right like you know at the point like Packey I think you have great points like teams is not the competitor here and this is a great company with great metrics and yet They let this become the narrative that like teams is just gonna

1:17:07Destroy these guys. And I think that's why we ended up here. Yeah, I mean, it's interesting because it's not actually if we're grading the performance as a public company The stock price movement is a failing of the CEO's ability to give the market confidence in the future of this company If we were to take a I think Hamilton points this out in seven powers in Pacquiao, you're a avid reader of Hamilton's work with seven powers too and Yes, I think it's worth bringing up. Public market investors are not short-sighted. They over index on recent signal, but the reason is because this stocks price and the enterprise value of the company is primarily formed by an investor's view of what the next 30 years of cash flows are going to be. And they, of course, over index on recent signal, if it

1:18:00paints a picture of how those 30 years are going to go. And so what we're seeing here is despite relatively strong performance as a business, the market doubted the business's long-term prospects, even though the business did even better, quarter over quarter over quarter as a public company. So it's interesting like Yeah, depending on what we're grading here, you'd sort of grade different things. I mean, camp B-ish B-plus as actual execution on their goals, but F on the ability to generate value for shareholders. Well, not F, I guess, because it didn't go down, but C-minus. Yeah, I think it's interesting that this communications company's biggest problem was communications.

1:18:54and telling its own story, but I think my answer actually changes, right? I'd 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.

1:19:14for the company. In which case, if you just ask me to grade it on the spot, I'd say it's totally fine. Everybody's misjudging it. They also see that this thing just compounds over time and compounds over time and compounds over time. Obviously, this deal changes my perception of how they view themselves. And so in that case, I kind of have to give it somewhere in the sea range as a public company just because it...

1:19:36stayed pretty flat, which is, you know, it's average. It's C, and it's underperforming the market pretty significantly, and particularly at a time where people are more, you know, you're discounting future cash flows for those 30 years, which should be slacks, you know, to slacks great benefit. You're discounting it at this tiny, tiny, tiny discount rate. And yet, it's not being reflected in the stock price. If they're not taking that long-term view, then I think, you know, it can't be any better than us E for me, unfortunately.

1:20:02Fortunately for you you kept buying and not just at the DPO, right? And I mean, that's part of the legacy as well, right? The biggest DPO to date. Yeah, direct listing. Yeah. Uh, I don't know if Slack or Spotify was bigger. That was about the same size. And Spotify is, well, Spotify had doldrums for a long time, but it's performed excellently recently. So the one thing I will say is like how I was whatever I was there be your B minus C plus on execution I But packy before reading your piece and before talking with you was much more negative in fact I had like a joke I was about ready to make on Twitter that

1:20:45Actually, let me get it word for word for word. Slack has basically stopped updating the product and when they do, we all complain about the new worse UI. I think they'll fit in just finite sales force. 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 work spaces since 2015, but like if you look at the app ecosystem and the way that that's been strategic for their business, that's actually huge. So I think I 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. And believe they're going to be there. All right. So A plus C and F scenarios.

1:21:37within Salesforce of the next five years. I mean, the F is always obvious, right? And to be totally clear, this is how good of a use of $28 billion was this for Salesforce versus the history of other uses of capital by companies, both in internal and external investments? Or actually, well, maybe the F is not obvious. I think the F, to me, we can all debate is they're wrong strategically that building a What have we decided to call it, not arm the rebels, but an alliance, an alternative alliance. Best of breed alliance is actually not the right strategy. Big enterprises don't really care about that anymore. They're still happy to buy on credit cards distributed across the organization. It turns off all the startups and innovative high growth companies are like, you.

1:22:35Slack is part of Salesforce. I don't want that anymore. I'm moving over to Discord or whatever. That feels like the F to me. Yeah. I don't know. I don't think that sort of like stench is real. Or it's going to meaningfully impact people's decisions, whether to adopt or not. But what I do think is real along those same lines is this decreases the likelihood that Slack comes out with that next innovative I don't know, feature or user experience that makes people go, oh my god, I have to use this product. Yeah, I think the F2Me is trying to integrate Slack and Salesforce, the products and failing and turning Slack more into Salesforce than Salesforce more into Slack. I think that's enough for me. And I think another potential F is, I do think there's a stench of all the sudden you start getting cross-sold.

1:23:32Salesforce, when you sign up for Slack, the acquired FM Slack starts getting hit up with emails for Salesforce 360 and lightning and all of that. Oh, look at this lightning interface. Right? Which I think it happens. I think if the distribution channel goes one way and it's just pushing Slack to Salesforce, then those are corporate buyers anyway, whatever. But if it goes the other way, then I think that could be pretty ugly. And I think the risk of this is very low to be clear.

1:23:58You look at Salesforce's other acquisitions. Did users of Quip start getting sold Salesforce and the 365 interface and did Heroku users start? No. You didn't even know that Salesforce was the parent company. These are those things. Did they both atrophy? Absolutely. Why wasn't Quip Notion? Why wasn't...

1:24:21Really? Yeah, great. But yeah, that's actually the better comp or why is it that every startup that we start now at PSL is started on AWS directly? Like we no longer you like you don't need to use Heroku. You don't need that middleman that makes it easier to spin up a cloud app. Amazon actually has made it, you know, both more confusing and easier. You know, they've made it more complex, but then they've also created relatively simple on roads. So to be fair, that's probably not Salesforce's fault. Heroku and all the past players were probably dead anyway.

1:24:50But that's the thing. Why did they buy them? 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? And if they're looking at Slack to be, you know, is this their third attempt or maybe even more than that to buy the next generation tool, you know, are they buying it at the peak and it's going to product atrophy from here and therefore people are gonna go, you know, startups are gonna go use the next generation of, you know, of collaboration software. That is the biggest existential risk in the F scenario. A plus.

1:25:26Yeah, let's do a plus. We'll do the exciting stuff. A plus to me is that Slack on its own has been a reasonably high growth SaaS company and Salesforce is successful at buying fast growing SaaS revenue and now they get to pump it through their channel and their channel receives it well. And they just are able to massively increase the revenue growth for Slack and have more and more companies adopt it. In fact, they may even be able to convince large companies, maybe not an enterprise, but large companies, that it's now a trustworthy vendor. It's not some startup, they're buying with the full seal of approval from Salesforce, and that comes with a Microsoft-like, not quite Microsoft, but Microsoft-like level of, yes, I authorized this use at the 30 to 50,000 seats throughout my organization. So, maybe there's a new market unlock there.

1:26:24I think that makes sense, I think actually the, to me that's like a, a minus to a, probably a, I think the A plus is this catalyzes the Salesforce, the anti-microsoft alliance centered around Salesforce as a totally viable and successful new distribution channel for best of breed.

1:26:51SaaS companies, and we see superhuman go into the Fortune 100, and we see Koda go into the Fortune 100, and Notion, and Figma. Well, Figma doesn't need any help, but 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. I like that take.

1:27:19Yeah, I think mine is somewhere similar and it just revolves a little bit more around Slack Connect really being what they think it's going to be and not just creating the work kind of social network or this horizontal layer, but also making being a target in Salesforce.

1:27:36a better experience kind of like humanizing the whole sales process a little bit versus getting hit in some awful drip campaign so to me it's you know if it can make the sales process writ large a little bit more enjoyable than that's a win while you know creating all these links between all these companies and really kind of building this network affects up awesome well I think That listeners is the complete set of opinions that we have on the deal with the facts that we have today. A mere two hours after the deal was announced. Any closing thoughts before we wrap up and do our little closing here? This was a blast. Yeah, it was super fun. First time being on YouTube, too. If you're listening to the pod, it's fun. We tried YouTube live here, so we got to read some of the comments in real time. And maybe for future emergency pods, we will do the same.

1:28:26Well, first of all, thank you to Packey. Where can listeners find you and subscribe to NotBoring? Sure, so they can subscribe at NotBoring.substac.com, or I'm on Twitter at PackeyMPACKY. Thank you guys for having me. This has been a blast. Of course. It's so fun. We're so glad you could join.

1:28:47And yeah, definitely subscribe to not boring and follow packing on Twitter. You are one of the best followers on Twitter, especially tech Twitter. Thank you. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig. Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI powered experiences at scale. Yep. In the crazy speed of today's AI world. Shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what

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1:29:58We didn't mention the LP program this time, but I think most folks probably know what it is. And if you liked this a little bit more informal type conversation, we get to have a lot of this conversation. And Packie, you've been in those Zoom calls. How's it been for you? It's an absolute blast. I told you guys after the last one, but doing the outsider's book club with Will Thorndike, after having written about the outsiders and being obsessed with the book, it's just such a cool opportunity with a bunch of smart people. So yeah, total blast. I highly recommend it.

1:30:27Cool. Well, if you've been teetering on the edge, you can join and we have a link in the show notes to become an LP at acquired.fm slash LP. I think that's it. We talked a lot about Slack this episode. We've got one of those. You can join it acquired FM slash Slack. And with that, listeners, have a good one. We'll see you next time.