Welcome to Mostly Cloudy! Today: why the upheaval at Salesforce could have an upside for Slack, Microsoft’s cloud pivot overshadows the collapse of the PC market, and Meta throws shade at ChatGPT.
Photo: Slack
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At the time it went down, Salesforce’s $27.7 billion acquisition of Slack made a fair amount of sense: remote work appeared to be the wave of the future in 2020, Salesforce was hungry for new ways to keep growing at the steady clip it had enjoyed over the last decade, and Slack needed an enterprise sales entry point that could rival how Microsoft forced Teams into companies worldwide. And then a lot of stuff happened.
A little more than two years later, cost-conscious executives are forcing knowledge workers back into the office, Salesforce has laid off thousands of employees as growth sputters amid recession worries and product fatigue, and the two biggest architects of the Salesforce-Slack marriage — Bret Taylor and Stewart Butterfield — are moving on.
This week’s news that Elliot Management has amassed a “multibillion-dollar” stake in Salesforce should be the push Salesforce needs to close out its bet on Slack and let both companies also move on. If Salesforce is going to try and get its swagger back without two of its most accomplished product-development leaders, it will need to focus on its core sales and marketing software business and postpone dreams of challenging Microsoft as a soup-to-nuts enterprise software vendor.
One thing that wasn’t entirely clear when Marc Benioff, Taylor, and Butterfield announced the purchase of Slack was how different the two companies were. Major corporate integrations are hard enough; after the 2018 acquisition of Mulesoft Salesforce had a lot of trouble integrating the company, an actual integration software specialist, into its well-honed sales pipelines and across other acqusitions, Mulesoft CEO Brent Hayward said last year.
But as The Information reported late last year, Salesforce and Slack clashed from the start. Benioff and Butterfield weren’t crazy about each other, Salesforce teams balked at being forced to integrate Slack into their own products, and salespeople were not incentivized to sell Slack as aggressively as Salesforce’s core products.
That last one was an unforced error: Salespeople like selling the things that make them more money. As enterprise tech veteran Tom Siebel put it when announcing a partnership with Google Cloud in 2021, "we have been and we are being very careful to align the incentives of both sales organizations, so they are highly incentivized to work together. We understand the way the compensation structures work and what motivates sales people."
Microsoft absolutely realized this when it began pushing Teams in earnest following Slack’s explosive growth. Microsoft partners and salespeople were rewarded with 1.5x their usual cut from sales of Teams, and those incentives combined with the natural weight of the Office suite have paid off for everyone involved.
If Salesforce is unwilling to treat Slack as an equal member of its product family (excuse me, ohana), this deal is never going to work. No one — even Thoma Bravo — is going to pay a premium over Slack’s 2020 purchase price, but Salesforce and its new investors will have to choose between taking an embarassing one-time charge to write down the value of the deal or continuing to operate a business that just lost its two biggest champions.
One suggestion: Google Cloud always seemed like a better cultural fit for Slack, and Slack combined with Google Workspace would set up a true alternative suite to the Office/Teams combination. Recommending Big Tech M&A strategy is basically the tech journalism equivalent of messing around with ESPN’s NBA Trade Machine, but Slack and its users deserve better than life under a disinterested Benioff, and enterprise tech buyers need better competition.
Cloud as silver lining
Microsoft became the first enterprise tech company in 2023 to reassure investors and cloud watchers that enterprise spending remains strong despite a lot of obstacles in its way. The company reported cloud revenue growth of 22% for the last calendar quarter of 2022, hitting $27.1 billion thanks in part to a 31% jump in revenue from Azure.
Those numbers were in line with analyst expectations, according to CNBC. Sales of Microsoft’s enterprise tech were strong across the board, including a 20% jump in revenue from server products and 11% growth for sales for Office 365 to commercial customers.
The PC market, however, might have just recorded one of its worst quarters in years. Revenue from copies of Windows sold through PC makers fell 39%, and commercial sales of Windows also fell 3%. It could take a while for those numbers to turn around given how many people and companies bought new PCs over the last two years after being forced to work from home.
Overall cloud revenue increased 21% in 2022 to $544 billion, according to new data from Synergy Research released Monday. AWS and Google will report their own earnings next week, which should demonstrate whether Microsoft is an outlier or whether enterprise tech is more resistant to economic anxiety than a lot of people thought.
Around the enterprise
Meta’s Yan LeCunn, the company’s top AI expert, described ChatGPT as “not particularly innovative” despite all the over-the-top hype following Microsoft’s intense courtship of the technology, which it made official Monday.
An unspecified “technical issue” halted trading in several big-name stocks Tuesday morning on the NYSE, according to CNBC.
Don Johnson, who was in charge of Oracle’s big bet on Cerner’s health care IT business, has left the company, according to Business Insider.
Microsoft’s cloud and AI leader Scott Guthrie joined the board of the London Stock Exchange a month after the companies signed a sweeping partnership deal.
Thanks for reading — see you later this week!