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Since 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 based in San Francisco. And we are your hosts. Well, David, here we are live on the scene. We've got a special guest. What are we talking about today? We are talking about slack being acquired and we have the best in the business, the number one internet and Twitter, slack, bull, out there and probably, probably we're going to discuss how happy but probably a very happy man here today, back in McCormick of Not Boring. Welcome to the show. So great to be here and I'm both happy and sad, which I'm sure we'll dive into. So it comes to us with mixed emotions. All right, David, you've got this lovely introduction written up here. Take a sin. This is a non-traditional in so many ways because this is a big week here to acquire. We've got Door Dash. We've got Airbnb, IPOs coming up. We're gearing up for those. We're going to be live on the scene for those. We have Roblox, which maybe we'll cover next season, a couple of those happening. We literally just recorded an awesome special episode, which is coming out later this month. But we knew this was happening. So last week we dialed up 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 leak there, their acquisitions ahead of time? So that way we have a little bit of warning. I think we got totally blindsided if I remember with LinkedIn, with Whole Foods. I woke up to a frantic text from David around the Whole Foods acquisition. So it just moved back to the Bay Area. 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. So before we dive into the content, we do want to give a special shout out to Tiny. And we didn't have time to record a little Q&A with Andrew, the founder of Tiny, this one. But especially with Metalabs involvement in the very beginning of Slack's journey, it felt appropriate to thank Tiny. And for those who don't know, Tiny sort of started or the first business that Andrew started was Metalabs, which was a design agency that basically did the product design for Slack, at least the first version, the public version that came out. So thanks to Tiny for being season seven sponsor. And also thank you to Bamboo. That's growwithbamboo.com and Perkins Kui council to great companies. So 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 Stuart's epic blog post, we don't sell saddles here or perhaps we start growing up on a commune in British Columbia. Yeah, we will not recount all that today. We'll focus more on this transaction. But go check out the history there. Packie, 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 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 put out there that I thought that the bears were wrong. And obviously the big knock on Slack was that teams was just going to come in and kill it. It's actually reported really strong numbers, which just because the narrative has been so bearish, you look at Slack's numbers kind of through this lens of, they're not doing so great because compared to Zoom, they're not growing or compared to company X there, net dollar attention isn't so good. But they're really one of the best SaaS companies in so many different category of metrics that, you know, just wanted to put that that bear case out there. Yeah, the top core tile in just about every metric across the best Marmerton Glad inches index, right? Exactly. And I mean, right, the fast, the fastest growing company and the second best net dollar attention up there in terms of gross margins. So like all the things that you look for in a SaaS business, plus the fact that pretty much any fast growing startup that you can name uses Slack and as they grow, Slack grows with them. And you know, Slack is, as we'll discuss, I'm sure, just reported earnings and their numbers look good yet again. So, you know, it's one of these companies that has been underappreciated, but I think over time was going to build into a jug or not. Well, so you hit publish on that not boring piece two weeks ago, you see C, 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 not. There are other equally good ideas that he didn't want. Yeah, because he didn't want to preface the deal. He's like Bruce Wayne or sort of like a why you guys 72 just signed up. So maybe that's him. Love it. So he got the memo. He got the he got the post today in sales force earnings 27.7 billion dollar total purchase price works out to I think 4586 a share in cash and stock. I think a little heavier on the stock than the cash piece. I think if I'm right. But roughly 50, 50, like 55, 57 percent stock. That's a 55 percent premium to where Slack was trading before the news was leaked last week. 85 percent 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 the first day of trading? I think so. I think it might be certainly. I don't think it's been this high. But it's like reminiscent of Dropbox in that way where it's sort of never really it kind of traded down and then flat and then down and then flat. And then we've we've been kind of in one of the flat spots for a while. Yeah, and so let's see Slack is going to remain independent. Stuart is staying with the company, staying in CEO of Slack. Deal is expected to close next year. Still has to get shareholder approval from Slack shareholders, which we might discuss. My discuss package thoughts on that. And it is the largest software deal since IBM bought Red Hat two years ago in 2018. Wow, is it really? I guess. Yeah, I guess you don't see these these public to public mergers that often. Yeah, well, I think they'll actually pure software deals. I can't. Yeah, I can't think of anything else that's happened since. Yeah, the thing I definitely feel like it's the most akin to LinkedIn, at least the way that it's big, you know, $100 billion plus valuation or market cap tech company buying something that, you know, was started decades may know probably one decade with 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, 98, 99, I think. Oh wow. So they're sort of buying into the next next generation of enterprise software. Yeah, yeah. And of course, the other biter 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, let's unpack the emotions. How are you feeling? I'm like a sideline reporter here. Like how are you feeling? Are you like, are you ready to go to Disney World? Are you declaring victory? Is this a tough loss? Is this both what's going to your head right now? I think it's a little bit of both. Right? When I wrote about the company, it was trading in the mid 20s. And so for anybody who bought after reading and not boring, awesome win for me. Great win. Love all of that. But my bullcase was not to, you know, wherever this ends up in the $45 range, depending on where Salesforce trades. I mean, even if you look at just kind of the other top quartile 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 growing with customers. So, you know, I was really hoping that this was kind of a three to four X stock. And it's just such a rarity right now during coronavirus to find a 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 just just give right into it. Like, what, what was the disconnect here? Because this is crazy. Like, every other SaaS company out there, especially, you know, a work from Homestock has been just off to the races. And like, what has kept Slack? It's so beaten down for so long. The biggest number one thing that has kept Slack beaten down is just the threat of Microsoft Teams and not just kind of a specter of Microsoft Teams, but Microsoft Teams and Microsoft generally has gone after Slack by name. And to hear Stuart talk about it, that's because if Slack threatens 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, 12 million users are never in. 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, atypically, 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 percent. And Slack's only growing at 49 percent 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 moats in general are these double-edged swords. And Zoom doesn't really have a moat, right? But it's really easy to hop on a Zoom. We don't have a shared Zoom account. And we hop on a Zoom in one link. And so it's really easy for Zoom to grow. Whereas Slack, you have to set up an order and you have to build your integrations. You have to do all those things that pay off over time. So, and there's no reason why anyone would join Slack, let alone join Slack as a paid member unless you're part of a company. Whereas there are especially post-COVID like a million use cases why, you know, like my parents have a paid Slack as a paid Zoom account now. Yeah, if you get sick of that 40-minute limit, you're just going to pay off. It's only, you know, 14 bucks a month and say you go for it. So I think that's been the big big thing. Then there's other things like, you know, chat is just annoying and distracting and particularly right now, people are like, oh man, another Slack notification. I'm sick of this. But the real, the real reason it's kind of suffered has been I think that that team's bear case. Yeah, Packey, how much of 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 big cross maybe $100 million or $100 million user range recently where it's lacks 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 and that because I think that's one of the reason Salesforce bought it. But the scrolling connection between companies and that's growing super, super fast. But Microsoft Teams, I mean, it's not architecture the same way that Slack is and that you can just continually add teams within your organizations and have different kind of sub channels. It's limited in the number of teams that you can set up. You have to be really, really thoughtful from day one in how you set up your channels and your teams within teams. It's getting confusing with the nomenclature there. But it's not meant to be a 10,000 person or chat towards. It's meant to be the hub for kind of all things Microsoft within an organization. And so that's really good because you're able to grow Microsoft is phenomenal at distribution. I don't use a PC, but my wife and my mother-in-law do, and I go to their computer sometimes when they're opening it, and teams just pops up even whether or not team users. And so the active users kind of think, and Slack has called this out in the past, is potentially a bit inflated. But it is also really forever. I mean, back in the Azure days, they were including O365 in the Azure numbers. And so they'd report numbers to this. She'd be like, oh, Azure's on fine. It's like, well, it was it was office. 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 is a threat, then Microsoft 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 took this approach of so directly comparing teams to Slack? Because it's as you point out in your in your piece and you know, I think it's really not like Zoom is the big competitor for teams. And yet you don't hear Microsoft talking about Zoom at all. Like what's what are the what's they think in here? Zoom is not a platform and doesn't have line of sight to being a platform. Whereas if you're on Slack and you can use G Suite and it's integrated and you can use Figma and it's integrated and you can use the 2400 different integrations that they have. Then Slack all of a sudden becomes this hub for essentially a office suite that is comprised of best in class software and then all brought into one place together. And by the way, it potentially kills email certainly internally and maybe increasingly externally. And so it's just a more direct threat. Whereas if people use Zoom, they use Zoom, but you're still going to go back and use Excel and PowerPoint and email and all the other things that you would have used otherwise. So it doesn't it's not a threat to Microsoft's cash cow in the way that Slack would have been. Interesting. Because yeah, that's like one of my big questions here too is like why wasn't Zoom the one that acquired Slack here? Like to me, that's a very compelling combination. Your stock is potentially trading in a value that's worth a lot more like its cheap currency. Like why wouldn't you use it to go make acquisitions? I read a whole piece on Zoom and this exact point that what do you do when you have a stock that is by all measures incredibly incredibly expensive and you have no modes and the answer is you go out and acquire companies. I didn't have Slack as one of them probably because I just wanted Slack to remain in a company. But you don't want 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 think Zoom should be more positive here. Totally. But yeah, that's a good point on Microsoft like their whole it's always even though you know it's new Microsoft, under Satya and all that and it totally is in many respects. The strategy remains the same, 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 like the stuff that they feed into the channel is great and additive of which video is super important. And that's why they're doing what they are with on the product side with teams. But Slack as small as it is compared to Microsoft is actually like the one that's like hey we once 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 a couple of years ago decided to go all in on teams. And so they're they're shutting down or rolling in Skype into teams. They've you know communicator and link are 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 their the what used to look like Office 365 dashboard's team is become teams is becoming that sort of central hub for 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 you know they really are looking at it like well we can bring a lot of users right away even if they don't know that they're users. And then sort of increase time and app and engagement and usefulness of of this app over time. And I think you know packy I 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 that 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 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 prices depressed because it doesn't look good compared to this thing that you really shouldn't be comparing it to exactly right. Yeah if you compare it to video products when everybody is on seven video calls a day and it's very easy to set up it's not going to look that nearly as good as what if you compare it to anything else it's a little bit tougher to set up and involves the full teams 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 if Microsoft is this isn't like the rebel alliance here this is like another empire stepping in. Right and I think a blog post just went out 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 the viewpoint of the best of breed argument they're best at nothing but they're the best integrated and so if you're buying from one single provider it's the proverbial enterprise one throat to choke 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 of the other apps from there but if if zoom weren't so expensive you know would we see that what is there some way that Salesforce has ambition to find other best of breed applications and bring them into the umbrella to well and you know you have to think regardless of whatever Aaron and box wants to do themselves this is fantastic news for them and for their valuation 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 and they can do I'm sure they already have a partnership with Salesforce as a distribution channel but that's going to become even more important and if Salesforce is now going to be pushing this like hey best of breed not easiest to buy for your IT department 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 sub-scale software and productivity companies out there I just mean sub-scale in that like you're not Microsoft or Salesforce this is this is just going to be I think a great for their go-to-market 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 a Python or node or whatever and I think the the way to think about that in the productivity world is like well yeah we use Slack and the question that this is the leap it's like we use Slack and sales for like the analogy is to fall down for lease 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 sales force 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 and then you scroll down and you see Slack will be deeply integrated into every Salesforce cloud as the new interface for Salesforce customer 360 Slack will transform how people communicate all of the blah blah blah so what does it mean to be this new interface to Salesforce customer 360 and like like what does that actually mean 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 they're gonna use Slack bot to Salesforce bot oh no Benny off that yeah I was talking to my friend about about this deal earlier and he was like getting getting Salesforce as a company is like somebody giving you like the chassis of a car and then a box of parts and then having to figure out how to put them all together before you drive it the last company I was at the Salesforce implementation was one of those things that every month was about a month from being done and so it's really hard and maybe that's why you know Slack over time becomes kind of the en ramp to the whole Salesforce ecosystem and they do figure out a way to integrate it because Slack for all the work that they've had to do to make their onboarding a little bit easier and they have struggled there it's certainly a much easier product to onboard to your organization than something like a Salesforce might be I don't know I read all that and I'm just like that translates to me as Slack just up to their sales their own sales force by like 100x in terms of headcount and power and that's what that translates to for me yeah and in the sort of like classic acquisition category that we always do on episodes I mean this is a distribution deal right like this is not like the product velocity is not going to change Salesforce is probably not going to integrate the Slack product deeply into the existing Salesforce I mean they say they are but it's unlikely I think it looks a lot more LinkedIn where it's a totally separate thing and they leverage the Salesforce distribution to be able to get it into more enterprises that sounds right you know the back you I think you made the this point well several times Slack's growth story over really its whole life as a company has been we get small innovative organizations to start using the product 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 yeah so you're spending all the sales and marketing to acquire these customers early on but then as those customers grow and they retain and they 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 yeah this makes sense the only question of my men 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 the Salesforce actually ends up investing is a migration path from you've loved Slack and now we make it easy to onboard to the full you know sales for CRM suite I just don't you know it's probably my product background but like I don't I don't see that like it's hard for me to imagine like 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've they mentioned it in the press releases as well is Slack Connect and to the extent that you think that Slack Connect will be a way that teams can that that a company can communicate with all of the different partners or clients that it has then that makes a ton of sense for a Salesforce integration where you're not just plugging into email and tracking your email conversations but you have your lead right there you click start a 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 at 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 raring up for a Salesforce acquisition because this certainly does make them a lot more attractive as that kind of I think Ben Thompson called it the work social network but certainly I think that's the most appealing piece of the product if I'm Salesforce. Yeah let's talk a little bit more about Slack Connect. Well why is 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 it's strategic for Slack for someone stewards talked about the product and how to describe it and I wrote about this in the piece on repeating myself here but when they've talked about the product they've always said it's hard to explain but when you try it you know it and so I think what Slack Connect represents is if you want to work with Stripe or if you want to work with Amazon and the Stripe or Amazon team thinks it's a lot easier for you to communicate in the shared channel then guess what law firm finance firm lender all of that you're going to join Slack and then you're going to try it and because the product is better than a Microsoft teams you're going to love the product and then maybe you'll start paying for Slack and then maybe it'll spread in your organization so I think more than anything it's a way for people to kind of try before you try before you buy the Slack product because your kind of innovative partner has told you that they want you to use that product and it actually you know when I was at breather before Cushman and Wakefield the first time that they use 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 like 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 Slack Connect and that's what Slack Connect is so 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 have I mean for what it's worth and we have a super unique use for Slack at Pioneers Grille 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 transaction and the transition we spend out a company to be able to have shared channels until that company starts closing them off to us and then actually uses them on their own but at the very beginning you know we're the whole team except for the founders so it's great to have that 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 your external tool which is kind of an interesting analogy to Salesforce where Salesforce is a way 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 you know again Lucy Goosey on the 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 a email at this point that this great Slack tweet from 2013 those like people saying we want email dead if we want to email dead it'd be cold in the ground so like yeah they've been kind of dancing with whether or not they're an email killer for a very long time but it seems like that's exactly what one of the best parts of your piece you had used the way back machine and you had Slack's like marketing positioning and how to like you know I mean I think this is the to me this is the whole point of the story here which is like their pros and cons to Slack and like they've done some really good stuff for the past year and they've done some tatsukut 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 store it's quote like I get it on Slack too you got to use it to know but like come on man you're like an eight year old company at this point your public company you got to be able to explain what you do succinctly and like even as a public company they've been just iterating that's just like iterating they've been massively changing their main marketing message several times well I give them credit for that I mean they they be they be they went from a thing that was like trendy in startups to like useful in addition to all your other forms of communication to oh my god we're all working from home and now it's essential so like they're they're they're full pivot to like were your virtual office so I can't remember exactly what the phrase is but I think it transitioned from like where work happens to your virtual office I you know more power to them for that fair enough but there was the moment in there where I was like where the email killer yeah yeah totally and that resonates with people there like I think you know it doesn't describe fully what they do but something as simple as we kill email is something that people can really rally behind versus where where work happens people don't know what that means and so there is like maybe you know Stuart was a philosophy major and and you 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 because you know in fact Salesforce has a great example of this and we tweeted a snarky comment about with 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 thin crossed out of it and like that doesn't say what they are but it does say oh yeah I hate that like awesome you guys are the answer to that and you can imagine what the answer would be and I the one of the funny things about enterprise software broadly and Salesforce specifically is unless you are an individual contributor whose job it is to use that software you actually rarely get a glimpse of it like it's it's not like like indie developed software that proudly shows screenshots on the website it's sort of like the UI is hidden from you until the very last moment when you actually have to use it and often in in sales demonstrations is not actually shown to you especially if you're you're not the actual end user so I guess this is a little bit of a round about 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 no I think that's that is in stark contrast to slacks sort of like philosophy of everybody listening to this knows what slack looks like and even if you you know 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 enterprise software sold through traditional enterprise ways we don't need to show you pixels until we absolutely need to which is often post sale and like we're 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 yeah but it wasn't software and so whoever bought it pretty software whoever bought it sort of assumed that it would solve their problems well I think this is a an interesting time to move into pricing and sort of conversation around you know they they paid 27.7 billion dollars let's contextualize that in the size of the the business in revenue and obviously they're they're not profitable pack a year you know one of the best educated people in the world and 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 yeah so the business is and they just again released their numbers for this quarter so $235 million this quarter it's said next year you know this is a billion dollar run rate company with 86% gross margins that just became free cash flow positive and grew from 10 million I think 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 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 if you think it is strategic and if they just push it through the sales force just for recent channel but you're essentially paying 27.28 times next 12 months revenue for this business but a business that is still growing 40 to 50% year-over-year a business that does have phenomenal margins and a business that is you know 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 million what year-over-year growth rate is that still sustaining in 40% that might be why they yeah that might be why they sold last quarter it was 49% year-over-year this quarter was 39% year-over-year so pretty dramatic growth so that's so they had a bunch of good news to announce this quarter in Slack Connect but yeah that's that's got to be a pretty concerning top line number like if you're because there's no reason that should be slowing right like 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 few companies were laying people off and so that was leading to contraction in monthly revenue in their existing accounts but I got a thing most of that's behind them so interesting yeah paid customers up 140% year-over-year Slack endpoint connect them points up to and 40% year-over-year I'm looking to see if they talk about net expansion because that's obviously been something that they've been pretty pretty proud of that does not show up at least in the press release and so maybe you know if that contracts again from 130 before the pandemic to 125 to now 120 and revenue slows a little bit then that begins to you know pay in a picture that maybe you want to get out before that happens yeah well because that's that's the to me that's a big question here which is like okay we've talked about a lot of the strategic reasons to do this deal all makes sense whatnot but they did just flip into cash flow positive territory them being slack they were still growing rapidly they're still top quartile in all these best American merging cloud index metrics why sell you know like um I mean unless they just felt like they were gonna continue to get hammered by Wall Street and didn't want to deal with that but like um it's a 55% premium David like I you know that's pretty rare as a public company to get we we in the past we've looked at these and we've said like well 20% premium is basically baseline and if you can get up to 30% or 40% even like that you know that's good do the deal but if your stock price hasn't ever hit your listing price and you've been basically flat if not down over you know the 18 months or 16 months since being a public company and someone offers you a 55% premium it's hard not to take it I mean I think that's true well I want to hear packy's thoughts no I mean I investor I think for me not having to sit inside of slack and sell against Microsoft every day I think this could be you know triple on its own in the next year or so and so it's disappointing from that perspective on the other side of the table to say yep we're gonna plug you into Salesforce is Salesforce and you're gonna be able to kind of match the distribution power at least approach the distribution power of a Microsoft and you're gonna be able to do all of these things that you want to do for you know to connect the full ecosystem of best-in-class products you can see that that's kind of attempting thing to be able to do in Microsoft you know to the for the amount that they say the Microsoft isn't that big a threat they also sued Microsoft for kind of you know for leveraging their distribution advantage against them and so it's not as big the very least it's a big annoyance and a pain to deal with day in and day out and so maybe if you combine that with the fact that it's a 55% premium you're happy to take that deal yeah I think there there has to be some element though I've just fatigue on zooms part to do this because it's 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 episode 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 it's still a little perplexing to me yeah you wonder if they couldn't have gone out and just acquired Frank Soutman to come in and and rally the troops and rally the Salesforce and go out and sell against Microsoft you know Stewart's very much a product guy and not a sales guy and maybe maybe that's the other answer here and so instead of bringing on a new CEO who's really more of an enterprise sask guy you just sell the business and you know you have this successful exit out of 55% premium and all of that because that's a good point another another people talk and start gets to continue being stored and being the product guy and you know Slack connect like it's a big vision and it's a big product and they've done really well for the product standpoint from that and he doesn't have to go be Frank Soutman and Betty off can be Frank Soutman 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 sass service and there's subscription fatigue in a big way at at any company I mean we like we're a 22 person company at PSL we have a spreadsheet to manage all the subscriptions that everybody signed up for and then there's harassing at the end of every month who signed up for this on what card I can only imagine how painful that is at at enterprises and so you have to imagine too if sales force is kind of saying actually we have the opportunity to run the Microsoft playbook here and and we're going to continue seeing more 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 sales force 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 Salesforce or we'd really love to buy from Microsoft and so maybe there's this transition period that we're in which is like a five to ten year thing but I think the way that that ends up getting solved is 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 sales force more than they hate managing right those expenses and pack you raise a great point too I think it's it's sort of novice of me to suggest that the point of integration in 2021 would be the same as the point of integration in 2005 like the rebundling won't happen in the same way that I got unbundled the rebundling will be at the credit card level or you know and you know not someone's not going to go build the Microsoft bundle the way Microsoft built the Microsoft bundle I think that's right yeah so makes this 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 our friend Jake's April over an emergence is about to publish a blog post about this like the the flip of this being an investment theme he calls it deep collaboration but like that there are all these other workflow apps out there now whether it's figmo 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 legal document with ironclad or something like that let's talk about that because I think this is this is a really astute observation yeah that's fascinating a lot of this comes from Kevin Quack who's more more astute than than I am on on these things but the point being that you know it is point that he makes in the great piece that he wrote on 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 user 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 you're right we go into figma or we go into you know pitch to do our presentations together in there so there's all these different things I think that is that does get a little bit confusing his solution and one I think you know is 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 you know there's different noise levels that you hear when you approach people or when you go further away from people or you pull up the code that you're working on in in a right there on the screen and you ought to 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 there's an even better kind of newer way 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 two the kind of next generation of slacks that are built more for this world where we all have to be collaborating with kind of whatever that software is as the central hub versus as something that we chat with chat with each other on in the office 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 slack I pop in there to like drop a gif in random happy birthday is just having a big use case yeah right but yeah to the extent that work stops I mean it's funny where work happens to the extent that work gets federated and happens in apps rather than in the central you know communication nexus 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 slack because it's a crap ton of work anytime anybody's like well let's implement chat like see zoom as example a it's chat is awful like sometimes randomly I'll paste a link and it won't hyperlink it like I mean there's this is a massively successful company with a just 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 to be the way that you implement chat in your app and they just started hitting at it too before this like he was on he went on the 20 minute VC with our settings and talked about kind of being this connective tissue between different apps and like really like what the next level of integration looks like for slack and so that would have been an amazing way to do this I think to be able to just embed slack in different apps because to your point everything they've done that seems really simple and that makes chat seem really simple is really really hard like I included the graph of all the decision tree that needs to happen to decide whether at 805 p.m. to send you a notification if I slack you and it's really complicated and so like there's all that stuff that you can just offer as a service through other products that you know would have been interesting and maybe we'll still be interesting in the combined company what if if either you are more knowledgeable than me because I've only used the product a little bit can we double click on discord a bit and talk about how that's different and why it's maybe more suited to this I don't know I want to get it probably the wrong word but embedded type use case or like co-existing with the actual apps let me first make my snarky comment which was if you thought slack was unintuitive to learn wait till you see discord it's the first piece of software that's really made me feel old using it and my my second you know the the the 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 you know it's the Android to Apple's iPhone where it's it allows far more extensibility in the chat canvas so the question is so their go to markets have been entirely different obviously gaming and influencer communities rather than the enterprise and in fact slack has made it sort of difficult to use the product for any of that anything that's not the enterprise and have to sort of turn to blind eye to our acquired slack oh my gosh I've been beaten to drum with so many people there been like please give us some basic features we are evangelizing your product yeah and my favorite the you know a long time acquired slack members will know that my my particular B in my bottom around that is because we are using it as a community product it doesn't like 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 that it's like thousands of people getting this email and this 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 yes we're not going to pay you three million dollars a year whatever we have to for our six thousand people in the acquired slack but it that is such a good point right it's not just the product it's also the way that they the way that they charge in the business model where discord makes people pay for upgraded features like you know better video or different like 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 I mean so there's the marketing side of it and like the ideal customer profile where you know slack targets the enterprise and discord targets communities but it's I think an overly simplistic view of the two products to call them similar or the same other than who they're sold to because I think when you think about all the deeper features of each they're way different so like the ability to have a shared channel between two enterprises or the ability to create a slack bot or the communicates with a time tracking tool like that those are not the types of things that discord has has ever built toward and I think it's like the classic you know enterprise software especially but all software is that iceberg where 90% of the real hard work is below the surface and I think it's only that 10 percent above the surface between slack and discord where it actually feels like the same thing I think that's I think that's right but I do think that this next generation you know companies like Huddl are gonna come out and and kind of combine the best of discord with all of the below the the surface level kind of features of slack it'll be interesting to see where those turn out but but I think there's some promise there and frankly if slack was gonna get cut off at the knees where someone else was gonna be the tool for the new upstarts if that was already true being owned by Salesforce is gonna make that way more true like if your bet on slack is to to you know the same way that you would bet on stripe like that the next great company is gonna use this as an infrastructure choice like that has to be the bet that you that you can keep making and I would say Salesforce buying it loosens my conviction in in you know that dream scenario staying true yeah I would assign a negative price to the rest of the Salesforce 360 cloud yeah I owe packy there we go there's the remaining party your upside is invest in in somebody that's gonna build the next messaging deep collaboration layer for the enterprise with discord type features for the enterprise there we go or as we all know and we can just invent invest in 10 cent and own a little piece of discord that way yes so the more I think that said and we should be a disclaim or all early 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 what not that are gonna give me great returns right but I'm gonna pay two and 20 or three and 30 on that or I could just go buy 10 cent shares or process shares which is the spin out from NASPR's or Berkshire shares I could pay no management fees and no carry to get access to equally good if not better investors globally I looked this up yesterday coincidentally do you know how much since I wrote about 10 cent call it you know in August since I wrote about 10 cent how much the value of their holdings in their top 10 holdings has increased oh I will I say your treat so go for it 55 billion 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 probably it would which is just a wild meanwhile the share price has been you know it's like up a little bit but relatively flat yeah what do you know what the basis is like when you look at all the purchase prices of all those investments it was so I pulled 103 of their 700 investments by you know translating things in Google translate from Chinese and from Mandarin to English so that's the fact that I have the ownership is crazy I don't have the basis on a lot of them but certainly they've been in companies for you know snap their investment just doubled right and Tesla they had five percent and so that obviously has done phenomenal well Spotify has 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 10 cent 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 10 cent I feel like the US government would be fine with that yeah that's not wrong Amazon's back a little bit yeah oh man all right so let's let's try and get to some like what's the bottom line here there's been a lot of takes I'm gonna 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 at TLDR tell me about you know what is this acquisition interesting and why and what's your take after an hour here of talking about it what do you think I think the acquisition is interesting for a few reasons I think the acquisition is interesting one because as you guys pointed out it gives slack this massive professional sales force to go push their product into all the orgs where it 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 in sales force and make it really easy for people to communicate with both with their clients and even with potential targets on 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 sales force is kind of the biggest acquireer that didn't get dragged up in front of congress and so is sales force 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 didn't uh did they they were involved in so they were right oh maybe in the more in the later one yeah they were that's a fair point they certainly for antitrust reasons probably they're probably the only one who actually could not have acquired yeah slack whereas everyone else maybe optically it wouldn't look good plus Microsoft's got to have such a hangover from the day they do I do I got my data is eight years old but yes well actually bed you could dig as if it's 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 or like it wasn't as bad as you would think it's only like if something really gets elevated to you know serious discussion of a big strategic move that it gets considered it's not really at that sort of the icy level I will say there was a thing there was a whole milestone and I'm trying to remember how long Microsoft's milestones were maybe six months in office where it was like the documentation milestone or the cleanup milestone or something like that around the office file format because a lot of the DOJ stuff was around wait you claim to have this open file format but you're the only ones who have any documentation on how the file format works so so I do know like that there's entire sort of like billions of dollars that had to go into the manpower of cleanup after that so then there's there's some processes in place but no it's it 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 yes I'm 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 I like you'd get up on stage and be like all right here's your orientation like you must absolutely not say these things do these right like our enemy is the government well let me let me come in with my so packy great I think great three points the one other point that I would make that that's sort of the thing I've been noodling on that we didn't really talk about is this notion of growing by acquisition which is something that we've talked about especially on the L P show with with Will Thorn Dyke 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 know you grow the company by acquiring high growth assets and you know again we can debate whether slack is a high growth asset relative to some of these other SaaS companies these days but they're a large enough enterprise company where if what Salesforce wants to do is meaningfully grow their enterprise revenue quarter over quarter they got to acquire their way into new revenue streams to do that and where are there possibly large future revenue streams that they could acquire slacks so I think that's a if I sort of had to describe why why would you do this deal if there's not real product integration to be done but you sure as heck can you know increase their their growth through your own 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 and zoom Google Google I wrote about actually a couple months ago I wrote about a Google slack acquisition I think that one I mean you know part of the press around this is that it's now Salesforce versus Microsoft I don't think that's really the case since unless people start using quip documents to replace word and whatever else but I do think that a Google plus a slack with Google's distribution really is a powerful combination when you have G Suite you have Gmail as your outlook competitor you have Google Sheets which you know maybe the finance team still needs Excel but most of the other rest of the company can use Google Sheets and Google Apps and all those things then you really have this suite that you can onboard a new company by just signing up for Google plus slack plus looker which I like better than Tableau and like there's you know it just really it feels like they're building kind of this new wave office bundle versus even Tableau like I love looker my brother loves looker my dad loves Tableau and so I think it does make a little bit more sense in that Google suite of products which is what I thought they're building and Google hasn't been you know Google is actually to me been maybe the most disappointing thing in terms of their kind of innovation or their growth unless one of the other bets pays off but they have you know this ad business which for now is spinning off a ton of cash the idea that they wouldn't play in this I don't even know how to read that but it just seems like such an obvious move for Google to come in and then there's Amazon on the other is the other one they had a partnership where you know they powered slacks video product and slack used AWS and all of that so that's another one but Google to me makes a ton of sense yeah do we know was Google a bitter at all in this or had I didn't see anything about that nor did I see that huh you're right it makes a ton of sense for them especially when you consider like the 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 500 500 to 5000 person companies it's a Google docs company that uses slack for internal communication like that 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 have you about it they they there was like CEO conversation to custom builds some stuff there like especially around the different types of sharing and how you can grant access from within slack yes like that was custom work that Google had to do in order to enable that in slack all that worked on the drain that that's the acquisition that should have been and that's the kind of thing like you know for the founders listening to this who have never sold a company before that is the typical kind of thing that forms a relationship between companies that then leads to acquisition 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 to a deal so pack you now that you bring it up like it is surprising to me that we we aren't seeing Google's name here yeah boring went up in that deal especially since I hear you've ended 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-ass companies out there this price does not feel high to me right and what if what if Google makes what if Google makes free slack an ad product right yeah would you guys accept ads to get rid of sending emails to everybody maybe I probably but not and also you know the other pieces here is financing so like sales force 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 what it's 27.7 billion purchase price for sales for Google could have spent 35 40 billion no problem wouldn't have made a dent in their treasury hmm what do the documents get disclosed David you probably know this with like a party a party B how how the deal went down uh probably when it'll come to a vote to slack shareholders okay so we'll know in the next quarter next next few months if there were if there was a bidding process here other discussions yeah I love and then I think the the other question we touched on it at the top of the show is is Zoom right like what's in Zoom's market cap now gosh if I recollect is 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 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're if you work at zoom and know the answer to this I think David and I and packy would would love to know personally but I would also chalk it up to like in all likelihood zoom has an underdeveloped corp dev function where like this would have to be a Eric wants to do this deal and is going to shovel other stuff off of his plate to pursue doing this deal and and you know I love this off they have a two person or at least you know two months ago or month ago in the river about it and a two person corp dev team that's both you know a couple months old of the company right so it's like for a company of that level of maturity it would have to be a CEO pet project in order to make a making progress on it and it feels like they want to do yeah video there's plenty to do in the video space and that has always been kind of their strong strong suit is how focused they've been on video yeah and that actually I would this would be five maybe we could do the sidebar here I would disagree with you a little bit packy on the view on zoom I think that view makes sense if you think of zoom as a enterprise productivity tool which I think a lot of people do but to me it's actually much broader and the opportunity is this that we're doing on zoom right now it's like yeah they're good great enterprise productivity product make a lot of money on that perfect but like the huge opportunity is they are the video platform for the entire economy and so I could totally see Eric being like that's our focus that's what we're doing I'm not going to get distracted on this I completely completely there should be a million startups built on top of zoom instead of a gora in the next year and so their focus should be on becoming a platform yep yep yeah grading grading let's do it okay so we thought let's do two separate gradings here to bring it home one will grade slacks 10 year as a public company all render a grade on that over the past was it uh 15 16 months or so and then two will do are looking forward let's paint an A plus C and F scenario for the next five years of slack within Salesforce all right so taking slacks 10 year 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 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 dietic yeah this is pretty bad so I'm gonna go with a C-10 year as a public company I maybe it deserves to be worse but you 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 in a you know 15 16 months as a public company to meeting that day one price or let alone in Clipsing 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 packy 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 destroy these guys and I think that's why we ended up here yeah I mean it's interesting because it's not actually if we're grading the performance as a public company the stock price movement is a failing of the CEO's ability to give the market confidence in the future of this company if we were to take a I think Hamilton points this out in seven powers and pack you know you're a avid reader of Hamilton's work with seven powers too and you know so I think it's worth bringing up public market investors are not short-sighted they they over index on recent signal but the reason is because this docs 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 gonna be and they of course over index on recent signal if it paints a picture of how those 30 years are gonna 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 of our quarter of our quarter as a public company so it's interesting like you know depending on what we're grading here you sort of grade different things like I'm in camp bish b plus as actual like execution on their goals but you know f on the ability to you know generate you know value for shareholders well not half I guess because it didn't go down but like c minus yeah I think it's interesting that this communications companies biggest problem was communications well for and telling its own its own story but I think my answer actually changes right at suffered through this kind of just like bouncing in the 25 to 30 down to 16 like range as a public company below the the DPO price and been fine with it because I thought that there was you know that they shared the long-term vision that I had for the company in which case if you just asked me to grade it on the spot I'd say it's totally fine everybody's misjudging it they also see that this thing just compounds over time and compounds over time and compounds over time obviously this deal changes my perception of how they view themselves and so in that case you know I kind of have to give it somewhere in the sea range as a public company just because it stayed pretty flat which is you know it's average it's sea and it's underperform the market pretty significantly in particularly the 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 tidy tidy 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 you can't be any better than that's the for me unfortunately fortunately 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 the biggest DPO to date yeah direct listing yeah I don't know if slack or Spotify was bigger that I was talking about the same size and Spotify is well Spotify had doldrums for a long time but it's performed excellently recently so the the one thing I will say is like how I was whatever I was there be your be minus sea 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 actually 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 fine at Salesforce and I ended up not tweeting it because I think like the work that they are doing is the 90% work that's below the surface where like you know it feels like I haven't gotten an update other than you know shared channels and multiple works it 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 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 within Salesforce of the next five years and F is always obvious right like and and to be totally clear this is how good of a use of 28 billion dollars was this for Salesforce versus the history of other uses of capital by companies both in internal and external investments or actually well maybe the F is not obvious I think the F to meet we can all debate is they're wrong strategically that building a you know what if we decide to call it not a arm the rebels but an alliance an alternative alliance that's the Microsoft 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 slack as part of Salesforce I don't want that anymore I'm moving over to discord or whatever that feels like the F to me yeah I don't know I don't think that sort of like stench is real or is 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 F to me is you know trying to integrate slack in Salesforce the products and failing and turning slack more into Salesforce than Salesforce more into slack I think that's that's enough for me and I think another you know potential is I do think there's a stench if all this sudden you start getting cross-sold Salesforce when you sign up for slack and you know the acquired FM Slack starts getting hit up with emails for Salesforce 360 and lightning and all of that look at this lightning interface right which I think it happens I think if the distribution channel it could be bad one way and it's just pushing slack to Salesforce then those are corporate buyers anyway whatever but if it goes the other way then I think that could be pretty ugly and I think the risk of this is very low to be clear like you look at Salesforce's other acquisitions like did users of quip started getting sold you know Salesforce and the 365 interface and you know did Heroku users start no like you didn't even know that Salesforce was the parent companies are those things now did they both atrophy absolutely like did did why wasn't quip notion you know why wasn't um or kota really yeah great but yet 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 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-road so um to be fair that's probably not Salesforce's fault Heroku and all the past players were probably dead anyway but that's the thing why did they buy them like that 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 going to go you know startups are going to go use the next generation of um you know of collaboration software that that is the biggest existential risk in the F scenario A plus yeah 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 they were six and Salesforce is successful at buying fast growing SaaS revenue and now they get to pump it through their channel and their channel receives it well and they just like are able to massively increase the revenue growth for slack and have more and more companies adopt it in fact they may even be able to convince um large companies maybe not an enterprise but large companies that uh you know it's now a trustworthy vendor uh it's not some startup they're buying with the you know full seal of approval from from Salesforce and that comes with a Microsoft like not quite Microsoft but Microsoft like level of um yeah yes I authorized this use at the you know 30 to 50 thousand seats throughout my organization so maybe there's a new market unlock there um I 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 a the Salesforce the anti-Microsoft alliance centered around Salesforce as a totally viable and successful new distribution channel for best of breed SaaS companies and we see superhuman uh go into the Fortune 100 and we see Koda go into the Fortune 100 uh and um uh and notion and figma and well figma doesn't need any help but uh you know uh 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 yeah I think mine is somewhere similar and it just revolves a little bit more around slack connect really being what they think it's going to be and not just creating the work kind of social network or this horizontal layer but also making being you know a target in Salesforce a better experience kind of like humanizing the whole sales process a little bit versus getting hit in some awful drip campaign so to me 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 uh 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 um any closing thoughts before we uh we wrap up and do our little closing here this was a blast yeah it was super fun yeah first time being on youtube too if you're listening to the pod um yeah it's it's it's fun uh 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 well first of all thank you to packy uh where can listeners find you and subscribe to not boring sure so they can subscribe at uh not boring dot sub stack dot com or i'm on twitter at at packy mpa ck why um thank you guys for having me this has been a blast of course so fun we're so glad you could join and uh yeah definitely subscribe to not boring and follow packy on twitter you are one of the best followers on twitter especially tech twitter thank you um and uh listeners thank you so much thank you to uh to our wonderful sponsors tiny bamboo and perkins kui you can find their links in the show notes um we didn't mention the LP program this time but i think most folks probably know what it is um and if you liked this a little bit more informal type conversation um we get to have a lot of this uh this conversation and packy you you've been in those uh zoom calls how how's how's it been for you it's an absolute blast i told you guys after after the last one but doing the outsider's book club with will thorn dike after having written about the outsiders and being obsessed with the book is just such a cool opportunity with a bunch of smart people so yeah total total last either recommend it cool well if you if you've been teetering on the edge um you can uh you can join and uh and we have a link in the show notes to become an lp at acquire dot 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 acquire dfm slash slack and with that listeners have a good one we'll see you next time