Salesforce + Slack; Amazon AWS Trend Setting

Salesforce + Slack
The news is official that Salesforce is acquiring Slack for ~$28b, which is roughly a ~25x multiple of Slack annual revenue projection for 2021. What has been extremely interesting to observe with this deal is how negative financial analysts have been on the deal. I’ve read four notes from large institutional banks, and all of them don’t like the deal. My hunch is they all think ~25x revenue multiple is too rich, which is part of the negativity, but there is another common thread of negative sentiment that strikes me.

Overwhelmingly, Salesforce financial analysts (meaning financial analysts whose job is to provide notes on Salesforce) seem to be fuzzy on the synergy Slack brings to Salesforce. And, to go one step further, many of them are not grasping Salesforce moving further from its CRM roots. It was around 2016 and subsequent years with acquisitions like Quip, Mulesoft, Tableau, etc., that the street began to notice Salesforce pull away from their CRM roots, and this seems to cause some confusion. Looking at it this way, with Slack, Salesforce would now become a market leader for software in sales, customer support, marketing, eCommerce, data analytics, application integration, and collaboration software.

My take on the negative read from the street is they are looking solely for the synergy of these acquisitions to CRM (where little synergy exists) but are not taking into account parallel revenue streams to offer Salesforce’s large customer base. From my perspective, Salesforce is smart to not only want to diversify their revenue streams but to be able to become as close to a complete solutions provider for their customers. Salesforce has not only an extremely large customer base but also a very good, well Salesforce, and the customer engagement opportunity to upsell value-added services that their customers need to run effectively internally and externally puts them in an entirely different competitive solution than those companies just offering one piece of the pie.

Many readers would know I’ve commented before how Slack was unlikely to be able to survive on its own long-term in a world where enterprise software is increasingly becoming a bundled world. I always believed Slack would be acquired. I thought Google made the most sense, but understanding how Salesforce wants to become full suite this deal makes sense for Salesforce as well, even if the acquisition number is quite high.

The last point I’ll make here is how I find it interesting that Salesforce’s investor relations team is not doing a great job helping investors understand the companies long-term vision. If most of their large institutional analyst followers are sending notes to investor clients saying they worry the company is going too far away from CRM roots, and this is clearly the case, then someone internally is not communicating this strategy and working to sell investors on the vision and upside. I track a lot of companies who do investor relations remarkably well, and I sometimes forget how poor some companies can be as well as this practice.

Amazon AWS Trend Setting
Amazon has had a busy week throwing a number of announcements out in relation to Re:invent. When I looked through a range of the announcements it was hard to not conclude that not only is Amazon the market leader when it comes to cloud providers but they also set the trends for the market. Essentially, where AWS goes in terms of features and technology, others will follow. Amazon is also extremely aggressive from a technology standpoint. Note the specific bullets from what I consider their most telling slide.

  • Fastest networking with P4d instances (400 Gbps)
  • Largest high memory instances for SAP (24TB)
  • Largest local storage instances with D3en (336TB)
  • Most powerful ML training instances with P4d
  • Most powerful ML inference instances with Inf1
  • Best pirce/performanice for graphics-intensibe workloads with G4ad
  • Only cloud provider with on-demand macOS instances
  • Only cloud provider that supports Intel, AMD, and Arm processors

I emphasized in bold the fastest, largest, most, best, and only to make the point of where Amazon is looking to lead but also trendsetting. Some of where Amazon goes is feature decisions, these can be copied, others are entirely strategic like macOS support and their own efforts with their Graviton processor for Arm instances. But it is hard to not see Amazon being extremely aggressive and extremely customer-centric with AWS.

It is interesting when reading Jeff Bezos note to investors and the language he uses to convey Amazon’s relentless focus on customer experience and the customer overall. Often when I read this I think about Amazon e-commerce and forget that this culture extends to AWS customers as well. If I was Microsoft and Google, I think this element would worry me the most when competing with Amazon.

The other point I want to make here, and this point is actually extremely relevant to both data center/cloud and client computing devices. What Amazon is emphasizing is a clear shift from general-purpose technology to specialized technology. This shows up in the diversity of underlying computing components AWS is adopting. The data center is less about just CPU/GPU and now more about specialized processors for specialized workloads. A good example of this is Amazon’s adoption of Intel’s Habana Gaudi AI Processors.

Nvidia has long argued the GPU is the ideal general-purpose computing tool for all non-CPU related tasks. For a long time, this was true but we are now seeing the move away from the GPU’s general-purpose back to specific purpose silicon for many of the tasks previously done on the GPU like AI training, inference, AI modeling, etc. I’m not saying there are not still good reasons to use the GPU for some of this modeling, but AWS adopting Habana Gaudi AI Processors which are specific purpose accelerators for AI training demonstrates how some tasks will move of the GPU because they will do these critical tasks better.

Broadly, the trend I’m talking about is the move away from general-purpose solutions to specific purpose technology, and as I said it applies to the data center/cloud as well as client devices. In client, Apple is the biggest champion and adopter of this trend as all their A-series chips and the new M-series chips for Mac contain a range of specific purpose silicon designs. One of Apple’s key performance differentiators is because they focus more on the total silicon solution and specific purpose components rather than just try architect a CPU/GPU to handle a broader range of tasks. Apple designs its chips with specific accelerators or co-processors that handle specific workloads better and let the CPU and GPU do what they are best at.

Honestly, I feel like this approach is the only way forward to compete in the modern digital world. This is a fundamentally different approach to computing solution design than the predominant one of the past 30 years. Many companies will struggle to adopt this approach or understand its full merits, but as I said, ones ability to compete will require embracing this move from general-purpose computing solutions to specific purpose ones.

Published by

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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