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Why Amazon Buying Slack Makes Perfect Sense (and Also Why It Doesn’t)

There’s more overlap between the two businesses’ missions than you might think.

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BY Sonya Mann - 16 Jun 2017
Mad Money - Season 10
Slack CEO Stewart Butterfield

 

PHOTO CREDIT: Getty Images

Amazon might want to buy Slack for a lot of money, Bloomberg reported late on Wednesday night. $9 billion, in fact, or more than twice its valuation from its last funding round.

On Thursday morning, Recode reported that Slack "is in the midst of raising $500 million at a $5 billion post-money valuation" and that other interested buyers include Microsoft and Salesforce -- both no-brainers -- as well as Google. "The company currently has $1 billion in revenue," Recode also noted, "although it is not yet profitable." If the company decided to IPO this year, which has been rumored, it would probably be well-received by the market.

After raising a big round in 2015, Butterfield told the New York Times, "I've been in this industry for 20 years. This is the best time to raise money ever." He added, "I think it would be almost imprudent for me not to accept $160 million bucks for 5-ish percent of the company when it's offered on favorable terms."

Slack is on the move in one way or another. It's worth remembering, as Recode pointed out, that founder and CEO Stewart Butterfield has long denied that Slack's fate would be an acquisition. Here's why Amazon is putting out feelers anyway.

Amazon is intrigued by owning workplace productivity

You may be wondering, why is Amazon even interested? At first blush, Slack doesn't make sense as part of Amazon's portfolio. It becomes clearer when you examine the company's recent expansions of Amazon Web Services (the core of which is cloud hosting and related developer tools).

Earlier this year, AWS launched Chime, a workplace communications service. Its homepage helpfully explains, "You can use Amazon Chime for online meetings, video conferencing, calls, chat, and to share content, both inside and outside your organization."

That actually sounds a lot like Slack, doesn't it? Just with more of an emphasis on audio and video. We can safely conclude that Amazon wants to get into this space, and Slack would jumpstart their user base. Slack's own growth is on an upward curve.

Amazon wants to open a new front in the war vs. Microsoft and Google

Microsoft's Azure and Google Cloud compete fiercely with AWS, although the latter is still by far the market leader. Microsoft has Teams and Office365, while Google has Google Apps, including Gmail, and Hangouts.

Amazon may be fleshing out its suite of products in order to maintain its edge against the two rivals, and obviously to expand how many of its services are used by existing customers. "Land and expand" is a time-honored strategy, one that Amazon has repeatedly employed in the past. The existence of Chime also points in this direction.

The big "but": Amazon and Slack are incompatible companies

On the other hand, here's why an acquisition doesn't make sense: Amazon and Slack have polar opposite identities. Amazon's internal culture emphasizes brutal efficiency, while Slack maintains a friendly vibe within its workplace. In terms of their products, Slack tries to spark joy for users, while Amazon is focused on just getting things done. AWS is not known for its design excellence, to put it politely.

Amazon probably won't get to acquire Slack, and likely the other suitors will be spurned as well. But the amount of interest in the company reaffirms its status as a Silicon Valley darling. Raising that $500 million should be a piece of cake.