Salesforce.com, Inc. and Slack Technologies Inc. have received requests for additional information from the Department of Justice Antitrust Division relating to their $27.7 billion merger, according to Salesforce’s Form 8-K filed with the Securities & Exchange Commission on Feb. 16, 2021 and reported by Reuters.
Salesforce, a popular cloud-based customer relationship software provider, announced its plan on Dec. 1, 2020 to acquire Slack, a leading business communication and collaboration platform that offers topical chat rooms and direct messaging. Microsoft is a leading competitor of both companies.
According to the 8K, the transaction is conditioned on the usual expiration or termination of the Hart-Scott-Rodino waiting period. The companies each filed HSR notices but withdrew and refiled them on Jan. 15, 2021. The following day they each received a Second Request from the DOJ for additional information and documents. The new 30-day waiting period now runs through March. Salesforce continues to anticipate the deal will close by the end of July.
Salesforce is the leader in the customer relationship management space, but “is no longer the only company in its growing market,” according to U.S. News & World Report. It faces competition from Microsoft, which has an advantage with businesses already using Office and Microsoft Teams. Other competitors are SAP; Oracle; Adobe; the fast-growing HubSpot platform; and Zendesk. Salesforce has a mobile messaging platform, LiveMessage, but it is only used by businesses using the Salesforce platform to connect with their customers. However, it requires an external messaging platform to operate.
According to CRM.org, Slack’s competitors include also include Microsoft, plus Google Hangouts Chat, RocketChat, Glip, Discord, Flowdock, Chanty, Flock, Ryver, and Mattermost.
Microsoft is the competitor that most rankles the people at Slack.
The platforms currently work well together, even if their executives do not. In July 2020 the company filed a complaint against Microsoft with the European Commission, saying the tech giant is illegally tying its collaboration software, Teams, with other widely used products, including Outlook, Word, Excel, and PowerPoint. This, Slack says, “force[s] installing it for millions, blocking its removal, and hiding the true cost to enterprise customers.” Slack VP Jonathan Prince added, “[T]his is much bigger than Slack versus Microsoft – this is a proxy for two very different philosophies for the future of digital ecosystems, gateways versus gatekeepers .... We want to be 2% of your software budget that makes the other 98% more valuable; they want 100% of your budget every time.” The action triggered heated public exchanges between the companies in the media. Microsoft CEO Satya Nadella said on Bloomberg Television that Slack would not exist without Microsoft’s free access and absence of recurring developer fees. Slack’s Prince told BusinessInsider.com that Nadella’s comment was “as silly as it is irrelevant.”
If the DOJ’s monopolization case against Google is any guide, potential anticompetitive effects of strategic mergers in digital markets are being closely scrutinized. Nonetheless, due to the limited public information available, the potential threat from the Salesforce-Slack transaction and the basis for the Department’s second request remains unclear.
What is true, however, is that an environment which incentivizes a transaction as a counter measure to a monopolistic incumbent is not sufficiently competitive.
The government in U.S. v. Microsoft squandered an opportunity to establish clear limits on the exploitation by dominant operating system providers in adjacent markets. Among the consequences of that failure are the restrictive conditions on smartphone OEMs installing Android and iOS, overreaching by the mobile app stores, and self-dealing by the operators of Google Search and Amazon Marketplace. Those outcomes, it appears, may soon include finding the DOJ in the unenviable position of dealing with a credible argument by the Salesforce-Slack merging parties that their deal is necessary for them to compete against the entrenched monopoly power of Microsoft.
Edited by Tom Hagy for MoginRubin LLP.