The Salesforce-Slack acquisition deal on Tuesday rocked the software industry as the CRM company vies for end-to-end enterprise communication domination.
While the $27.7 billion price tag stands as one of the most massive deals of the year, Salesforce's move signals a larger pattern of integration in the software industry.
"According to our database, over $500 billion [was] spent globally on acquiring tech businesses," said Scott Denne, senior research analyst covering tech mergers and acquisitions for 451 Research, part of S&P Global Market Intelligence. "If the year ended today, that's an abnormally high amount, not quite a record, but it's far from typical."
Behind most major software acquisition efforts in 2020, technology companies intended to create some version of an expanded enterprise footprint that Salesforce is accomplishing through its Slack purchase. For businesses, this provides a new level of platform interconnection— but cost and innovation concerns should be top of mind.
Automation and "anything that's helping employees work and collaborate" appears to be the biggest theme in software acquisition this year, said Eric Christopher, co-founder and CEO of SaaS management platform Zylo.
As with many trends this year, the pandemic and shift to remote work drive acquisition decisions. Since March, companies required collaboration and management platforms enabling work from anywhere. To buy into this trend, software giants are making purchases toward becoming an end-to-end service platform:
Adobe acquired Workfront last month for $1.5 billion to overcome "siloed work management solutions," according to the announcement
Verizon bought Zoom competitor BlueJeans to enter the videoconferencing and event space.
In September, HPE spent $925 million on Silver Peak, a leader in the SD-WAN space, "to advance enterprise cloud transformation with a comprehensive edge-to-cloud networking solution."
Cisco purchased internet and cloud intelligence platform ThousandEyes in August in an effort to create an "end-to-end view into the digital delivery of applications and services."
"With cloud computing, everything integrates together easier so there's less of a reason to buy everything or a lot of different things from one company," Denne said. Instead, software companies buy other companies that may be a tad outside their wheelhouse to become the "centerpiece" for software services.
One-stop software shops bring convenience at a cost
When business needs are tightly ingrained into one vendor's services, leadership may be more likely to make a larger purchase from that vendor for convenience.
The cloud space is trending toward an era of megavendors, according to Jason Wong, VP, analyst on the App Design and Development team and vendor lead for Salesforce at Gartner.
"They offer a very compelling value proposition to their clients: The fact that the more you invest with us in our technology, the higher benefits you gain because you don't have to do the level of integration that you otherwise would need to do," Wong said. "There's more consistency."
Unity of services can drive collaboration by streamlining the platform, benefiting customers and employees — while driving growth for software giants. For some, it's a win-win situation.
Traditionally, all of the information employees access spans siloed systems, "and that's a really big loss of productivity," Christopher said. Acquisition can lead to better integration for ease of use, especially in a remote environment.
Software vendors know this and will try to sell themselves as "strategic partners" able to guide digital transformation to the C-suite of a business, according to Wong. But IT departments ultimately have to consider if purchasing from a megavendor will leave them locked in and overly dependent.
CIOs and IT leadership should understand costs and ensure that software vendors are still incentivized to improve products before signing on.
Staff and IT programs assessing software megavendor investments to ensure that the companies are still innovating and there's no lock-in should be in place, said Christopher.