Commentary

Why It Makes Sense for Amazon to Buy Slack

Jun 15, 2017

Amazon might be interested in buying Slack Technologies for its popular workgroup chat product—and that possibility is not a huge stretch. On Thursday, Bloomberg reported that Amazon is weighing an acquisition of the company which could be worth up to $9 billion.

That's a high price for a company not given to writing big checks for purchases, but here's why it could make sense.

Slack blazed the trail for easy-to-use work-oriented chat, and it spread like wildfire through companies ranging from mom-and-pop shops to giant corporations. (A year ago, Slack said 77% of the Fortune 500 use its product.) It is a bona fide hit among the business customers that Amazon's (amzn) cloud computing unit, known as Amazon Web Services, is now courting.

Slack had no comment on this story; Fortune also contacted Amazon and will update this story as needed.

Related: Slack Eyes Microsoft

AWS started out a decade or so ago selling basic building IT building blocks—computing, storage, and networking resources—to businesses who aren't wild about running or building more of their own data centers. Yet in recent years, AWS has been diversifying, pushing into the types of business software typically sold by Microsoft and Google.

Email? AWS has it in WorkMail. File and document storage? AWS WorkDocs. And there has been talk—unconfirmed by the company—that it has set its sights on the Microsoft Office and Google Apps juggernauts as well. These are the word processing and spreadsheet software applications that most of the working world spend their days using.

Related: Amazon Targets Microsoft Office Megalith

That would mean AWS selling software not just to software developers and IT professionals, but to actual end users as well, which would be quite a shift for a company built largely by software geeks using their personal credit cards or their company's petty cash to rent servers and storage for software-building projects.

Related: Court Says Former AWS Exec Can't Work at Smartsheet for Now

The fact that Amazon last week sued a former AWS executive to prevent him from working at Smartsheet, a workplace collaboration software company, indicates that it sees this as a key future market. Owning Slack, which by the way, already runs on AWS, would be a huge step in that direction. In January, Slack claimed 5 million daily active users and 6.8 million weekly active users, more than 1.5 million of which use the paid version. That's a sizable audience.

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Given that, it is no wonder Microsoft also reportedly flirted with the idea of buying Slack last year. Instead, it ended up announcing its own "Slack Killer" called Microsoft Teams as part of its Office 365 franchise. Owning Slack would give AWS a broader footprint with business accounts. On the flip side, it could also dilute the company's thus-far laser-like focus on techies and developers.

Still, moving into desktop software may be its only option. Microsoft (msft) and Google (goog), which both sport huge business application businesses, are moving onto AWS turf with their own cloud businesses: Microsoft Azure and Google Cloud Platform, respectively.

Maybe AWS, never a company to shy away from a fight, figures it needs to launch a land grab of its own.

Note: (June 15, 2017, 11:40 a.m.) This story was updated to add Slack's non-comment and to update its usage numbers.)

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