Screenshot of Slack "send invitations" screen
Although Slack has shown impressive growth in the three years since the app launched, does that justify a $9B valuation? PHOTO: Gustavo da Cunha Pimenta

Amazon has reportedly approached enterprise darling Slack about a potential takeover, according to recent reports.

Bloomberg financial news service reported the rumor based on "people with knowledge of the situation," but stated an agreement isn’t assured and discussions may not go any further.

Both Seattle-based Amazon and San Francisco-based Slack refused to comment on the rumors.

Slack’s $9B Valuation?

Slack raised $200 million in its last funding round in 2016 which increased the company valuation to $3.8 billion. Since its founding in 2009 the company has raised over $500 million in total.

If this deal were to go through its new valuation could reach as high as $9 billion, according to Bloomberg sources.

In February 2017, the company claimed five million daily active users and 1.5 million paying subscribers, up from 4 million and 1.25 million in October 2016.

While that level of growth is impressive, a $9 billion valuation in such a competitive market seems excessive.

A More Crowded Playing Field

When the Slack app first launched three years ago, the collaboration field seemed clear. Now a number of strong competitors have developed products with a view to compete in — or dominate — this market.

The most obvious competitor is Microsoft Teams. Microsoft released Teams in beta in November 2016 and made it generally available in March 2017.

Teams is a chat-based workspace in Office 365 that connects and gives access to the multiple apps currently available in the suite.

With Microsoft boasting 100 million Office 365 commercial users who all have access to Teams, the argument for introducing a standalone app like Slack loses steam. 

Keep in mind that rumors also circulated during Satya Nadella's early days as Microsoft CEO that the company was potentially interested in acquiring Slack, but Nadella ruled that possibility out, choosing to focus on Yammer and the development of Teams instead.

Another competitor is Workplace by Facebook, which Menlo Park, Calif.-based Facebook launched last fall. In April 2017 the company unveiled a free version which some speculated would open the door to a “deeper pipeline of customers.”

If Workplace by Facebook has not yet achieved the traction that Microsoft and Slack have — Facebook claims 14,000 companies globally — with a Facebook user base of 1.28 billion daily active users on average for March 2017, it offers an attractive prospect to enterprise users already familiar with the software.

Also crowding the market is Mountain View, Calif.-based Google and its multiple collaboration capabilities found inside and outside of G Suite, as well as its massive traction in the enterprise.

Why Buy Slack?

In the face of such a tough, competitive landscape, why would Amazon consider buying Slack? 

It might have something to do with the rumor that Amazon is building its own productivity capabilities.

The Information, citing sources that do business with Amazon, claimed AWS is working on developing its own productivity suite.

As evidence, it cited upgrades to AWS’ WorkMail email-calendar app and its WorkDocs file storage-collaboration app to make it more attractive to corporate customers. The company also released Chime, a video conferencing and chat service in February.

Slack could be the missing piece that ties these offerings together and brings Amazon into a market that has so far eluded it.

While the potential of these two companies merging is clear, does it justify a $9 billion valuation for Slack? Time will tell if Amazon thinks so.