Acquisitions prove that distribution is just as important as product-led growth

It seems as if M&A within Tech is ending 2020 with a bang — with acquisitions and IPO announcements taking center stage in the headlines. Salesforce announced its definitive agreement to purchase Slack — an already-public company whose stock was already at an all-time high — on December 1st. The price that Salesforce paid (nearly $28 Billion) was a premium on Slack’s market cap at the time.

Less than a week later, Cisco’s WebEx announced its acquisition to acquire online polling company, Slido, on December 7th. Terms of the deal are not yet disclosed, but it’s likely to be dramatically less than the acquisition of Slack. Even still, it’s very notable that a tech titan like WebEx determined that making an acquisition like this was worth making at all.

Interesting similarities between Slido and Slack; Salesforce and Cisco WebEx
Slack and Slido wouldn’t normally be thought of as analogous companies. Slack helps employees within organizations stay connected remotely through asynchronous chat and video communications. Slido allows event organizers (whether large-scale in-person events or smaller webinars) to engage their audiences through live Q&A and polling features. Slack is much larger as an organization with nearly 2,500 employees compared to Slido’s 150 or so. Slack also raised a substantial amount of capital prior to going public  (over $1.4 Billion) vs. the $40,000 in seed funding that Slido raised to-date.

But there are some similarities between the two businesses:

  • Both are SaaS products with barriers to try the product that are quite low. Slack and Slido both offer SaaS freemium subscription models allowing users to use and get value from their product right away (to an extent) without paying anything.
  • Partly due to this SaaS freemium subscription model, both allow employees in larger organizations to use the product on their own for free — or perhaps even at a low cost that flies under the radar of procurement officers. This theoretically allows both companies to infiltrate their customer’s tech stack and sprout “bottom-up” instead of the typical “top-down” purchase that larger organizations often make.

There are also some similarities between Salesforce and Cisco WebEx:

  • Both Salesforce and Cisco (WebEx’s parent company) are among the largest tech companies in the world by market cap. They are extremely large, well-established organizations that many enterprises rely on.
  • Both Salesforce and Cisco have a massive audience in their customer and user base — with hundreds of millions of users for both.

Here’s what this all means for Product Managers:
While neither Salesforce nor Cisco WebEx is likely making any lists for creating the most modern, innovative technologies — there is no denying the power that each of these companies wield. What makes these companies extremely attractive to other companies looking to be acquired (aside from the money, of course) is this: Distribution.

WebEx saw over 300 Million users in the month of March alone (due to the sharp increase in usage from COVID19-related lockdowns). Similarly, Salesforce has well over 150,000 customers who are very well entrenched thanks to the high switching costs associated with Customer Relationship Management (CRM) platforms. In both of these cases, they offered a massive distribution platform that companies like Slack and Slido simply couldn’t — albeit at a much different level (with Slack in a more advanced sales stage than Slido).

While Slack’s product-led growth model was quite innovative, allowing employees to begin using the product and “sell it up” after it was able to show its value, the actual process to “sell it up” is a major challenge. Even while regarded as a simple-to-use product that’s become increasingly important in today’s remote business world, Salesforce still offered a distribution channel that was unparalleled. Slack likely believed that its value would simply be higher in the long term if it had easier access to this distribution. With Slido, it similarly is now able to access a distribution channel in Cisco WebEx that was off-limits before.

Both of these companies can thank their growth, at least in part, to the product-led growth model they adopted. However, these acquisitions show that product-led growth can only go so far. It’s not to say that it’s not a useful model for products — it most certainly helped Slido, and to a much larger extent, Slack, get to the levels that they are at today. But distribution should not be overlooked beyond the growth a product experiences through product-led growth.

Distribution isn’t just something to be left to the sales and marketing teams, either. As product people, it’s important to be leading those conversations within the organization — or at minimum, making sure that product has a very active voice and a seat at the table.

Three things you should take in because of this:
[Read]: 
How a Merger of Salesforce and Slack Would Change the SaaS Landscape, Tomasz Tunguz, TomaszTunguz.com
[Listen]: SaaS sales and distribution in a crowded space, Marcelo Lombardo of Omie, The SaaS Revolution Show Podcast
[Watch]: Distribution, Channels, and Partnerships, Alex Rampell of Andreessen Horowitz, Andreessen Horowitz YouTube Channel

Default image
Mike Belsito
Mike Belsito is a startup product and business developer who loves creating something from nothing. Mike is the Co-Founder of Product Collective which organizes INDUSTRY, one of the largest product management summits anywhere in the world. For his leadership at Product Collective, Mike was named one of the Top 40 influencers in the field of Product Management. Mike also serves as a Faculty member of Case Western Reserve University in the department of Design and Innovation, and is Co-Host of one of the top startup podcasts online, Rocketship.FM. Prior to Product Collective, Mike spent the past 12 years in startup companies as an early employee, Co-Founder, and Executive. Mike's businesses and products have been featured in national media outlets such as the New York Times, The Atlantic, CNN, NPR, and elsewhere. Mike is also the Author of Startup Seed Funding for the Rest of us, one of the top startup books on Amazon.