Source: Microsoft mulled an $8 billion bid for Slack, will focus on Skype instead

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When Slack announced new voice and video services earlier this week, the enterprise messaging startup signalled a move into territory dominated by the likes of Microsoft’s Skype. But it looks like this is not the only moment when the two company’s paths have crossed in recent times.

Microsoft eyed Slack as a potential acquisition target for as much as $8 billion, TechCrunch has heard. But an internal campaign around making an offer failed to drum up support. Microsoft co-founder Bill Gates and CEO Satya Nadella were among those unconvinced by the idea, with Gates pushing instead to add more features into Skype to make it more competitive with Slack in the business market, our source says.

Slack’s momentum in picking up new users — it currently has 2.3 million daily active users, 675,000 of them paying — makes it a competitive threat for others who are hoping to lead in enterprise collaboration services.

It’s no surprise that as of last year, Slack had already had 8-10 acquisition offers.

The person at Microsoft leading the charge on Slack was EVP of applications and services Qi Lu. Lu, according to his Microsoft executive profile page, oversees all productivity, communications, education, search and other information services at Microsoft, and he also “sets the vision, strategy and overall direction of the Applications and Services Group,” including R&D for Microsoft Office, Office 365, SharePoint, Exchange, Yammer, Lync, Skype, Bing, Bing Apps, MSN and the Advertising platforms and business group.

We understand that Lu had envisaged a Slack acquisition for as much as $8 billion, an interesting figure given some other news this week about the startup. Slack was valued at $2.8 billion in its last announced funding round of $160 million in April 2015. However, we and others have heard that Slack is raising another round of between $150 million and $300 million. Our sources have pegged the valuation for the fundraise at $5 billion; others put the figure at between $3.5 billion and $4 billion.

You can imagine why the idea of a Slack acquisition would bring out both supporters and critics at Microsoft.

On one hand, Microsoft has built and acquired a number of other companies in the area of enterprise collaboration, including SharePoint, Yammer, Lync and Skype. In other words, the tools are already there for Microsoft to build its own Slack competitor without resorting to buying the startup and integrating yet another company into the mix.

On the other hand, Slack has captured mindshare in the enterprise space in a way that Microsoft and others have not managed to do. Slack’s a simple onboarding process that gets employees communicating with each other quickly. One of its key features has been the way it has integrated with so many other apps. Those who use it can quickly call in files from elsewhere with short codes to discuss or monitor the progress on projects with colleagues, or possibly just to entertain each other a little.

The platform has expanded over time with more integration-based functionality, such as ordering an Uber or Lyft from within the app. Slack has been pushing its cred as a platform by investing into a developers’ fund and launching a new app directory at the end of last year. It celebrated its two-year birthday in February and now has 2.3 million active daily users, with 675,000 paid seats. The company says it’s seeing more than $64 million in annual recurring revenue from its freemium business model.

Skype itself has been adding features into its platform to enhance its functionality for consumer and business use. They include group video calling on iOS and Android, enhancing Skype for Business to more platforms and even a Skype integration with Slack.

“At Skype, we are committed to breaking down communication barriers and getting the world talking,” the company noted when it announced a preview of the Slack service. “This is why we make Skype available on multiple platforms and continue to explore more ways to help you stay connected.” That may also be a way to lay groundwork for even more dynamic functionality ahead.

There is another coincidental overlap between Lu and Butterfield: both worked at Yahoo at the same time. Butterfield ran the Flickr photo service that he co-founded and sold to Yahoo while Lu was EVP of engineering for search and advertising.

Both Microsoft and Slack declined to comment for this story.

Additional reporting Matthew Lynley.

Featured Image: Salman Timur/Shutterstock