May 12, 2016 · 10 minutes

After Facebook reported fourth quarter earnings, it set itself apart from the rest of the tech world which was enduring one of its worst stock starts since the dot com bust.

It gained a 10% boost in market share-- about $30 billion.

At the time, I argued Facebook should just offer that $30 billion in stock to buy Snapchat. Sure, that $30 billion could disappear just as easily. But I’d bet given Facebook and Amazon are the only two tech companies doing well this year, its track record with acquisitions in the past, and the fact that this deal would mean it owned every major messaging platform would give it a similar bump on the news of the deal alone. Especially since Facebook and third parties have shown that messaging is already set to be bigger than social networking.

Desktop social networking is already Facebook’s legacy business. And it made it its legacy business via gutsy acquisitions like these. Facebook isn’t going to get another Instagram-level property for $1 billion. That was a fluke of the markets at that moment with comparatively unheated valuations, and Facebook’s smaller pre-IPO position. Whatsapp got 10% of Facebook’s market cap. I argued at the time, if buying Snapchat gives Facebook a total lock on global messaging, it’s worth 10% of what the company is worth now. Especially given Messaging is already bigger than social, and much of that valuation was based on the “legacy” business.

But lately I’ve been arguing a better use of somewhat arbitrary $30 billion in buying power that popped back up again in Facebook’s market cap after it outperformed the rest of tech in first quarter earnings: Buy Slack.

I’ve argued this enough IRL with Valley elites and on Twitter with avid tech-watchers that I can likely guess all the arguments you’ll make.  

Let me preempt you with my rebuttal:

Why is Slack worth more to Facebook than Snapchat? Snapchat is right in Facebook’s core wheelhouse and the only major messaging platform it doesn’t own?  

Yes. But. For Facebook, enterprise is like mobile/messaging was in 2012. Facebook is nowhere on it beyond talking a big game. We know it’s a priority. We know Facebook wants to go there. But look at Facebook’s track record on innovating from within, particularly in a new area. It’s pretty lousy, with the exception of Messenger and David Marcus and crew were essentially “acquihired” out of PayPal to build that. Facebook needs a bold and dramatic talent infusion and give them their own sandbox to get this right.

Facebook is already dominant in messaging and mobile. It’s already replaced its “legacy” desktop social networking business-- something Google was never able to do with search. It needs to think about what comes next. Sure, OK, Oculus. But what if virtual reality isn’t the next great ad platform?

There’s more short to medium term value in buying Snapchat and more long term value in Slack. Right now Facebook needs very little, but I’d argue it needs more long term value.

But what about antitrust worries?

A few people have raised this when I’ve brought this up. Facebook is very powerful and has been very acquisitive and the government is already closely watching its algorithm. I am no expert on how regulators think and the upcoming election could change it all anyway. But from a logical business point of view, there’s way more monopolistic risk from Facebook buying Snapchat than Slack. Facebook is dominant in mobile messaging and mobile ad sales. It is nowhere in enterprise. And while Slack’s valuation is high, its user base and revenues are tiny next to Facebook. I doubt antitrust would be an issue. But if it would for Slack, it definitely should be much more of one for Snapchat, particularly in Europe.

Product overlap.

Even though Slack would represent a bold bet on an area where Facebook isn’t dominant, there’s already overlap when it comes to innovation and product. Bots, for one. Many people were charmed by them on Slack before Messenger became all about them. (If you are a CEO/VC in the Valley, you don’t want to know what Pando’s Slackbot thinks of you. But I guarantee, it’s hilarious…)

And this week, Slack announced its new sign-in feature for the Web using your Slack identity. This is a direct challenge to Facebook, from a different, more trusted source. There are a lot of ways the two groups could learn from and augment each other… not to mention it gives Facebook multiple ways to win in existing categories like chat and identity, and eliminates a potential competitor should Slack continue to leak out of “enterprise.”

But I don’t want Facebook to buy Slack!

This is the most common and emotional response I get everytime I bring this up. Slack users do NOT want Facebook to buy Slack. They trust Slack. They love Slack. Slack is a different space for them. A safe space.

Yep. And this is all the more reason Facebook needs Slack. Instagram’s audience felt the exact same way. Many of them staged boycotts and left… and then came back. Facebook was wise to keep the two brands distinct. I can’t tell you how many parents and teens have told me that Facebook is “so over” and that their kids only love Instagram, as if that’s a diss on Facebook. That’s like trying to diss Toyota by saying you are only into the new Prius.

As we wrote earlier this week, state by state Instagram is the second largest social network after Facebook. Facebook won messaging because it gave itself so many ways to win.

Isn’t Facebook at Work already a thing? Yeah. So what? So was Whatsapp when it launched Messenger.

Just like with its legacy desktop social business, Facebook was happy to obsolete itself in the “cool” category, as long as you were on a Facebook property. And if you were vehemently anti-Facebook, and loving Instagram, so much the better. Because then it isn’t even cannibalization.

While a lot of people would be upset if this deal happened, Facebook fortunately has a track record of keeping these mega-deals totally separate. Most of the user fears of Facebook buying Instagram didn’t really come to pass. In fact, it allowed Instagram to put off monetization longer.

There are a lot of potential suitors for Slack. Facebook is the most likely to let it stay Slack, as opposed to, say, Microsoft.

Cultural fit.

Back to the debate of Snapchat v. Slack: Slack would be a better cultural fit. If you look at how Stewart Butterfield has tried to build his company, he has championed diversity and maturity. It isn’t bro’d out. Most of the staff are in their late 30s or 40s and have families. They leave at 5 pm. You could see those values aligning with what Sheryl Sandberg has tried to foster at Facebook.

Snapchat on the other hand is a more volatile place to work, with a revolving door of management. Although Facebook has allowed past acquired CEOs so much free reign that all of them continue to work at the company, it’s easy to imagine Evan Spiegel clashing. A profile on Spiegel in Recode this week is a good reminder of why.

His views are just so antithetical to Facebook’s views. Let’s start with the fact that the product is a direct reaction to a Facebook world and its permanence. Spiegel is also obsessed with privacy. Privacy has always been Facebook’s weakspot. Spiegel finds retargeting “creepy.” Facebook has been a pioneer of retargeting. Spiegel has been known to tear up ad deals at the last minute without explanation. It’s hard to imagine Sandberg’s team being cool with that.

Wait a minute, hasn’t Butterfield said plenty of times he doesn’t want to sell? Didn’t he get burned by the whole Yahoo Flickr thing? Hasn’t he already rebuffed offers?

Yes, yes, and yes. But the first and the last of those three questions were also true for Instagram, Whatsapp, Oculus, and-- for what it’s worth-- David Marcus. Zuckerberg excels at deals that start with “this person never wants to sell” or “this company has no reason to sell.” He’s lost two high profile ones: Twitter and Snapchat. And some investors and staff of Twitter may just regret that looking back.

If you’ve raised money and hired a team and given them options, you have a duty to examine insane offers. And yes, it would have to be an insane, an illogical offer just like Instagram, Whatsapp, and Oculus all were.

Not only to get past the bias against selling, but also because if Slack was perceived to be open to selling a bidding war would almost certainly begin. Google could also do a lot with this asset, and also could make an insane offer. And while Google doesn’t have as great of a track record with acquisitions as Facebook, it’s a company that gives you plenty of leash.

Facebook needs to start at a place where Slack is dis-incentivized to play that game. It needs the price to be so high that the negotiation is over culture and fit and how Facebook could help Slack achieve its own goals faster and with greater reach.

And it bears noting that Facebook board member (and, disclosure, Pando investor) Marc Andreessen is an early investor in Slack. Many outsiders pointed to Andreessen Horowitz’s connections between Oculus and Facebook as a conduit for that deal getting done. There’s way more of this behind the scenes overlap between Slack and Facebook than Snapchat and Facebook. 

These are all fun theoretical debates, but to me there’s only one central question that matters and it’s one I don’t really know the answer to: Is Slack for real?

We’ve seen a lot of “holy shit viral!” or “fastest growing ever!” enterprise companies zoom out to high valuations only to hit speedbumps growing into those valuations. Dropbox and Zenefits both come to mind, although for very different reasons. How much of the excitement around Slack is also hype? Is it mostly that media companies are one of its core user groups and so media companies talk it up more than other competitors like Atlassian’s Hipchat? And hey! Didn’t Uber just switch to Hipchat? If Uber leaves Slack, couldn’t everyone else?

I am not close enough to the company to know the answers to those questions, and I’ve had plenty of off-the-record conversations with those who are trying to figure it out myself. I think the culture Butterfield has built, and his experience having successes and failures is a good sign that this company is built to last, even if it may not ever become as dominant as some believe.

But beyond those questions, Facebook tends to look at acquisitions the way VCs look at deals with high valuations: You can only lose your money once. Put another way: If you invest and it’s a bad deal, well then, you’ve lost your money (or stock in the case of Facebook). And maybe, you could argue, it hurts Facebook’s track record on these kinds of deals if it blows up somehow. Maybe it hurts their stock for a bit. There are downsides.

But a far bigger downside is not doing the deal. If Twitter had been willing to outrageously “overpay” for Instagram at any price, how different would the landscape be now? Twitter lost far more than $1 billion, not doing that deal. Yahoo lost far more than $1 billion not buying Google. And Yahoo lost far more than $1 billion not buying Facebook.