Slack's IBM deal is a signal to big corporate customers that the chat app is ready to go toe-to-toe with Microsoft, say analysts (WORK, IBM)

Stewart Butterfield

Slack's biggest customer is IBM, the company revealed on Monday.
While IBM has been a Slack customer for several years, IBM recently decided to deploy Slack to all 350,000 of its customers, the company told Business Insider on Monday.
Analysts tell Business Insider that the deal is a good sign of Slack's ability to win large enterprise customers and compete with Microsoft Teams, which Wall Street has been worried will put pressure on Slack.
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Slack's deepening business with IBM, the chat app's largest customer, is a testament to its ability to win the trust and budgets of large corporations at a critical moment for the newly public company, according to industry analysts.

Monday's news that IBM is going "wall-to-wall" with Slack, a deal first reported by Business Insider and which means that IBM will expand its use of Slack to all 350,000 of its employees, comes as Slack is facing intense competition from Microsoft and its rival Teams chat product.

For Slack to withstand the competition from Microsoft, many analysts believe it must make inroads with not just small and midsized business customers, but within the large enterprise corporations where Microsoft's long operating history and scale give it an edge.

The IBM deal "is a nod to other enterprise CIOs that Slack is ready for wide-scale deployment," wrote William Blair analyst Arjun Bhatia in a note to investors on Monday.

"Notably," the analyst continued, "it appears that Slack's security, reliability, integrations, and general effectiveness (i.e., users at IBM actually engaged with Slack) played a role in the deal."

Alex Zukin, an analyst at RBC Capital Markets, echoed that sentiment and said this shows that Slack's product is "highly scalable."

IBM has been using Slack in smaller teams across the company since 2014, and the partnership with Slack was first struck in 2016, but the company decided late last year to deploy it to everyone inside the organization. Approximately 300,000 IBM employees are now on Slack, and IBM is in the process of onboarding its remaining 50,000 employees.

Slack's stock surged as much as 15 percent on Monday following Business Insider's report about the expanded deal with IBM. After Business Insider's report, Slack published an 8-K filing with the SEC stating that the company was not updating its financial forecast as a result of the report, and noting that "IBM has been Slack's largest customer for several years and has expanded its usage of Slack over that time." Shares of Slack gave back some of Monday's gains after the filing and were down roughly 7% in extended trading.

Bhatia writes that once IBM has fully deployed Slack across the company, it could contribute about $30 million to Slack's annual recurring revenue or just over 4 percent of it's total annual recurring revenue.

Dan Newman at Futurum Research said a deal with IBM is a "tremendous win for the company," but that he is not surprised that IBM decided to go with Slack, because as IBM gets more competitive with Microsoft it will want to use tools from companies it doesn't directly compete with.

"IBM, especially after the acquisition of Red Hat, is going to be entering an even more competitive phase in the coming years with Microsoft and Cisco ... They probably would never even consider at this point, giving such a large collaboration to anybody else, when they have the choice to give it to Slack," Newman told Business Insider.

He noted that Slack's product doesn't directly compete with IBM and said that Slack has an opportunity to win business with other companies that may not want to use a Microsoft or Cisco product for communication and collaboration because they might be competitors.

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