the times | Thursday December 3 2020 2GM 47

CommentBusiness

Comparisons to Argentina are way

off, but there will definitely be tears

T

he last time that Stewart

Butterfield flogged one of

his businesses, the

experience was chastening.

In 2005, the Slack boss and

Cal Henderson, his British partner,

sold Flickr, their photo-sharing

website, to Yahoo for $25 million

and became salaried employees of

the internet portal.

At the time, Flickr was a hot

property. Its audience was larger

than those of YouTube and even

Facebook, a university campus

phenomenon that had yet to break

into the mainstream. But under

Yahoo’s ownership, Flickr failed to

seize the riches that Facebook and

Instagram would later create by

doing exactly what it did — allowing

users to share photos.

Flickr may have been a pioneer,

but it was starved of capital and

became ensnared in a stultifying

bureaucracy. As Mr Henderson told

me in an interview two years ago:

“We didn’t really matter in Yahoo.”

Nowadays, Flickr is little more than

a cautionary tale on the perils of

cashing out early.

Fifteen years on, Mr Butterfield

and Mr Henderson are about to go

on the payroll of another Silicon

Valley behemoth. This week they

agreed to sell Slack, a developer of

workplace collaboration tools, for

$27.7 billion to Salesforce, the cloud

software giant. Marc Benioff, the

latter’s founder, is tooling up for a

fight with Google and Microsoft for

the spoils of the remote working

boom. Owning Slack will help

Salesforce to expand beyond its

mainstay of helping companies to

manage customer relationships.

Compared with Flickr, Slack has

been an unqualified triumph for its

founders. Mr Butterfield will pocket

nearly $2 billion in cash and

Salesforce shares, with Mr

Henderson receiving about

$750 million. However, there are

some parallels with their earlier

venture. Slack created an innovative

product that simplified

communications within

organisations, but though it has

broadened its toolkit, it remains just

that, a promising product. It has yet

to attain the status of a technology

platform on which entrepreneurs

can build a business.

With the might of Salesforce

behind it, Slack may still achieve

that goal, but it fluffed its chance to

reach these heights off its own

steam. During the early months of

the pandemic, Slack looked like it

would be a lockdown winner. Its

offering was ideal for a crisis that

forced dispersed workers to adopt

new ways of collaborating. Yet it

missed out on the rally in cloud-

based subscription software makers,

leaving it vulnerable to a predator.

Since floating last year, its stock had

fallen by about a fifth, until word of

the takeover talks was leaked last

week. Compare that with Zoom,

whose valuation has climbed by

nearly 500 per cent to $120 million

since the start of January.

Other obstacles have been thrown

into its path. Slack aimed to

establish itself as a bedrock of

workplace communication, but

Microsoft steamrolled these hopes.

The software juggernaut has a

copycat service, called Teams, and

has made it free for subscribers to

its Office software.

Imitation may be flattering, but

that is not now Mr Butterfield sees

it. In a formal complaint to the

European Commission in July, Slack

accused Microsoft of breaking

competition law by bundling its

Teams into Office. Antitrust

watchdogs historically have been

slow to investigate such allegations,

which has allowed giants like

Microsoft to amass even more

power. Slack offers a superior

experience to Teams, but all too

often competing against a free

alternative is a losing game.

It’s a lesson that Zoom should

heed. Microsoft is offering a free

video service as part of Teams.

Zoom and other cloud-based start-

ups do have an independent future,

but only if they can keep ahead of

the incumbents. Otherwise, they’ll

be swallowed — like Slack and

Flickr before it.

Simon Nixon

Simon Duke

on January 1, or the carbon pricing

regime, or the fiscal rules.

Meanwhile, the government is

mired in allegations of cronyism,

raising further doubts about the

predictability of the business

environment. A recent National Audit

Office report raised questions about

the way that billions of pounds of

public contracts have been awarded

during the pandemic without a public

tender, with many going to contacts of

ministers. Similarly, there are

questions about the conduct of Robert

Jenrick, the housing minister, both in

relation to planning decisions and the

disbursement of the £3.4 billion Towns

fund ahead of the last election, much

of which went to target Tory

constituencies. Worryingly, one of Mr

Sunak’s most eye-catching spending

pledges was a new £4 billion fund for

local “levelling up” projects to be

delivered before the 2024 election,

providing that they had the support of

the local MP and had been overseen

in part by Mr Jenrick.

Then there is the government’s

cavalier approach to the institutions of

state. These are vital to providing the

stability valued by investors. Indeed,

that is what marks Britain out as

different to Argentina. Yet under Mr

Johnson’s premiership, this

government has already illegally tried

to suspend parliament, threatened to

renege on an international treaty that

it had signed months earlier and is

threatening to break international law.

It has attacked lawyers and judges

and resisted legitimate scrutiny. This

year Moody’s downgraded Britain’s

credit rating in part over concerns

about its governance.

Britain is far from Argentina. But

then Argentina was not always

Argentina. One hundred years ago, it

was one of the richest countries in the

world, but decades of populist

governments, starting with that of

Juan Peron and his wife Eva,

destroyed investor trust. It is a

warning to guard against

complacency. It is encouraging that

Dan Rosenfield, Mr Johnson’s new

chief of staff, has, according to the

Financial Times, sought reassurances

from the prime minister on sticking to

the rule of law, observing

constitutional proprieties and ending

the quixotic attacks

on institutions.

Investors must hope

that Mr Johnson

keeps his word.

It’s easy to see why

the government was

so determined to

present the

authorisation by UK

regulators of the Biontech vaccine as a

great post-Brexit British success story.

The vaccine may have been developed

by a German company founded by

two Turkish immigrants in

partnership with an American

pharmaceuticals giant and authorised

under an existing exemption under

the European Union rules — but this

is a government in desperate need of

good news to distract public attention

not only from its dismal handling of

the pandemic but also the bleak

economic outlook.

Quite how bleak was brutally spelt

out this week by the Organisation for

Economic Co-operation and

Development, which forecast that

Britain would be the second worst-

performing leading economy in the

world after Argentina, a country that

has long been a byword for economic

mismanagement. The OECD’s

assessment was only marginally

gloomier than that of the Office for

Budget Responsibility, which the

previous week had forecast that GDP

would shrink by 11 per cent this year

and that the budget deficit would hit

19 per cent, the worst of any big

economy. The OBR doesn’t expect

output to return to pre-pandemic

levels until the end of 2022, the

OECD until 2023.

Quite why Britain has performed so

badly is a matter for debate. Some

have pointed to Britain’s reliance on

services, though it’s not as if many

other European countries don’t have

large services sectors, too. Others

have blamed the furlough scheme,

which the Treasury was forced to

cobble together in a couple of weeks

and has proved to be poorly designed

and poorly targeted, giving firms an

incentive to send staff home to do

nothing. Meanwhile, the OBR

blamed the government’s slow

response to the pandemic,

which led to Britain locking

down later and therefore

locking down longer than

other European countries.

Yet the most likely

explanation is surely the

one that Rishi Sunak

could not bring himself to mention

when setting out his plans in

parliament last week. The pandemic

struck an economy already seriously

weakened by Brexit. Business

investment has collapsed since 2016.

The looming end of the transition

period on January 1 has destroyed

what is left of business confidence.

The OBR reckons that even with a

deal, the economy will be about 5 per

cent smaller than it would have been

otherwise. Without a deal, it is likely

to shrink by a further 2 per cent.

Andrew Bailey, the Bank of England

governor, reckons that the long-term

damage from a no-deal Brexit will be

greater than that of the pandemic.

The chancellor, only days away

from the most momentous decision

facing this government, had nothing

to say about this. This is surprising

because Mr Sunak is a committed

Brexiteer, who is said to have set out

the costs and benefits of Brexit on a

spreadsheet before backing Leave.

One might have expected him to

explain why the OBR’s forecast was

too gloomy and why he thought that

Britain would “prosper mightily” even

without a deal. What was needed was

a strategy to revive confidence and

business investment. Instead, all he

had was a laundry list of spending

promises delivered with the kind

enthusiasm that Gordon Brown used

to display in the days when he

thought he had ended boom and bust.

The key to reviving investment is a

stable and predictable business

environment in which the rules of the

game are clear and fairly applied. This

is something that in recent decades

Britain had understood very well,

having learnt the lessons of the

postwar years. Yet days before

the end of the transition

period, there is no clarity

about the future rules. Some of

this is inevitable in the absence

of a Brexit deal, which is

essential to bring

certainty to the future

trading relationship

with the European

Union. But it is

remarkable that less

than a month

before the end of

the transition

period, no one

knows, for

example, what

will be the future

state aid regime

‘‘

’’

Simon Duke is Technology Business

Editor of The Times

Slack’s sale is another

cautionary tale for

technology start-ups

Eva Peron’s popularity in

Argentina hid problems

that have hurt it since

Slack’s quarterly revenues $m

Q3, 2020 Q4 Q1, 2021 Q2 Q3

169 182

202 216

235

Source: Company. Fiscal year to end Jan