Slack is an enterprise productivity software startup that is frequently talked about in tech circles as a potential email killer. In October 2014, just 15 months after its founding, Slack became the fastest “unicorn” ever to reach the coveted $1B valuation. The company recently raised $160M in Series E, at a valuation of $2.8B, from some of the most marquee VC funds in the Valley. At the time of raising Series E capital, Slack reported 1.1M DAUs (Daily Active Users).
At the same time, big tech giants such as Google, Amazon, and Microsoft, still find enterprise email to be an attractive business opportunity. In the last year or so, we have seen multiple investments in enterprise email — GMail for Work, Office 365, and Amazon WorkMail to name a few. Pitted against some of these biggest tech companies in the world, can Slack successfully kill email? What explains Slack’s explosive growth? How does Slack create value? Would it be able to capture this value in the long term to justify its sky-rocketing valuation? These are some of the difficult questions surrounding Slack that I attempt to tackle in this article.
What is Slack?
Slack is a real-time messaging app for teams that organizes team conversations in channels such as projects, topics, or teams, and allows for simple drag, drop, or sharing of files in these channels. The attached image shows what a typical Slack home screen looks like.
How does Slack create value?
- Slack helps professionals significantly reduce email clutter, thereby enhancing productivity. The Slack users I spoke to over the last week (n=8) reported that using Slack reduced their daily inbox size by 50 to 80%. Communication in Slack is more real-time and collaborative than email, making companies want to adopt it as at least a partial email replacement. Most Slack customers have moved all within-the-team communication to Slack, while communication external to the team and to the organization is still conducted via email.
- Slack comes pre-integrated with tools and apps that are frequently used in the office, providing workers a one-stop interface to use almost any work-related application such as Dropbox, Google Hangouts, SoundCloud, GitHub, Jira, or MailChimp. In addition, the company offers APIs that allow developers to integrate custom apps with their company’s or customers’ Slack accounts.
- Slack syncs seamlessly and real time across devices. In the age of mobile and Bring Your Own Device (BYOD), this enables workers to work across just about every device they use.
- Slack maintains a searchable archive of all communication and data in the cloud. Slack’s search functionality is often cited to be “GMail-like”. Besides the obvious benefit of spending less time searching for stuff in email, this also enables workers to search for keywords in their colleagues’ non-private inboxes, resulting in better onboarding for new employees and stronger collaboration across the organization.
- Slack is available for instant download and comes with best-in-class UX and design features (e.g., walk-throughs, animations, screen overlays, speech bubbles, etc.) to onboard new users. This means little incremental time and effort spent by IT teams in setting up and maintaining Slack accounts for employees.
How does Slack capture value?
Slack has a freemium subscription model. The company offers a free basic version, and charges businesses a monthly fee of $6.50 per user for premium features. Slack currently has 300K paid seats, with $25M in annual recurring revenue. The company is not yet profitable, but the losses are speculated to be relatively small for a start-up of its size. Slack’s monetization model works well for two reasons: (1) It’s free to premium conversion rate (30% of DAUs are premium users!) is one of the highest that I personally know of in freemium software (2) Slack is extremely sticky. To quote one of the co-founders of Slack, once a team reaches the “magic number” of 2000 messages, they “almost never churn”!
In order to capture greater value, Slack has recently shifted focus to enterprises. Bigger companies obviously have more employees and bigger budgets, making them attractive prospective customers for Slack. Teams in companies such as Adobe, EBay, Comcast, Walmart, and the New York Times are already using Slack.
Slack is clearly emerging as a digital winner for now – it’s numbers speak for themselves! Would it completely disrupt email? – Probably not for a long time to go. However, it has successfully managed to shift a large proportion of email traffic to its own platform, and has a sound monetization model in place to capture the value that it creates.