Slack: B2B’s Home Base, the Everything Enterprise Platform
Slack's humble beginnings as a feature within a game soon became a product with a cult-like following. Is its rapid growth a result of its platform for 3rd party enterprise SaaS integrations, and does that raise switching costs as the platform becomes the home base for the modern enterprise?
In an e-mail-driven world, Slack is a multi-faceted messaging platform that rethinks the solution for enterprise communication. Slack began as a feature rather than a standalone product, but once the company pivoted away from gaming, CEO Stewart Butterfield and the Slack team saw tremendous adoption of messenger. The product and has attracted a cult-like following ever since – to the tune of 4 million total customers and 1.25 million paying customers – who use the product daily. Slack has raised over $530M, and is currently valued at $3.8B.
Although Slack’s messenger product began as a simple 1-to-1 and 1-to-many group messenger, it quickly expanded its product offerings to help businesses run entirely on the Slack platform. After a year and a half of pure messaging, Slack started to integrate with common software tools used by many businesses – Dropbox, Box, Github and Zendesk were among the first 3rd parties to integrate. These initial partnerships encouraged a select group of enterprise SaaS companies to build integrations directly into Slack to make life easier for professionals to work more seamlessly across products. The result of these integrations was an opt-in solution for any company already subscribing to one of these software solutions.
These first integrations ultimately served as the underpinning for what eventually became the Slack Platform: a robust ecosystem of bots, analytics, customer service, file sharing and other productivity tools for enterprises. The platform itself is an open forum for developers to build on top of Slack, using the company’s API to integrate tools and features that integrate easily into Slack.
The benefits of this platform are a tremendous advantage for the company itself, its customers and its platform partners. Indeed, the company has seen 3.5x annual user growth since the platform launched almost 2 years ago.
Slack: Slack benefits because they can provide a highly customized solution for businesses based on software that that the institution is already using, without the cost of developing a customized IT product for each individual company. The platform provides a major opportunity for Slack to cross-promote itself on other products, and for these companies to promote themselves to a large, captive audience of enterprise users. Slack is notorious for having no sales team and no marketing budget, and yet this symbiosis is helping them attract customers effectively.
In addition, by developing a platform that integrates with B2B SaaS tools these companies are already using, Slack has turned itself a service with high switching costs. The platform model means that Slack is the hub and portal for a user’s daily business activities. Furthermore, by making other tools integral to the holistic product experience, Slack has diminished any benefits of multi-homing: the added benefits of purchasing and installing chat programs like Slack, Hipchat, and Basecamp is minimal to negative. This means that companies making purchasing decisions will choose just one product to implement, and Slack’s platform makes it the most appealing option.
Customers: Slack’s customers are the beneficiary of indirect network effects – Slack gets better the more apps are available for integration. The product is a closed channel within companies, meaning that a user cannot communicate with people outside of its direct organization (usually authorized with an email address or a special invitation code), so unlike other social platforms, Slack doesn’t necessarily benefit from the direct network effects of more users on the platform.
Instead, the more 3rd party integrations are built on Slack, the more functionality and use customers get out of the product. The benefits go both ways: customers of these enterprise SaaS tools drive increased adoption and usage of Slack. The inverse is true – Slack can encourage its own customers to adopt the 3rd party products featured on its platform. Thus, users of large B2B SaaS tools are encouraged to develop for Slack because of the cross-channel benefits.
Developers/3rd parties: Platform providers are encouraged to develop integrations for Slack to make consumption of their own products as fluid as possible. Box, for example, wants as many files uploaded to its service as possible. Given Slack’s position as a daily enterprise tool on which thousands of files are shared daily, Box benefits from being the file sharing tool of choice for a company’s customized instance of Slack. Developers are building directly on top of Slack, including HBR, which has built a custom bot to send relevant insights based on current issues or conversations.
To entice developers to build for Slack, the company established an $80M fund in 2016 to aid small companies building on the platform. Although independent 3rd parties might be concerned about favoritism or prominence for apps funded by Slack for the Slack platform, everyone benefits from more robust, frequent usage of Slack. As a result, everyone benefits if users spend more time in Slack, meaning 3rd party app providers are still incentivized to produce integrations even if they are not directly funded by Slack.
It’s not all rainbow hashtags for Slack’s partners. These 3rd party developers run the risk of having Slack copy their features. Products like Bluejeans offer a Slack integration for videoconferencing, but Slack launched its own in-product video conferencing feature in June 2016. Although Bluejeans has proprietary relationships with its customers integrating within Slack, it won’t be long before enterprises using both Slack and Bluejeans decide multi-homing doesn’t make sense, and that it’s easier to consolidate onto Slack. While most of these enterprise integrations are complex and therefore, secure from imitation, there’s no guarantee Slack won’t come in and try to recreate the value provided by some of their platform partners.
Student comments on Slack: B2B’s Home Base, the Everything Enterprise Platform
Great piece, Ellen! Having used a lot of really bad enterprise software, I’ve found Slack’s model of user-centric product development and its “sales” process (direct to users/teams) refreshing and fascinating. Though with the launch of Enterprise Grid (https://slackhq.com/introducing-slack-enterprise-grid-ccb343380fbb), it seems that they are beginning to build out some more “traditional” sales competencies to sign up larger customers.
With that and your final paragraph in mind, I’d be curious to know how you think Slack might try to enter markets current served by its partners. Would they adopt the same “bottom-up” product and sales strategy, or might they leverage sales competencies and relationships with Enterprise Grid customers to go after larger accounts? And if the latter, do you think that designing products for traditional sales models might threaten the qualities that earned Slack its “cult-like following” in the first place?