Slack: The greatest innovation to disrupt the business world since email
How a two-year-old startup is changing the way teams work with growth that every Silicon Valley tech startup or investor hopes for.
In a world with 2.6 billion email users that send over 205 billion emails per day[1] how did a communication startup gain over 1 million daily active users in just two years?
At its core Slack is an internal communication platform changing the way businesses and teams work. Since its launch in 2013 Slack has seen the kind of growth that every Silicon Valley tech startup or investor hopes for. It is the fastest company ever to get to a $1 billion valuation, achieving the milestone in just 15 months.[2] But does Slack deserve its outsized valuation?
Unlike many other unicorn startups with multi-billion-dollar valuations, Slack’s growing adoption among business users is translating into real revenue. Out of 1 million active daily users Slack has 300,000 paid seats and more than $25 million in annual recurring revenue. [3] The success has certainly convinced investors and rewarded Slack with its current $2.76 billion valuation.
Image from: https://fortune.com
Slack has been so successful because of tight alignment between its business and operating models.
Business Model
Value Creation: Slack makes lives easier by offering simple, easy-to-use team communication that provides a more enjoyable and efficient experience than email. One only has to look at Slack’s “Wall of Love” to learn why so many users adore Slack. For example, Slack increases collaboration, people can easily stay engaged in work conversations wherever they are, it improves efficiency of meetings, facilitates remote teams, offers better prioritization of messages, helps build team culture, and the list goes on and on.
Image from: https://twitter.com/slackhq/timelines/402603838554644480
Value Capture: Slack successfully utilizes “freemium” pricing in an advertising dominated world. Slack draws users in by offering a free version of its platform that is easy to sign up for and delivers a lot of value. As teams start using Slack, information on the platform’s value spreads organically through word of mouth and because it is free and easy to test more and more people try it out. In addition, as more communication and data is archived in the platform it makes it a hassle for teams to leave. This leads to a “stickiness” in that the more your team uses Slack the more valuable it becomes for your company. Teams fall in love with the platform, using it becomes a habit, and over time many opt in to paying for the premium model that offers even more capability and value.
Image from: https://slack.com/pricing
Operating Model
Slack’s operating model aligns with its business model to deliver on its value proposition of making customer’s lives easier. Slack does this through great user experience and device and service integrations that position Slack as the platform to dominate work and drive users toward premium subscriptions.
“For decades, team communication software has been a race to the bottom with clunky and cheap solutions that offer far more frustration than value. We want to change that by offering you a product that just works.”[4]
User Experience: Not only does Slack offer an exceptional user experience through its technology, which offers a platform that is intuitive, and easy to use for even the least tech savy person, it also invests in its customer experience offline. Its customer experience team is the largest at the company and is located around the world so users can always “talk to a human”.[5] In addition to quickly dealing with customer issues Slack takes it a step further and preempts issues. For example, if a company pays for 10 users but only 9 are active, Slack automatically issues a credit to your account. The user doesn’t have to be on top of their usage but they can trust that Slack has their best interest at heart. Furthermore, Slack is always listening to customer feedback and rolling out new product improvements to keep on the cutting edge of business innovation.
Integration: Slack has brilliantly positioned itself as the central tool of business. Not only does it provide the internal company communication platform by replacing email, instant message, chat, etc., it also seamlessly integrates any other application your business may use including google drive, dropbox, mailchimp, twitter, etc. [6] Slack pulls all of the information from these tools into its platform and viola it is the one tool your company can not live without. In addition, Slack seamlessly integrates across devices so users never have to be out of touch. This integration places Slack at the center of a person’s work day and it is easy to justify a 22 cent daily expense to make work and life easier.
Slack’s ability to align its business and operating model around making customers’ lives simpler and more productive will solidify its place amongst startup success stories for years to come.
Sources
[1] Email Statistics Report, 2015-2019. Rep. The Radicati Group, Inc. <http://www.radicati.com/wp/wp-content/uploads/sites/4/2015/02/Email-Statistics-Report-2015-2019-Executive-Summary.pdf>.
[2] Kim, Eugene. “Here’s Another Chart That Shows Slack’s Incredible Growth.” Business Insider. Business Insider, Inc, 19 May 2015. <http://www.businessinsider.com/heres-another-chart-that-shows-slacks-incredible-growth-2015-5>.
[3] Macmillan, Douglas. “Slack’s Valuation More Than Doubles to $2.8 Billion in Five Months.” Digits RSS. WSJ, Mar. 2015. <http://blogs.wsj.com/digits/2015/03/26/slacks-valuation-more-than-doubles-to-2-8-billion-in-five-months/>.
[4] https://slack.com
[5] https://slack.com
[6] List of slack integrations: https://slack.com/services/new
Kate, great post about Slack. It is a very interesting company and the story of its founding only adds to the “fun ” behind the success of the app. One thing I think you could add to its business model that has really garnered Slack a competitive edge is its design with engineers in mind, so it becomes something engineers desire. The rest of us also think its pretty cool, but because of the unique focus on engineer and tech related teams, it has allowed Slack to target small firm-owners to sign-up their firm for Slack, capturing large swaths of volun-told premium users, positioning them for a defensible position in the long-run, and quick profit capture. Great overall analysis of the operating mode and business model integration. Thanks for sharing.
I love Slack!! and this post.
two things:
1. the best thing about many SAS platforms is that the wealth of data they collect for an organisation becomes their most powerful tool to retain the customer! as you referred to here – no one wants to leave a platform that holds their data that could be one day useful to them. I’ve experienced this personally.
2. love how they don’t charge for dormant users. many other such platforms keep charging you because you forget to disconnect – and it’s so incredibly annoying! this is a great technique to build trust and garner positive feelings from a customer.
Great choice and write up Kate! In the highly competitive space of Enterprise Communication Software, it is truly remarkable that a 2 year old start up has come to such prominence. As with any network/user based app, it is critical to get mass adoption within the company in order for the product to become truly sticky. While I think the user experience is nice, I think the true success of Slack comes from understanding their core user. Because Slack started off as an internal communication tool used primarily by the Product and Engineering team, they developed a product specifically tailored for technical people. As a result, they had a unique story to tell to key decision makers. The ability to integrate with other platforms truly appeals to the engineer at heart and creates a stronger ecosystem for Slack to survive. However, how many people outside of technical functions use Slack? Also, what percentage of the Fortune 500 have they been able to get on board. Can we perhaps make the claim that Slack’s growth is a direct result of the growth in start ups? Is the growth sustainable? What happens when dropbox comes out with it’s integrated collaboration platform for business? As a fan of Slack and someone who hates email, I’m rooting for them!
What an incredible idea and product. This is something I wish I had for the last five years of my life! I do see Slack being able to expand outside of the core base of engineers and other technical functions but the question in my mind really comes down to adoption. Will large corporations ever consider moving to something like this? For instance, at my old firm, we updated simple programs like Microsoft Office every five years…
Personally, I wonder if this can be integrated into some CRM capability as well. Having helped manage a sales force, anything that makes interaction easier/more efficient between teams or between teams and clients adds a great deal of value.
Great point about adoption. What has been really interesting so far is that smaller teams within organizations have started to use slack and adoption has actually been bottom up instead of enforced by management top down. The platform is just so great that people choose to use it and put pressure on their company to adopt it overall. Hopefully with enough internal pressure the large corporations will end up adopting as well but it will be interesting to see how long it takes.
Great post. Similar question to BG (Bhavik?) – what’s Slack’s success with more traditional businesses? We actually demo’d Slack and it didn’t gain adoption (which was surprising to me). I think the main drawback might be its inability to completely eliminate email (due to outside communication) and therefore it becomes another “app” that you have to check and be fully up-to-date with. Thoughts?
Hi Kate, I’ve heard great things about Slack (mostly from publications) but I generally don’t know anyone on campus or at large corporations using the service. Is this being in a particular part of the US, or by a particular industry / company size? Since I’ve never used it, I’m trying to figure out what the adoption will be like going forward and whether larger, more established businesses will take this up in the next 2 to 5 years. Thoughts?
Great post, Kate! I have never used Slack, but have been intrigued about this business since my days working with technology companies in New York and hearing about the product from fellow HBS classmates. I am wondering how you think their business model will evolve over the next 5 and 10+ years. I see the current fremium model as a way to drive adoption and their impressive user growth numbers. However, I feel that there is a large opportunity cost to this model once they are at scale. Do you think they will transition to a more SAAS-based subscription model to capture the value of their service? Would be interested to hear your thoughts.