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Slack S-1 (sec.gov)
593 points by bardworx on Apr 26, 2019 | hide | past | web | favorite | 453 comments

"Our revenue was $105.2 million, $220.5 million, and $400.6 million in fiscal years 2017, 2018, and 2019, respectively, representing annual growth of 110% and 82%, respectively.

Our growth is global with international revenue representing 34%, 34%, and 36% of total revenue in fiscal years 2017, 2018, and 2019, respectively.

We continue to invest in growing our business to capitalize on our market opportunity. As a result, we incurred net losses of $146.9 million, $140.1 million, and $138.9 million in fiscal years 2017, 2018, and 2019, respectively.

Our net losses have been decreasing as a percentage of revenue over time as revenue growth has outpaced the growth in operating expenses."

Nice work!

Is there any other industry where a company can go public having lost $500,000,000 over the last 3 years?

I get it their “market share” is increasing every year and the loses are staying the same...and even that is not the full picture of a path to profit.

But if the company could turn a profit, then why not do it privately, show that and then go public? My guess like Uber and Lyft...they can’t turn a profit, and for any hope to turn profit they need this continual growth at a loss, and at some point the investors dump the bag on the public getting a return in a bubble they created and let the public fund the losses.

I think to balance the playing field with VC and private investment, companies shouldn’t be able to IPO with loses.

Put another way, you're suggesting that "public investors shouldn't have access to loss making companies, regardless of growth". That would eliminate not just tech IPOs, but a majority of publicly traded companies period. Only 2700 (out of about 7500) currently make the cut: https://finviz.com/screener.ashx?v=111&f=fa_netmargin_pos&ft...

Like it or not, tolerating losses (preferably to accomplish growth!) has become a critical part of the capital landscape across industries. At least the tech sector is developing better metrics for comparing healthy and unhealthy growth, and generates enough growth (and later margins) to justify the risk in the first place. You'd be really disadvantaging small investors to not let them make the choice to participate at this stage.

One could argue the entire purpose of investment capital is to spend it.

>you're suggesting that "public investors shouldn't have access to loss making companies, regardless of growth".

No that’s not what I’m saying...there is a difference between a company that is registering for an IPO and an existing publicly traded company.

And let’s not pretend Tech companies IPOing at losses is somehow protection to small investors...I don’t see anyone clamoring to allow these small investor be allowed to get in on unicorns pre IPO.

>I don’t see anyone clamoring to allow these small investor be allowed to get in on unicorns pre IPO

Really? This sentiment is blanketed all over HN and other investment forums. One of the major macro changes to the investment landscape is rapidly growing companies staying private longer such that the gains benefit a much smaller pool of investors.

Doesn't everyone want the option to get in on these deals before they've been pumped and dumped?

WE know the truth. The ipo buyers don't.

Not sure why you're being downvoted. Most of the major IPOs of the last few years seem to follow that hump-into-oblivion pattern after public markets get in on it

I get down voted a lot. It's fine. People here don't like what I have to say. Little debate. Just down votes. I speak the true tho.


Ok, then why is loss-making more acceptable (safer for small investors) in a formerly profitable company than it is for a not-yet-profitable company?

And as others have pointed out you are exactly wrong about efforts to make public investment available earlier. Besides founders who would love to have more fundraising options, there is plenty of evidence and outcry that small investors are not getting access to economic growth: https://www.theatlantic.com/magazine/archive/2018/11/private...

> Ok, then why is loss-making more acceptable (safer for small investors) in a formerly profitable company than it is for a not-yet-profitable company?

One has demonstrated the ability to turn a profit and the other has not. This seems a bit like asking "Why is radiation considered a valid cancer treatment and rhino horn isn't when both have failed to help people before?"

People have a lot better info than total profitability to answer "can this make money" or not. Financial statements (like this S-1) do their best to separate out how much is being spent to keep customers from how much is spent to acquire them. In lots of cases (including this one) the company has proved that they have a profitable relationship with existing customers, and that they have tolerable-and-dropping costs in acquiring new customers (in this case it looks like they are breaking even on new customers in around 9 months).

There are exceptions and sleight of hand (like when Uber doesn't reveal costs to get drivers, but this is 100% true for formerly-profitable companies too. You could make a much better argument for skipping on those, or by forcing more disclosure in S-1s. But painting broadly based on total profitability is just too simplistic.

Dude, why don't you just not invest and leave the rest of us to lose our money? If I want to capitalize someone I should be allowed to. The accredited investor thing is already bad enough.

Because there is large a social cost with allowing regular people and retirement investment funds to waste money in scams. I'm not saying that Slack IPO is a scam. I'm saying that if a majority of public companies cannot turn a profit ever then nobody will ever be able to retire, except the Madoffs that we didn't catch.

The Madoff scam has nothing to do with public companies being unable to turn a profit though.

The answer is “yes, all industries where investors dont care about that”

and luckily for investors there is nothing else to invest in

There are many industries where this happens. Biotech and drug development is particularly prolific in this regard. Often drug development companies spend tens to hundreds of millions creating a drug, only to have the whole company bought out by a large pharma company once it passes a certain testing/approval milestone. No profits for the company at all. [1]

Just because a business doesn't turn a GAAP profit doesn't mean it is not a worthwhile investment opportunity, nor that investors shouldn't have access to it so they can decide for themselves. There are many reasons why investors might want to back an unprofitable company - I won't go into them all here, as it differs dramatically by industry.

Keep in mind that a large part of the public market capital is from institutional investors who have just as much experience, if not more, as private investors.

No one has to buy shares in these companies. It is all a choice. "The public" is not some block of sorry schmucks who keep getting stuck with toxic investments pawned off by VC funds, and I'm not exactly sure why you seem to think "the public" is getting a bag dumped on them...

[1] Endocyte acquisition by Novartis for $2B, December 2018. Endocyte had ~$300m of accumulated losses and zero revenue prior to acquisition [1] Ablynx acquisition by Sanofi for $4.8B, May 2018. Ablynx had ~€370m of accumulated losses prior to acquisition

Indeed, I was at a biotech drug conference in Berlin last year and was astonished at how little direct research large pharma are engaged in. They've completely offloaded primary research to drug development companies. Maybe it has always been like that, but for me it was an eye-opener.

I would assume the smaller companies are much more efficient when it comes to R&D.

And if they don't have a breakthrough drug, they go bust and investors lose their money and employees lose their jobs.

Same thing happens to tech startups. Same thing happens to local restaurants. In fact, the restaurant failure rate is much higher than most other businesses. Restaurants go bust all the time, losing money for investors (generally smaller time investors) and employees lose jobs. It’s called life. Success is never guaranteed. Is it better for someone to have had a job for a year and lost it than that job never having been created in the first place? Businesses are formed and fail all the time. In fact, that failure process is vital: it ensures capital is being allocated towards its most efficient use. Companies not being allowed to fail is what creates stagnation as available capital is consumed by inefficient enterprises rather than being redeployed to better opportunities. It’s the very essence of a market economy.

Let’s remember that a job is an arrangement where you are paid for work on an ongoing basis. If you choose to work for a startup, you assume the risk that this work opportunity will go away. But if that happens, the salary you already earned isn’t lost. You are not getting screwed on the trade where you give x hours and receive y dollars.

Working for a biotech startup instead of a big company, you accept this risk for the chance of a payoff in an acquisition.

Now, if your startup isn’t making payroll, GTFO.

They compartmentalise risk.

I would say a “large part of the market is made up of institutional investors”. 45% and growing of the market is made up of passive index funds.


Slack has a huge opportunity in front of them (become the messaging platform for every business that exists). They’re investing a lot of money to acquire all of that business (salespeople, travel, etc.). That is literally one of the main purposes of capital and access to capital is why you would take a company public.

And, specifically re: Slack. Unlike, say, Uber or Lyft, Slack has customers who have demonstrated that they are willing to pay what the service actually costs. The ride-sharing companies have not. The entire investment thesis for them is that they will somehow be able to increase prices at some point in the future, but they don’t actually have any indication that this is true. And I agree that they are most likely a bad investment. Slack, on the other hand, has a huge and rapidly growing book of extremely sticky business. To turn on profitability, they turn off their expenditure on sales people. They’re very different models.

> Slack has a huge opportunity in front of them (become the messaging platform for every business that exists).

How about: being bought by Microsoft.

I don't think Microsoft would buy Slack given the money they've dumped into developing and promoting Teams. Seems they're too far gone at this point.

Disclosure: Work at MSFT, not on Teams.

Hopefully they are smart enough not to fall for the sunk cost fallacy. But three other examples come to mind.

They bought Github even though they already had VSTS aka Azure Devops that offered free git hosting and they just abandoned their own browser engine for Chromium. Also they bought Xamarin.

Not because of the software, but because of the customers and the dev team?


Microsoft would buy to prevent someone else from doing so.

Though its hold has weakened greatly, the Outlook, Exchange, and AD behemoth still own enterprise communications.

I was under the impression Facebook owned WhatsApp...?

Why they own it, and what they paid to do so, is the point.

Yeah, I actually think that’s a likely eventual outcome. I would be shocked if they haven’t already had discussions to that effect. It seems like a natural fit to me.

Slack has a huge opportunity in front of them (become the messaging platform for every business that exists).

Isn’t that pitch what every startup tells investors?

“We only need to get a small share of this very large market”

Slack has some customers that are willing to pay, there are millions of people who use Slack for free, Slack needs to find a cost effective way to cover those expenses. Slack service is not remotely unique, their competitors both large and small are profitable ie Basecamp/Microsoft/Google

I’m pretty sure people are getting more and more used to uber, ditching their car or not looking to get a driver license. It is becoming an essential part of our lives and I use it way more today compared to years ago when rides used to cost close to 0$ Due to their promotions or agressive pricing.

Most people are extremely constrained by costs. Take out the VC money and Uber is a taxi company that is easier to use. Difficulty of use is part of the reason people didn’t use taxis all that much. But a huge part of the reason is that taxis are really, really expensive.

I'm not sure... in the old school enterprise Microsoft might be crushing them long term with O365 bundling.

I was with you on the first part, in other industries such a loss making company might have difficulties going public.

But lost you on the second part. It's not for the SEC (in my opinion) to police who can and can't go private in terms of how their busines is doing.

That's for investors to assess when deciding whether, or not, to buy shares.

The SEC's concerns should (again IMO) focus on whether the company seeking to IPO has been truthful in their prospectus. As long as they're not misleading investors, that's fine.

>That's for investors to assess when deciding whether, or not, to buy shares.

Yes for a public company...but it’s the SECs job to regulate who can have public offerings to begin with.

As I’ve iterated in the thread it’s not legal to publicly offer unregistered private stock to non-accredited investors and let them choose to invest or not. The SEC protects investors and our markets.

Don’t understand this take at all. The public is free to just not buy the stock if they don’t want.

You think the problem is that investors are leaving too much potential for growth on the table when companies IPO? They should wait even longer and keep more of that growth private?

I think a company going public should not operating at $150M losses using VC money...letting them cash out and profit by selling to the public.

I also think there are other fundamental benefits to the economy. Yes the public is free not to buy...just as non-accredited investors would be free not to invest in unregistered securities yet regulations are still in place for a reason to protect would be investors.

It doesn’t seem unreasonable that is your company operates at a $500,000,000.00 loss over 3 years you can’t avail yourself to the public market and sell your stock to non accredited investors.

I know people who are wealthy enough to be accredited investors. However I have way more financial literacy than some of these so-called accredited investors. That I’m forbidden from buying and selling certain assets only because I’m not rich enough (yet) really goes against the whole pull yourself up by your own bootstraps ideology.

The pull yourself up by your bootstraps stuff isn't the issue here, it's risk management.

Accreditation is not in place to define who is informed and smart enough to make the investments, it is defining who can afford to take the loss, and who at least has the resources to do it properly.

There are lots of other ways for people with limited money to lose it, and there always will be. Casinos, lottery tickets, credit card debt, frivolous purchases, etc.

I can’t think of any reasonable argument why allowing a free-thinking adult to, say, put a bit of savings into a friend or relative’s new startup is so much worse than the rest of these that it needs to be illegal.

It's the imbalance of power. I don't think accreditation is perfect, but it is fairly reasonable. It is really, really easy to take advantage of naive investors.

Sure, there are probably examples of sophisticated investors who don't meet the criteria. But the numbers are tiny, and probably much smaller than the numbers who think they are, but are in fact not.

Don't forget, you are still allowed to lose your life savings at "regular" investing. And Casinos have different regulations constraining their ability to fool punters...

Accreditation was introduced as risk management, after all. Any time you do something like that you can have a few outliers who are negatively affected. But if the policy is basically sound, overall it is a net win. I think that is the case with accreditation. It's not there to stop you from investing $10k in your friends startup. It's to stop companies from bilking $10k from thousands and thousands of people. Could your friends & family case stand to be eased up a bit? Probably. Does it account for much in the overall scheme. Probably not.

Bear in mind the difference between intent and efficacy. All of the things you mention also have regulation or legislative constraints that in theory are also supposed to make it harder for people to naively get themselves in trouble. Why should investment be different?

For what it's worth, I also think it should be easier to invest small amounts in higher risk ventures - but that counterbalance should be to put limits on the structuring those ventures are allowed to do in order to offer it. Keep everything relatively simple and transparent, keep the terms and structure easy to understand without having to pay a decent lawyer 2k every time to review...

Well there people who disagree and would like to invest in them. Why should your opinion be forced on them?


Okay why not, I'll take the bait.

> There are people who want to invest in ICOs, Ponzi schemes

Ponzi schemes are fraudulent operations intrinsically designed to extract money from investors by misleading them. Slack is a software company with a cogent, well-defined plan to leverage unprofitability now into significantly greater profitability later. Not only are these things meaningfully different, they're categorically incomparable.

Even if Slack ultimately fails it has a reasonable plan of action that distinguishes it from fraud. The SEC does not exist to eliminate all risk from investor portfolios, that's impossible (and suboptimal!). It exists to (among other things) ensure the risk to investor capital occurs through the normal procedure of markets instead of outright fraud. For similar reasons most ICOs (and particularly fraudulent ones) are categorically dissimilar from a tech company going public at a net loss.

> others want to rape, murder...why should anyone’s opinions be forced on these people?

I can't believe I have to say this, but the two things you described are violent acts with directly violate the rights of other human beings. I'm not sure how much else needs to be said here. We started off at people being allowed to engage in risky but fundamentally legal and mundane investments, and ended up at fraud, rape and murder. Somewhere along the way we've gotten quite lost.

My comment is not in a vacuum it’s a direct response to a comment that suggest regulation of a thing is improper because “people want to do it”. Your point is directly in line with mine...we can regulate things notwithstanding “people wanting to do it.” And that is not a reason to not regulate a thing, if people don’t agree with the merits of the proposed regulation, fine, but I think we both agree “because people want to do it” is not a reason to not regulate something.

I’m not saying slack is a fraud...I’m not even saying it’s a bad investment. People have read all that in to a concept.

ICO’s and Ponzi scheme involve misrepresentations to the investor and/or theft

But you agree people still want to invest in them right? I think ICO proved that there is a market for known fraud/pump and dumps, you may think you can get in and out and make a buck because a bunch of morons don’t see the fraud.

>But you agree people still want to invest in them right

No... people may want to invest in them because they are being actively mislead. You can't just ignore the fraud aspect, it literally makes all the difference.


To sell to the public requires someone willing to purchase the shares first. That's how the market works. If someone invests in Slack despite the conitnued losses, it means they see value in the company based on existing metrics.

Barring companies from public listings based on some arbitrary numerical threshold is very unreasonable. Even more so when only the losses are emphasized in your previous comments while ignoring the revenue growth. That alone creates a very one-sided and biased view of Slack's financial situation.

> I think to balance the playing field with VC and private investment, companies shouldn’t be able to IPO with loses.

If the investing community really thought this was a bad idea then these companies wouldn't IPO. Especially after the lessons learned from 2000.

Look, I get that people want to shit on unprofitable tech businesses, but in case you haven't noticed, investors absolutely love the financials on these companies. Why? Because their cashflows generate insanely strong tailwind effects.

I strongly urge anyone who likes shitting on to read what Bezos says on his earnings calls about earnings vs cash flow, or read Tren Griffin's blog.[0]

Good example...look at FB's FCF - https://www.marketwatch.com/investing/stock/fb/financials/ca...

[0] - https://25iq.com/2014/04/26/a-dozen-things-i-have-learned-fr...

Is there any other industry where developing an instant messaging system can result in $500 million in losses despite $700 million in revenue?

Funnily enough, when I do design interviews, I often ask them to design a chat client - not the whole design, but bits and pieces, like the db schema or the API of the service.

What the interviews invariably show is that a chat client is not simple. It's extremely complicated, especially when you want it to work at scale. If you think it's a "simple" app, go ahead, try to make one - even on a whiteboard.

I can completely understand why instant messaging can get you $700 million in revenue. As for the losses -- they are invested in the future of the company and I think are justified.

"How hard can it be?" is something we ask about "simple" stuff everyday, and the answer if you dig deeper is almost always "Much harder than you think."

My thought as well. What on earth about Slack costs hundreds of millions to operate?

Guess what? You can actually see in an S-1 what it costs.

S&M = $233,191 for 2019

More than half their revenue is spent acquiring new customers...which, with a high likelihood, will net revenue over a N+1 year timeframe. This is an investors wet dream... I pay $1 now and I only need $.15 to operate that $1 every year for the next 7 years...that's a helluva return.

In other words...you can turn off the S&M tap and these companies could be profitable almost overnight.

I think your point still stands but some of that S&M can never be cut because of churn and is highly susceptible to interference from competitors.

Slack doesn't have that much lock-in and a lot of people have their sights on that market -- "Cheaper than Slack and bundled with Office365/G Suite" is an extremely tempting offer.

Maybe, so far I've been in a few situations where we didn't go with Slack...only to go back to Slack. Part of the lock-in is their brilliant multi-org client. I can easily go back-and-forth between my company, a contract's IM, an alumni group of people in my last job and a group of local artists that like to talk to each other. Hell I've thought about luring most of my close friends from Facebook onto Slack.

Their API is also quite good IMO, which provides a sort of lock-in, though not a huge one.

Do all your contacts work in the tech industry? I'm wondering if we're really backwards here in Australia, or if I've just had bad experiences. Slack-style messaging seems really uncommon outside tech, even though traditional AIM-style IM is used everywhere. I think a lot of enterprises could benefit from capturing corporate knowledge in searchable Slack channels, but the only teams I see using them are doing IT and software.

> Part of the lock-in is their brilliant multi-org client

While not quite as fully-featured as Slack, Keybase offers this. I'm a member of multiple orgs and seamlessly change between conversations (both group and 1-on-1).

From my experience slack also has negative churn. People get used to it and automatically choose it the next time. You are correct about potential threats though.

What R&D does slack do to the tune of hundreds of millions per year?!? What G&A is over a hundred million a year? Do you use Slack?

Yes, they have a boatload of fat to trim. They can pull an Etsy move but is that not already baked into their valuation? I, frankly, don't care enough to look as I won't be investing. I just cannot believe their VC investors let them get that bloated - it's probably why they're pushing for an exit so fast. I also am not convinced Slack is very sticky. We switched to Mattermost last week and miss nothing about Slack.

Moreover, as I said in another comment: If there is all this money left to be made, why are their investors pushing them to go public? They should be riding that gravy train privately and cashing out a few years from now for 10x more...

The stickiness comes from the switching costs. We have so many integrations and while setting them up again isn't insurmountable it's a great example of unproductive busy work. Why bother?

Because you have thousands of employees and it gets expensive. It’s a luxury not a necessity and in leaner times, it’s easy to switch to something equivalent but free.

> S&M = $233,191 for 2019 More than half their revenue is spent acquiring new customers...

This isn't a consumer product. They're not doing magazine and television ads. Why is S&M so expensive?

This is literally described in the S-1.

A large plurality of it is sales & marketing. The next biggest chunk is R&D.

Right. What R&D is slack doing that requires hundreds of millions of dollars? Or G&A? No wonder their investors are cashing out. They see that there are limits else they'd keep riding this as a private company.

They need to pay about ~2000 employees including multiple hundred engineers who regularly yap about another JS/Electron stunt they pulled today.

SF tech company salaries.

Acquiring more users!

The SEC fundamentally believes it's ok to lose money investing. It's up to you to assess the investments and decide where to put your money.

That’s not the point/issue though. The markets are regulated to protect consumers/investors...private companies can’t just have unregistered public offerings to non accredited investors...so it’s not just “up to you to assess the investments” there are rules and nothing is stopping additional rules to not permit registration of a public offering when the company is operating at a $150,000,000.00 annual loss or more to the point any loss.

Obviously not a popular idea here where everyone is trying to get in early and dump the bag on someone else, but that’s kinda the point of protections, some people won’t like them.

It's not an unreasonable position. To the annoyance of many here, for example, there are investments that are limited to high net worth individuals. It's not that big of a stretch to imagine additional regulations (whether from the SEC, the major exchanges, or a combination thereof) on which companies are allowed to go public.

It's not a popular idea here because:

  Capital is extremely cheap
  Markets are at record highs
  FOMO in tech right now is extremely strong 
I can't wait to see the sentiment in two years.

The question is... right now, is it more like 1995 or 2001?

People said bitcoin was a bubble. Can't wait to see the excuses and rationalizations when this one pops.

Yes, it will pop... but timing the market is impossible. We may have a good 4 to 5 more years of this.

That can only be answered in hindsight.

The rules are about what information is disclosed. The difference is that with public companies, there are rules about what actually gets disclosed and how often. That's why the general public is allowed to invest. It's about how much information is available, not what that information actually is. Investors need to determine whether or not they invest.

In no world is the SEC's role to determine whether or not a company's business strategy qualifies them to go public or not. That would be an absolute disaster.

>In no world is the SEC's role to determine whether or not a company's business strategy qualifies them to go public or not.

Profitability is objective...let’s not pretend what I’m suggesting is the SEC subjectively making a decision on a business judgement or business plan. Simply you want to register a security for public offering show a GAAP profit...I understand that’s not “how it works” or I wouldn’t have suggested it “should” be considered, I never said anything about SEC subjectively determining worthiness of an investment.

Their business is doing extremely well. They can turn on profitability any time they want.

As an investor, I would not want them to turn a profit at this stage with so much headroom left, especially internationally.

If they choose to go for profitability this early on, then I take it as a negative signal.

Profit is too simple of a number to focus on. It doesn’t tell any kind of story by itself. But it’s a tempting number to latch onto.

You realize that you can very easily be proven wrong, right?

Amazon was "losing" more money in each year leading up to their IPO. By your logic we all should have been protected from investing in this obvious scam of a company, right? If you could go back in time and dump money into Amazon stock, would you?

Of course you would, because profitability is obviously too simplistic a measure to gate companies from going public. Also, the SEC isn't my nanny and I'm capable of reading an S1 to make my own decision. You seem to have an incredibly narrow understanding of the economics behind these companies.

>By your logic we all should have been protected from investing in this obvious scam of a company, right?

Based on my logic? I never said slack/uber/Lyft are scams, I even admit they may be good investments when they IPO...I even said profitability is not the full picture.

I never said the SEC was your nanny, I never said you couldn’t read an S-1...though based on your assertions I have to question you reading comprehension.

Maybe you could give me a comprehensive breakdown of how the market would be different if amazon did have to post profit before IPO, since you are so sure we would all be worse off...even non investors. Are investors, public markets and private markets really all better off? Is it possible amazon wouldn’t dominate and there be other companies competing in the space? Better jobs even more investment opportunites? I don’t think you could answer any of those questions with certainty.

So if you want to fundraise, you must be profitable? If that’s the case, what’s the point of fundraising? A lemonade stand is more profitable than Slack, but the upside potential for Slack is vastly greater. So showing a GAAP profit suggests that a lemonade stand is more valuable and worthy of an investment than Slack?

Should Tesla be delisted? How about Amazon? They didn’t make a profit for the majority of their existence. GAAP profits as a condition of listing is just ridiculous. Almost all green energy companies lose money, so what you seem to be implying is that the public shouldn’t be allowed to invest in the Teslas of the world because they aren’t profitable?

An IPO is a fundraising event. That’s all. If we are to say that no company should be able to fundraise if they have loses, then very, very few companies would ever have access to capital. An IPO isn’t an endorsement by the SEC, not should it be.

Why shouldn't public investors be allowed to support ventures that won't show a profit for a while? Think drug discovery oil drilling etc.

The investors see the big number in the first table of the S-1. What more do you want?

While you are still explosively growing reducing sales and marketing spend doesn't make a lot of sense. It allows competitors who out spend you to catch up. Instead you should analyze SaaS businesses by the "Rule of 40":


For Slack, if they grew 84% and their profit was -35% they are well above a net of 40 with 49. It is pretty easy to see that if Slack stopped spending on sales & marketing and stopped growing engineering they would be massively profitable. Instead, they should get as big as they can as fast as they can as most markets are becoming winner take all.

> they can’t turn a profit, and for any hope to turn profit they need this continual growth at a loss, and at some point the investors dump the bag on the public getting a return in a bubble they created and let the public fund the losses.

Could you provide some data to show that companies which, at IPO, have any cumulative loss or a very large cumulative loss (as a percentage of valuation or offering size), perform worse as investments or as going concerns?

From your other comments, it seems like the foundation of your proposed change is that going public with significant losses is an attempt to get less-sophisticated investors to compensate more-sophisticated investors.

While there are many arguments against your proposed change, the first step seems to be establishing that the problem you’re trying to solve actually exists. I’m not convinced that it does (but don’t have data either way - that’s just anecdotal), and in fact many - maybe most - institutional investors in private companies continue to hold post-IPO shares long after the lockup (and gradually sell over 1-3 years simply to diversify).

As you investigate this, it might be worth reading about the “CAC payback period” and how it can lead to significant upfront losses: https://baremetrics.com/academy/cac-payback-period, https://kellblog.com/2016/03/17/cac-payback-period-the-most-...

>While there are many arguments against your proposed change, the first step seems to be establishing that the problem you’re trying to solve actually exists.

It’s clear not many here care to understand the problem, tech generally loves a good pump and dump...look at all the recent tech IPOs... how many of those were boot strapped vs VC backed? And VC backed tech IPOs were in the black?

It’s not about investor risk...its About leveling the playing field.

Again everyone here is screaming investor risk/their choice/don’t have to buy...I don’t see anyone advocating allowing small investors to get in on unicorn tech cos pre IPO. I’m not sure why everyone is pretending it’s about giving opportunity to the little guy...it’s about the need for VC to liquidate.

Look closely at their revenue vs. their losses.

They could have been profitable in most years just by not increasing spending - which is entirely possible in their industry. Their expenses aren't really a function of the amount of customers they have.

So they consciously chose to not be profitable to grow their business instead (as they stated).

It's not like they couldn't be profitable if they wanted to.

Their business actually looks to be in an amazing shape.

Yes. Biotechnology and pharmaceuticals. It's relatively common for companies to IPO while they're still in clinical trials, which by definition means they can't earn any revenue (unless they sell some IP or research oriented products like biological models/reagents/etc to other pharma/biotech researchers on the side).

Tech companies with actual revenue have a step up in that regard.

In biotech, most companies go public without any prospect of revenue for years. But these tech companies are actually burning more money pre-IPO than biotech companies -- the ~50 biotech startups that went public from 2018-Q1 2019 raised $150-180M in VC pre-IPO

However, in biotech these days, an IPO is a funding event, not just an exit. On average biotech companies that IPO do so ~3 years after Series A. Average post-money of recent biotech IPOs is $754M, and 20% see their share price double in the year after IPO. Many of these companies raise additional cash in the public markets before they are acquired. So in biotech, public offerings are analogous to late stage VC / growth rounds in tech, and IPOs in tech are more akin to M&A exits in biotech (although big M&A exits in biotech are actually happening faster than big IPO exits in tech)

Source is analysis I did of SEC filings: https://www.baybridgebio.com/blog/ipo_2018_q12019.html

I think that your intentions are good, but approach may be off a bit. I agree that the SEC does protect investors and markets, but I do not agree that a company should be in the black before they IPO.

I think that your main concern is the public market funding VC capital returns. If so, then a more reasonable approach to prevent public market exploitation may be to require a lock up period for investors for a certain amount of time (not sure how you would determine this...) similar to how employees are often beholden to lock up periods post IPO.

Two points:

1) I am 100% in alignment that companies should NOT IPO with losses. With no evidence or education to back on this, I'll just say I feel the opportunity for non-professional investors to put money into such unstable companies is an enormous risk - not just for themselves, but the economy as a whole. Maybe there needs to be a separate market for loss-leader investing.

2) With SAAS companies in particular, adjusting for profit can be easy and it boggles my mind they don't know this or are too egotistical to believe they should.

Slack's pricing model is way too expensive and their 1:6 Paid-to-Unpaid user ratio is evidence of that. They could easily merge their two paid tiers so paid accounts have a fuller product offering than the free version AND drop the price. If they convert half of their non-paid users through pricing adjustments they could be making a PROFIT without adding any additional expense.

If they did 2)it would muddy their metrics and design feedback loops. The way it is now they can better understand their power users

Fast growth skews all of those numbers, because there's a lag between marketing/sales spending and the ensuing revenue - especially for SaaS businesses where revenue is subscription-based, and typically trickles in over a period of years.

To figure out the long-term sustainability of a business, you therefore have to compare spending, revenue, revenue growth, and churn rate (or a more complicated measure which Slack is using in this filing, Net Dollar Retention Rate) in complicated formulas that I don't know off the top of my head.

(Net Dollar Retention Rate over time is one of their three "Key Business Metrics", reflecting its importance in determining steady-state viability.)

Your question exhibits a lack of understanding of 1) IPOs (they are fundraising events) and 2) software (zero marginal costs = massive leverage).

Slack, Uber and Lyft can ==EASILY== turn a profit by slowing growth.

Note that Slack's "IPO" is not a fundraising event and Uber and Lyft have marginal costs which are far from zero. (I'm not sure Slack is a "software" company, but Uber and Lyft definitely are not.)

While Slack's IPO is very unique, it is indeed raising money. Uber & Lyft book driver incentives as marginal costs but that's about it. Of course they are all software companies.

From the S-1:


Registered Stockholders may, or may not, elect to sell shares of our Class A common stock covered by this prospectus. To the extent any Registered Stockholder chooses to sell shares of our Class A common stock covered by this prospectus, we will not receive any proceeds from any such sales of our Class A common stock."

From Uber's S1:

"Cost of revenue, exclusive of depreciation and amortization, consists primarily of Core Platform insurance expenses, credit card processing fees, hosting and co-located data center expenses, mobile device and service expenses, amounts related to fare chargebacks and other credit card losses, excess Driver incentives, and costs incurred with carriers for Uber Freight transportation. Core Platform insurance expenses include coverage for auto liability, general liability, uninsured and underinsured motorist liability, and auto physical damage related to our Ridesharing products and Uber Eats offering. Excess Driver incentives are primarily related to our Ridesharing products in emerging markets and our Uber Eats offering. [...] As trips increase, we expect related increases for insurance costs, credit card processing fees, hosting and co-located data center expenses, and other cost of revenue, exclusive of depreciation and amortization, categories."

Cost of revenue was in 2018 $5.6bn (out of $11.3bn of revenue). The also provide "adjusted net revenue" excluding among other things excess Driver incentives and Driver referrals: in that case the cost of revenue is $4.3bn out of $10bn.

Uber's gross margin is below 60%.

It's well known that you have to spend money to make money, as they say.

No investor worth their salt simply looks at past profits and decides right then and there whether a company is a good investment, because past performance alone does not predict future performance.

You have to look at the business and economic landscape, think about the business model and make a calculation about how compatible they are. This is especially important for companies recently founded.

Public or private ownership has no relevance to profitability. If a VC can invest in a “losing” company, how is that any different than allowing public markets to do the same? The loss is priced into the stock and with a “losing” stock there is opportunity for upside just as much as a “winning” stock — the public ought to be allowed to be allowed to have a piece of that opportunity just as readily as private markets.

While I'm sympathetic to your argument in general, a Slack-type company is very different from Uber and Lyft because the former is effectively zero marginal cost. It's much more the classic Silicon Valley type software company. Uber and Lyft are very much not zero marginal cost businesses.

IPOs were historically done by unprofitable companies to raise funds. It's like seeking out VCs for another round of funding, but it's instead the public. Now, it's usually done to give insiders an exit.

What future growth would there be for buyers if the company went public already at its peak?

>What future growth would there be for buyers if the company went public already at its peak?

I never said anything about peak. I said profit. Certainly a company making profit may want to go public to finance growth to make more profit (ie peak).

IPOs/stock companies were not created for companies that were unprofitable.

If a company is profitable, but there is a benefit to spending more money to grow faster, why wouldn't that company spend that profit to grow? If you believe growing the business is a good use of investor money, then wouldn't you also believe it is a good use of your profit?

It makes sense, but people do all sorts of things for many reasons or no reason.

New growth would have to be sustainable "indefinitely" or they'd have to worry about replacing it. In addition, even more revenue growth is then required to maintain the higher market cap.

If growth rate continues as they project, buyers get a larger future bump/multiplier.

What makes you say that? Proof? It was historically used to raise more funding to fuel growth, a function VCs can now fill (ie, then it would be likely to have a VC provide the larger sums required). Though VCs can fill such a gap, IPOs give insiders an exit.


It’s your assertion show me proof IPOs are for “unprofitable companies”.

>But if the company could turn a profit, then why not do it privately, show that and then go public?

Because their investors and employees want liquidity, and public investors want in on the pie. There isn't some rule that says companies can only public once they've stopped growing rapidly.

This depends on what you mean by “industry”. If Uber and Lyft are transportation companies, Snapchat is a media company and Tesla is a car company, than there are multiple industries. If you think of all those companies as “tech” than, no.

I suspect there aren't many other industries where a company can go from zero to a $1.6Bn exit in a year and a half (YouTube) -- while losing money, no less. Or from zero to a $19Bn exit in 5 years (WhatsApp).

In most industries, after such a financial performance you exit quite rapidly in a different direction.

..supply and demand. Theres demand for extremely high growth companies, especially if they seem to have a some path to profitability. Private investor demand, and public market/IPO demand too.

Investors are warming up to the SaaS/cloud model.

They see the losses as an acceptable customer acquisition cost for recurring revenue.

Speaking from personal experience, CLV for a Slack customer is 3+ years.

Because the company can't turn a profit until/unless it has access to the capital a public offering provides.

Think of companies more like hydrofoils on lava than like barges.

I think the bigger question is why they're losing so much money - from an operating perspective I'd expect costs to be really low.

There are tons of such industries. Medicine is one.

a lot of venture funds have a 10 year timeframe

It’s still mind boggling that all these unicorns haven’t found a way to make money even after being in business for years and having a mature product. It’s a strange world.

Well, these guys do have a good way to make money. Enterprise contracts are worth their weight in gold. As you could see from the quote, their revenue has increased more than their losses - which mean that they are on their way to become profitable. Arguably they could be now, if they didn't invest in growth as much.

> their revenue has increased more than their losses

But "net loss" already takes revenue into account! "Loss" is not the same thing as "expenses".

The revenue increased substantially, but so did expenses, resulting in a slight decrease in loss over the past 3 years.

At the current rate, the company would reach break-even profitability around the year 2070.

They're investing in growth. It's unclear if that investment is good or bad, but looking at quarterly accounting numbers won't tell us. All we can see here is that they're investing more than they're making.

If you created a business that simply bought $1M worth of Stocks (e.x. ETFs) and bonds, the first quarter when you made the initial investment you'd show a "loss" of $1m. You might sell those 10 years later for $2m (or maybe the value goes to $0). You wouldn't know if it was a good or bad investment until much later. Seeing a $1M quarterly loss from that first quarter of investing wouldn't give you any insight at all.

To make matters worse here, the way that quarterly accounting works generally hides what are investments and what are actual losses. Some pre-profitable companies do better than others here but it's fairly difficult to understand what parts of spending are investments and what parts are just burning money when looking at quarterly accounting statements.

If you created a business that simply bought $1M worth of Stocks (e.x. ETFs) and bonds, the first quarter when you made the initial investment you'd show a "loss" of $1m.

No, that's not how accounting works. If you buy $1M in stocks, then you move the amount from one asset account (cash) to another asset account. You have $1M in assets both before and after, with no losses.

That is not how SAAS economics works. You spend a lot money upfront and revenue is earned over years. They can stop investing in sales/marketing tomorrow and be profitable.

They quadrupled their revenue while keeping their losses flat in just 3 years, for a sticky high margin enterprise product.

With just modest revenue growth they'll be able to optimize towards profit whenever they choose.

Since we are talking about net losses being flat, it means their expenses are going up as fast as their revenue.

Expenses are growing "as fast as revenue" in millions, but "slower than revenue" in growth rate (percentage).

I'd be curious if it's remotely sustainable. We started on Slack ~3 years ago. We're now moving (albeit slowly) to Teams. 18 months from now Slack will be gone entirely. I can't believe we're the only ones. And unlike Dropbox vs. Ondrive, Slack isn't markedly better in any area than Teams from my testing.

Oh no, turn back while you still can. My team is in full revolt due to a company-wide migration from Slack to Teams. Teams is worse in almost every way. We're seeing lots of missing functionality, bizarre UI bugs, random crashes, extremely slow sync, you name it. Teams is in no way a viable replacement for Slack unless your use case is one or two plaintext messages per day.

I don’t know your use case but my team of 20 moved from Slack to Teams and has been very very happy with it.

Video chats and screen sharing are better (Screenhero is all that was around on Slack and it stunk). Video recordings save right to OneDrive for important meetings...

Oh and if you use Office 365 it’s a no brainer, everything is integrated!

Teams is truly mediocre, other than when it rises to irritating. I have no idea how anyone using it could prefer it to Slack.

It is imposed on people whose organizations have Office 365 subscriptions, it is not chosen.

I would agree. Teams is pretty half baked. It sort of works but the main reason for using it as that it’s cheap if you have office 365 already.

It's a gamble: stay with Slack and potentially be forced into an "Our Incredible Journey" migration in the future, or migrate now and shamble along until 40+ year old and profitable enterprise juggernaut Microsoft figures out how to make their product work right. Neither option is great.

Microsoft will never make Teams great, it will be just good enough that corporate bean counters won't let you pay for a competitor when you already get Teams "free".

As a drop-in replacement for Slack (or our dearly departed friend Hipchat), Teams is a poor choice. It makes more sense when used organization-wide -- for meetings, sharing/accessing documents, and so on. The chat portion works usually but it's probably its weakest point.

The bugs do need mentioned though. It constantly crashes for me, constantly loses sync, will just straight-up freeze for no discernible reason, will decide it doesn't really feel like actually sending my messages, and so on. It does not at all feel like a mature product.

Our team dropped HipChat and has moved to Teams along with the rest of the org. Our dev team (of 7) had used HipChat as a simple persistent chat app, sandboxed away from the rest of the company. Now we are on Teams with not only Ops guys, but also HR, marketing, and so on. It's fine at being sort of an organizational tool, but we dearly miss having our own private chat-only app that we can make use of as we want/need. Partly this is contextual to our organization, but the way we use Teams now feels far more formalized, and not in a good way.

Yeah, Teams is fine when it works, but it definitely has a lot of syncing issues that seem to last for hours and then magically resolve.

The cost of migrating away from something like slack for an enterprise org is enormous compared to what it costs.

Teams might have parity in a vacuum, but everyone already knows what slack is and how to use it, including people you might hire in the future.

Two years ago a company we were at had Slack and it was used vigorously. They hit a user limit and couldn't get the CEO to pony up whatever it cost to extend Slack. (This company was the kind of company that had unlimited budgets for conferences and sales calls, but could hardly ever get a CC# for a dev team need...)

They switched to MS Teams, but at least two years ago, it felt unusable. Or, the team's Slackness couldn't translate. No one used it.

Neither Slack nor MS made money in this exchange.

Maybe Teams has gotten better and more usable, but I wonder if Teams is taking off in business environments, whereas Slack definitely is more common in tech environments?

Your example demonstrates my point. Your CEO made a terrible decision in making you switch. Your co spent much more paying people to migrate to something worse than it would have spent just ponying up for the license.

Agreed. But if Teams comes with Office365, Slack may have trouble getting CEOs to pay more per-user monthly fees.

And I pay for both Office365 and G Suite at my business, and Google just invited me to Currents. I know better than to dump something like Slack for any new (like, first 3 years) Google product, but... Slack's getting some real competition.

This is the first I heard of Currents, but Google naming their Yammer-clone replacement for G+ after an already-failed Google product is really setting themselves up for success.

That’s fair and I agree that’s their biggest competitive threat. But investment wise that downside is mitigated by the possibility of being acquired

Anecdotally did your team's productivity or quality of work suffer to a large extent after moving to Teams?

I would guess that the choice of chat tool has almost no impact on productivity or quality.

That is mostly my thought as well, meaning that the parent's boss made the right move in saving money with no loss in productivity.

To be blunt: if someone who knows slack can't figure out teams, we won't be hiring them. It's a chat app, not a new programming language.

Teams is super buggy and I hated using it. We are now back at Slack (and actually happy paying customers).

Same - we used Teams for 2-3 weeks before switching back. The syncing was horrendous, the mobile apps were terrible, and a litany of other things I've forgotten.

> Slack isn't markedly better in any area than Teams from my testing.

Is it markedly worse in any area? Seems like for any business that's already entrenched in slack there isn't much incentive to move off. I'm assuming in your case there must have been some large benefits in order to spend a multi-month effort forcing a migration.

An Office 365 subscription includes Teams, email hosting, the Office suite, and 1TB storage per user for less than the price of Slack alone. So I would call that markedly worse pricing.

Sure for companies already using Slack there's probably not a whole lot of reason to move off. But Slack seems to be relying on continued huge growth numbers to become profitable.

That's what people said when they were on Hipchat. And every other chat before Slack. Chat is commoditized software at this point.

HipChat was utter crap. At some point things are good enough.

IRC was fine. Really. And the clients didn't chew ram.

IRC’s main issue is not working well with phones or multiple devices I think? (Yes, IRCCloud is a thing but if you’re going with a SaaS already, you may very well just go with a proprietary solution).

>Chat is commoditized software at this point.

I don't think I follow your logic. Why would this lead to Hipchat being completely shutdown?

I guarantee you that Microsoft has not lost money on Teams at the same growth rate. Why does Slack get a pass for that?

How about Atlassian? Did they lose money for years?

Atlassian actually had decent numbers and was profitable when they went public. Source: https://techcrunch.com/2015/12/10/hipchat-maker-atlassian-be...

But they are abandoning hipchat

How are you able to guarantee that?

That $50mm a year AWS bill seems pretty high - I think some optimizations there could easily cut this big expense...

But why? Their revenue is growing faster and they aren’t running out of money.

At that scale, I suspect there are some ~$10k engineering-time efforts that could save them $1m a year in costs, if they already have the people on staff with the expertise. In my limited experience, a lot of opportunities like that get missed because:

- an optimization is considered lower priority than feature work and bugs, so never gets staffed

- it's considered risky even when it's not

- it's difficult to quantify the value until the works done

Aside from that, just because it may be more cost effective to use 1000 servers and 1 developer versus 200 servers and 3 developers, doesn't mean it's a sound choice. One invests in people using their brains, the other mostly disappears into raw material supply chains, building servers and infrastructure and burning fuel to run them.

Head count is not infinite. I don't agree with the GP's claim that they aren't running out of money (if they don't show a profit, they are running out of money, by definition), but developer time is a limited resource that must be carefully allocated.

They have a very hard problem on their hands of estimating the revenue growth new features will bring, and compare them to costs savings from better code. I don't think anybody here has enough data to decide on this - it's not impossible that nobody there has enough data either.

I just wanted to say I fully agree with what you said; it's a very hard problem.

Also, buying cpu power is a lot easier than recruiting devs.

> which mean that they are on their way to become profitable.

Never will be sure of the exact numbers but a great deal of the sales is no doubt driven by startups and cash they are spending (do they still call this runway?). When that stops what happens?

I’d love to see - and I didn’t check the S-1 so lazyweb me - their lifetime value estimation. I bet that $400M is worth > $5B billions over the lifetime of all customer cohorts.

> Arguably they could be now, if they didn't invest in growth as much.

Bingo bango


> Keep in mind that Amazon consistently lost money for its first several years as a public company. It first reported a quarterly profit in the fourth quarter of 2001 [...]

Amazon massive economies of scale due to operating a highly efficient worldwide supply chain. I don't see Slack's average variable cost per unit going down in that same way. Amazon also made a lot of money on things like AWS by reinvesting, which is why they weren't profitable. They were burning that money by reinvesting it, not for operating expenses.

I think it's more mind boggling that people will continue to invest in them on the basis of a vague promise of profitability in the distant future. Turning a profit is much harder than buying market share.

The market is hot, and people would stuff money in a hole in the ground right now if you promised a possible 5x return. That will change soon enough. I think these unicorns may know this and may have decided their time to raise money publicly is now, before a market crash. Not saying the market is about to crash, but it's certainly volatile.

Software having basically zero marginal cost is a game changer. There's a reason why the big tech companies are the belle of the ball right now, they all print money, and they're still growing. Some things are worth the risk for that kind of payout.

> basically zero marginal cost

If only. Their COGS may be low, but marketing expenses and R&D are 2/3 of slack's expenses. Also, cloud gets very pricey at scale.

Software had zero marginal cost before everyone started hosting it on cloud services.

Conversely it takes so much money and time to create a profitable company vs history.

Their operating expenses are likely dominated by the three types of people: software engineers (listed as R&D), sales/marketing, and administrators.

Profitability will probably come post-IPO in some form of a hiring freeze (or quotas), and cuts in perks/food per capita.

If 80%ile studio rents in San Francisco were closer to $800/month than $3400/month then maybe salaries could be 70% of what they are, and Slack would be almost break-even.

It's worth noting that profitability isn't the only useful way to run a publicly-traded business. Telecoms are typically swimming in debt, but they're (mostly) fine because they have cash flow (monthly payments; making it impossible to quit).

> Telecoms are typically swimming in debt

In general many profitable businesses swim in debt. If you finance each project to 1/3 with your own capital and 2/3 dept you can do three times as many projects, and for established companies with lots of assets (production facilities etc) banks will happily lend that money.

On the other hand there are companies like Nintendo and Apple with huge cash reserves and nowhere to spend them.

Expansion costs money. They’ve doubled revenue three years in a row while keeping losses steady. Solid international growth means they aren’t running out of addressable market any time soon.

The implication is that they could invest less in growth and get to profitability, but then they’d be leaving addressable market on the table.

It's still mind boggling that all these unicorns haven't stopped growing after being in business for years and having a mature product. It's a strange world.

Don't forget that products like Slack, Uber, Airbnb, etc. all could have basically everyone as their customer. These companies influence the daily lives of millions of people, with comparatively few employees, thanks to the scaling skills of technology. That's why they are valued so high and are still growing. Sure, they might be overvalued and one day the bubble can burst, but neither is it just a ponzi scheme, there is definitely a business behind it.

They also don’t have very high barriers to entry for competitors. Replacing SAP is really hard after it has been established in a company. On the other hand replacing Slack is really easy. Same for Uber. Customers and drivers can jump ship anytime.

Uber has a big competitive moat, which is willingness to burn money. They've got a lot of it, and any competitor which can't raise as much money for that purpose as Uber has will lose out. It's simple, in any area that a small competitor of Uber operates they just artificially lower prices and do it until the competitor runs out of money. The company with more money wins.

Slack... sure you can just spin up a rocket.chat or matrix instance, but operating those costs money and attention by employees that YOU need to hire and pay. And suddenly the Slack bill you have doesn't seem that high. Quite many companies are in such a situation. There are institutions in different situations, like the French state for example which employs millions (sic) and really wants to keep the data out of foreign hands so they use matrix instead and have staff to maintain the instances. With the costs being irrelevant for most institutions, they select for other criteria instead, which is quality of the product. And Slack for some reason is market leader here. I definitely prefer to use IRC but I'm not delusional, most people aren't like me.

"Uber has a big competitive moat, which is willingness to burn money. "

that's a very bad long term strategy :-)

Most of the time, there won't be anyone trying so most of the time they will make money instead of burning it. As long as they are burning less on average than they are doing in profits they turn a profit in total.

The business model already exists e.g. in the form of American cable companies. They offer crappy services for super expensive prices, but the moment a competitor gets into town and invests heavily, they invest as well and outbid them. This way they ensure that no competitor can make profits and grow beside them in that specific town. So they are safe. Add in government mandated monopolies and "you get counties abc, I get counties def" type deals between cable companies and regulators looking the other way. Same will likely happen for Uber vs Lyft.

The problem with Uber is not that they are lacking a moat, it’s that they have not demonstrated what the market size for ride-sharing is when consumers have to eventually pay the true cost. Given how incredibly expensive ride-sharing is when heavily subsidized, you’re have to be insane to think that the market won’t shrink when prices are 30-50% higher.

And if your answer to that problem is self driving cars, well then I’ll happily point you to the auto-rental market as roughly what kind of a business you’re investing in.

Usually those staff are able to setup and manage chat while doing 100 other things for the company, and if they're not then fire them.

It depends on how you use slack. (I agree that Uber is pretty easy.)

If slack becomes an email replacement (instead of an ephemeral IM client), and a repository for historical knowledge, then it becomes very difficult to replace. In the workplaces where I have used slack, it definitely starts to take on that role (links to discussions are placed in tickets and documents, for example).

From what I have seen Slack may have a strong a foothold in some teams but overall it’s not hard to use something else when new teams are formed. I’m my company everybody is slowly moving to Teams. This can be done gradually. Definitely much easier to replace than SAP.

I'm not sure replacing Slack is as easy as you may think. If you have used their product, then you understand the amount of integrations and dependencies that become built into a team's workflow.

When your entire history of communications, way of tracking tickets, and document repository is stored in a desktop application, replacing Slack may not be as simple as switching to another messaging program.

Could you "replace Outlook" -- it's just an email client after all.

“Could you "replace Outlook" -- it's just an email client after all.”

Absolutely. There is always pain in transitions but some are easier than others.

But why would you? “Hey boss I’m going to take up a bunch of everyone’s time getting everyone on boarded and retrained, as well as doing a nontrivial data migration, because some hot new email client is marginally better”

As almost always for cost reasons. What I am trying to say is that some things are more difficult to replace than others. Moving away from slack is doable. Moving away from Outlook is doable. Moving from 100000 Windows machines to Linux is harder. Moving away from SAP is really hard.

Airbnb is profitable.

It's a testament to how much spare money is just floating around in the upper VC class.

They haven't found a way to be profitable because they are not seeking a way to be profitable.

Let me let you in on a little secret. Slack makes TONS of money. Take that as a truth and then think about why they're still reporting they're losing money..

No. Let me put it this way. Strategically from a bunch of directions. Even if they were making 10x the money. They would still be reporting the same steady losses.

Are you inferring that the financials in the S-1 are being misrepresented? If so, that's quite the accusation!

What is this hidden truth you're alluding to?

I either wildly underestimate the cost or the scale of building slack, am I reading that right that they've spent well in excess of a billion dollars in the last few years?

You aren’t wrong. But keep in mind that these are all recurring revenue deals. The $400M is highly likely to recur next year or even increase - even if they don’t close a single additional customer.

SaaS companies talk about “lifetime value” which is a fancy name for the net present value of future cash flow from each customer. What if today’s $400M will recur for ten years? That warrants a value of $4B just on today’s customers. But if the growth can be sustained for a few more years, maybe by 2022 they’ll hit $1.5B/yr... that’s the gamble investors seem ready to take.

I can see them making money, I'm more shocked at the cost of running or building it up.

I try to assume that if I think something is odd but it's not my field, I'm wrong and don't understand it properly. It's just at a scale I find hard to understand. A billion dollars is a lot.

I'd love to know what it is they're pumping the money into that they make per user, because I can't see what massive upcoming things there are to build. What are they ploughing hundreds of millions into?

Again, with all of this, I assume it's me that doesn't understand.

When you start selling into very large enterprise, there are enormous behind-the-scenes requirements that are very expensive to develop. Compliance features, for instance.

Holy Jesus these are amazing SaaS growth metrics. Rule of 40 be damned.

What could they possibly be spending so much money on?

I see the counterargument, but we are still pushing companies onto the public that are losing copious amounts of money. Part of me wonders if we aren't witnessing the irrational exuberance before the (cyclical) fall.

This is not irrational exuberance. Slack makes a very sticky enterprise product with tremendous network effects. It’s hard to get rid of because it integrates with all sorts of other things within the enterprise. The value of chat is unlikely to diminish anytime soon. Losing money today to acquire customers who will stick around for years is a great idea. In fact, to move for profits today at the expense of growth would be foolish.

Really? I know an org of > 2,000 people who recently switched away from Slack to the open-sourced Mattermost. I don't think Slack is untouchable. Overall point is considering other companies too with massive losses being pushed on the public feels like a trend, and maybe ominously represents a certain phase in a cycle.

Mattermost CEO here,

Thanks for the mention. Increasingly we see mention of "Slack or Mattermost" as part of DevOps stacks. In my mind, the space is growing quickly and there's room for multiple winners.

I'm excited about having more and more functionality people love available in an open source alternative.


That's a great question. They expanded it a bit on their "SUMMARY CONSOLIDATED FINANCIAL DATA AND OTHER DATA" section.

Their operating expenses are divided in 3: Research and development, Sales and marketing and General and administrative.

They also describe a bit the evolution of these under the Risk Section, beneath "We have a history of net losses, we anticipate increasing operating expenses in the future, and we may not be able to achieve and, if achieved, maintain profitability."

I think historical accounting practices and standards are not great at evaluating SaaS businesses.

We came up with the concept of depreciation/amortization as a way to better match up expenses with revenues in a given time frame.

I think we need a similar mechanism for allocating sales & marketing costs.

My company spends about $1,000/year on Slack. We likely will in perpetuity, as long as we/Slack exists.

Slack spent marketing/CAC dollars on us all the way back in 2014 to acquire our LTV stream of cash flows.

If you "depreciated" Slack's sales and marketing costs ($104M, $140M, $223M) over the LTV of the average customer, they would show massive profitability already, and even greater profitability in the future.

We do this already with depreciation - why not with sales and marketing for recurring revenue software companies?

> If you "depreciated" Slack's sales and marketing costs over the LTV of the average customer...

This is starting to sound very similar to mark-to-market accounting, and the one word associated with "mark-to-market" is "Enron".

From http://www.creditpulse.com/accountingfinance/lessons-enron/e...

> Basically, mark-to-market is a type of accounting that enables a company to book the value of an asset or a liability, not based on the cost of that asset, but based on current market valuations or perceived changes in market valuations.

What got Enron started down the path to ruin is the SEC granted them a waiver where they could start pricing their projects by their perceived value. Problem was, the perceived value was anything that Enron said it was. So that let Enron inflate their holdings, which gave them access to more capital, which let them keep on inflating their holdings until the whole thing came crashing down.

Of course, the asset values weren't just what Enron said they were. They had auditors backing up their claims. One of the Big 5 financial auditors. And as a result, Arthur Anderson also went down in flames along with Enron.

So, in your case, who decides what the LTV of customer cash flows is? The Enron lesson is let speculators use their hunches to guess the future, but keep that speculation out of the official accounting documents.

> This is starting to sound very similar to mark-to-market accounting, and the one word associated with "mark-to-market" is "Enron".

From Wikipedia:

Mark-to-market (MTM or M2M) or fair value accounting refers to accounting for the "fair value" of an asset or liability based on the current market price, or the price for similar assets and liabilities, or based on another objectively assessed "fair" value.[1] Fair value accounting has been a part of Generally Accepted Accounting Principles (GAAP) in the United States since the early 1990s, and is now regarded as the "gold standard" in some circles.

What you are describing is Mark to Model not Mark to Market. Mark to Market is what banks use and has little room for cheating. Mark to Model was banned after Enron.

Well, just like there are objective levels of depreciation for certain classes of assets (property vs. equipment), perhaps there could be similar levels of depreciation allowable for sales & marketing costs based on historic customer churn?

The property and equipment depreciation rates are codified in US tax law.

LTV isn't some fluffy made up number, it's the output of a formula

But you don't actually know that a customer will remain a customer forever, whereas you do know that a truck will be worth 15% of its present value in 10 years.

Averaged out across all customers you kind of do though. You know the rate coming in and the rate leaving.

I think this highlights the distinction between book value and market value. GAAP accounting pretty much tries to value the net value of the company based on the holdings/liabilities that it is legally entitled to at that second. Because a Slack customer can stop paying at any time, it would be wrong to say Slack already had that money in the bank.

However the idea you point out is why on the stock market people value companies completely differently than their book value. It would be pretty interesting if there was a standardized balance sheet like document that could be made with projected value.

I think a lot of it is historically tied to taxation.

By not depreciating sales and marketing, Slack can claim all of that expense upfront, and delay tax payments since they show a greater loss.

I don't think that Slack's business model is that different from other companies, from a marketing perspective. Sure, they acquired you as a customer in 2014 and don't need to spend anymore on marketing, but other companies spend huge amounts for marketing in the first few years and then spend less over time (think: you picked a detergent brand and keep using it without further marketing, for example). I actually think it is appropriate to recognize the expense now (or in whatever year it occurred), as there is no way to measure what benefit they are getting now from it. Isn't Slack burning now so it won't have to later? If that is true, does that sound like an unprofitable business?

That being said, specific marketing costs already are amortized over the life of contracts - if you pay commissions to sales staff, those are allocated over the life of the contracts that are signed. If you pay inducements (such as free months of service, or whatever), those are amortized over the life of the contract. However, general marketing expenses like ads are recognized in the period that they occur. There are a number of reasons for this: maybe adtech can decide who saw what ad and made a purchase because of it, but that is generally hard to tell. The other is that how do you know what the life of the contract will be. Your company pays $1000/year for Slack, and you likely will, but what if something changes? Slack can't know what you're planning to do. They'd have to make an estimate, and estimates are open to manipulation by management.

Management's incentive is to decrease expenses in the current year to make themselves look better to investors, so they're going to say that their expenses will be good for 20 years. How can they be certain? There's also the other way they can manipulate it by saying that "oh, this was a bad year already, we might as well recognize marketing expenses now to make a bad year worse, so next year looks better". Since there's no actual measurement basis, there's no corroborating evidence either way.

Source: am an auditor, albeit not familiar with US GAAP.

i don't have a subscription to laundry detergent, nothing stops me from buying a different brand in 6 months, whereas slack has contracts with my company, and has switching costs (we'd lose our message history).

> (we'd lose our message history).

You can't export your data from Slack?

It's rough. We thought about switching to Microsoft Teams and we realized that so many decisions about our relatively young company were tucked in DMs and private channels in Slack that we couldn't leave.

Email is non-sticky (just take your emails/save them on client and leave) Files storage is non-sticky (just move your files from OneDrive to GDrive) Chat/Collaboration is sticky as mud.

This sounds more like a problem with your young companies processes, not a problem with slack or email.

Maybe you should think about a formal method of documenting important decisions for your company instead of relying on a chat log.

"Hey, I just purchased 20k of widgets"

"What? Why?! We can't afford that! We decided to discontinue those widgets month ago! Didn't you scroll through the chat logs before making that purchase order??!"

Good luck.

Chat only is if you’ve chosen slack or some other proprietary format.

> You can't export your data from Slack?

You can. Nicely it can be had as json. But it's really only half useful since there are links and attachments that point within Slack itself and that content is not captured in the export without additional processing.

Well, I think it relates to historical churn though - B2C churn in general is significantly higher than B2B (see Blue Apron). The switching costs on detergent brands are essentially 0. For us to switch from Slack now would be a fairly major headache.

Not sure what you mean. LTV/CAC is a common metric in SaaS for sales efficiency.

Obviously, but do you see that anywhere in their S-1? Or in all of the comments on here referencing that they are unprofitable?

Agreed that these are the right metrics, but they're not used in the S-1 and are unfamiliar to non-SaaS-proficient investors.

It seems like this is captured with plain old LTV - CAC. What’s the advantage of introducing “depreciation” here?

I can't help but note how inexpensive is that: less than $3/day.

If your company serves free coffee, operating the coffee machine likely costs more.

There's no financial incentive to leave Slack at this price point.

> My company spends about $1,000/year on Slack. We likely will in perpetuity, as long as we/Slack exists.

What was your company using before Slack and what did it cost?

Nothing - we started the company in 2014 and began using Slack. Were much closer to ~$200/year when we started.

Because all the GAAP numbers in the world don’t mean anything if a company can’t bring in more cash than it is spending.

Not really. SaaS isn't immune to gravity, the difference is that investors are willing to dump infinite amounts of cash into unprofitable SaaS businesses hoping that eventually they dominate their market and become a monopoly/oligopoly

Slack has a 5-year, $50M/year minimum commitment with AWS.

From the document:

> In April 2018, the Company executed an amendment to its existing agreement with Amazon Web Services (“AWS”). The amended agreement was effective as of May 1, 2018 and continues through July 31, 2023. The Company has minimum annual commitments of $50.0 million each year of the agreement term for a total minimum commitment of $250.0 million. As of January 31, 2019, the Company had a remaining minimum payment obligation of $212.5 million to AWS through July 31, 2023.

Perhaps I'm just not aware how things work in companies of Slack's size, but... what do you think $4M/mo is spent on, for what essentially amounts to a chat app?

I realise there a lot of extras in Slack (attachments cost S3 storage, video calls take bandwidth, webhooks take some processing), but as of January 2019, they had 10M daily active users. $50M/365 gives us $137K per day. $137K per day just to serve 10M active users? That's nearly $14 per day (over $400 per month!), for just 1000 users using a simple chat app.

This is not including any staff, development, nothing. Literally just hosting costs, which should already be deeply discounted given the amounts and agreements involved. That seems... excessive?

Edit: It's worth noting that $50M is the -minimum- commitment they have to AWS. One can assume the actual bill is higher.

4.2M / month on AWS is a hefty bill but it's not unheard of. Slack is, I suspect, paying for all the marked up extras such as various expensive regulation compliance addons, at-rest encryption, multi-AZ+multi-region backups and mirrors and what not. There's also probably a huge amount of stuff they use on their side to run their own tooling and analytics on their clients; costs that won't necessarily rise per user.

The part that "essentially amounts to a chat app" is probably one of the least expensive portions.

It's still high don't get me wrong, but not shockingly high considering how slack is used and trusted by so many companies.

The thing I find curious is that businesses of this scale are still using cloud hosting. Is it cost-effective or otherwise better in some way to outsource your infrastructure instead of hiring an in-house IT team to manage your own hardware and connectivity at this level?

Generally, cloud is still better for many. Managing datacenters at scale is hard. It also takes time to build up capabilities in house, while cost of delay is usually far greater than cost efficiencies wrung out of infrastructure. Cloud is often a euphemism for “supported hosted software that happens to come with hardware”. Not that different from Dreamhost managing PHP for you , just richer and higher scale. Why build a cheaper internal capability over 6 months when I can have a slightly more expensive service NOW that I don’t have to worry about? This is why we have 3rd party transportation companies, telecoms, power plants, etc.

Netflix still uses cloud hosting for most things. Some like Dropbox have found a way to DIY. On the other hand, Gitlab tried to move to in house kubernetes on bare metal, and reversed that position

Thanks for the insight.

Why build a cheaper internal capability over 6 months when I can have a slightly more expensive service NOW that I don’t have to worry about?

If it really is just slightly more expensive, that seems like it would be a good investment for many businesses. I was just curious because this isn't a field I've been working in directly for a while.

Last time I looked, but that was several years ago, there was a sweet spot for a lot of the cloud infrastructure services but at both the lower and the higher end the pricing didn't seem to make much sense in most cases. On that higher end, you could have bought the equipment outright, hired a substantial team of good people to manage it, and established your own presence in serious data centres with good connectivity, and still been considerably better off.

I wonder what has driven the change in cost/benefit since that time. Maybe it's just that cloud hosting is better understood and has better tooling, and those in turn make the market more competitive now?

In general, AWS/GCP/Azure hosting rates are only slightly marked up as compared to DigitalOcean, Vultr, etc. especially with reserved instances.

These rates compare favourably to rolling your own DC (rack or more).

It’s the bandwidth costs that are inflated by 500-1000%, which is where all the margins come from and it creates a lock in effect as getting your data out is expensive.

This shows how Netflix is smart harnessing it, they use AWS for everything except the actual streaming.

It comes down to cost/benefit of delay on actions with their own window of opportunity and rates of return. If I delay taking actions because I’m waiting for IT services, that’s a real opportunity cost that should be weighed against the higher unit cost of cloud services. It does me little good if I have all this cost effective hardware and software managed internally but it still takes a week/month/ More for a developer to get an extra 5 TB and 100 CPU cores, or to get a firewall rule opened, or to get a new subnet created, or a new DNS zone.

Procuring gear, hiring a team, contracting connectivity, testing, integrating, scaling, etc, takes months. It also presumes you’ll attract, hire and be able to fund management that understands modern processes and can get things done in a timely, quality fashion. Even the best in the business are 50/50 at getting this right, so there will be growing pains. Whereas a top 5 cloud provider almost always has world class practices and processes behind their services and are a credit card transaction away. Much less capital commitment, much less time commitment.

Put another way, why prematurely optimize when you don’t necessarily know what you need long term ? Startups or even new products at large companies need to focus on product/market fit and responsiveness. Their processes and structures should be more like a tent city with gradually paved cowpaths than a planned city.

In the case of a venture funded startup, time is more valuable than capital. In the case of a large enterprise, it depends - sometimes time is more valuable, sometimes operating cost needs to be squeezed. Cloud of all forms (private, public) has become very lucrative in enterprise because of the slow pace and intransigence of IT teams that were assembled in an era where technical and software services could suck and take years to solidify. These days software needs to suck a lot less, and quickly - customers are demanding it. Cloud is not mainly about where you do your computing, it’s about how you do it: on demand, fungible resources, granular billing, API-driven access. I’m sure I can get the costs down if I own all the gear and have a flexibly contracted network, but I still need to ensure I have the automation, processes, and practices that meet the business need for velocity. I can’t risk hiring a team that might put up a ticketing system and manage every request by Excel spreadsheet if they don’t know better.

Building good software means providing developers with infrastructure and tools they need to act quickly with safety, and most importantly, giving them the ability to change their minds without a major cost/capital hit. Cloud (or, as I say above, on demand, fungible infrastructure and rented software) is a major path (but not the only) to get there.

Netflix uses AWS for their site and developement, but the most expensive part (streaming) is still happening from their own connect boxes that they provide to ISPs[1]

[1] https://openconnect.netflix.com/en/

My company recently dropped our in house data center and moved almost entirely to AWS. We had a few reasons; we just don't have the multiple data centers to gauruntee uptimes. Our product isnt data security so our limited staff can't keep the data as secure as AWS whose entire business is around security. And we just got to a point where it was cheaper to host on AWS than just to maintain our own data center. I hope that offers a little insight

I don't think moving things to AWS makes things more secure by default. It is actually easier to create services in AWS or GCP (never used azure) that are publicly open than implement proper security (I remember specifically RDS defaulting to public IP unless you set up private subnets, same with GCP SQL (although they blocked all access but default, though once again it is easier to unblock it for all than e.g. using their proxy), GCP VMs automatically get public address unless you explicitly disable it, don't remember EC2 but I think it was similar.. So the argument of not needing to have someone who knows about security is a good one. You need that person as much (if not more) with public cloud.

$0.01/AU/day isn't crazy. I'd actually argue its low, compared to some of the other enterprise or social media bills we've seen.

You can't just say "I could serve 1000 users on a $240/year VPS, they should be able to serve their 10M users on around $2M/year!" Things don't scale like that. The complex dynamics of the world can't be represented by linear extrapolation. Moreover, there's a balance that needs to be struck between the complex process of "spending less on cloud" and the complex process of "developing the product". Everything costs money.

Scale, redundancy/backups and security.

The 10M daily active users are spread across every continent, in different time zones. All with the expectation of near real time delivery of messages, push notifications/emails and file uploads. The expectation that everything is immediately searchable and that you can search across messages and files thought the entire history of your slack usage. The expectation that there is an audit log of every message, whether it's been deleted or not and that data is never lost (due to HR/legal needs). And the expectation that everything is secure.

A Slack team is a self-contained unit, however, if I understand correctly. It -should- be easily horizontally scalable (please correct me if I'm wrong). Each team could have its own database, its own app servers running on whatever region(s) was/were needed. So it's not like they would have some mammoth central database that requires strong scale engineering. Furthermore, you know in advance how big each team is because they all pay you for X users, so you can allocate resources to them appropriately.

Lyft's AWS bill (from their S-1) is much higher, but their application has very different scaling constraints to something like Slack, it's not as easily horizontally scalable. Even though their bill is high, I suppose it can be hand-waved away as "oh scaling's expensive".

And a lot of the redundancy/security comes built into AWS services. S3 has redundancy built in, there are Multi-AZ RDS instances with easy support for at-rest encryption, and there's container orchestration these days for easily handling app server redundancy and worker servers. So a company starting out, like Slack, just a few years ago, would have access to all of that without much additional overhead.

I'm seriously fascinated by what it is that makes it so expensive. I suppose the real explanation might just be that there's no incentive to optimise for costs. It's like Slack's own app: A native app -could- be built that is super efficient and light, but there's no incentive to optimise for that.

Small slack teams are easily horizontally scalable; for a small team, the web server, the app server, and the db could probably run on a single EC2 instance, and AWS offers some rather large instance sizes.

Lets start there, though. 70k stand-alone (paid!) slack teams means 70k stand-alone systems. How do you operate, well, all of them, simultaneously? With one mammoth central database, there's one database to upgrade; if it goes down, there's one database to fix. With 70k small databases there's 70,000 problems! With 70,000 systems, how do your engineers deploy code, and how many times per day can they do it (it had better be well into the double digits)? How do you roll them back? What do you do if an upgrade goes wrong? With 70k different apps, one small problem quickly becomes 70k small problems, which is harder to manage than 1. Some things can (and I'm sure are) scaled horizontally but the isolation that grants you does not come for free.

And then, what about past that? Looking at the customers listed on Slack.com, they serve some larger enterprises, who are going to need the "expensive" level of scaling. No database is going to be able to scale to that level without team to manage it (no matter the technology), so then you need a queue as well as a db, plus a team to manage each of those, and then how do you do searching/indexing. You also can't ever take a single database node offline, so then it's a database cluster, with hot spares, and also large enterprises operate globally so then their slack team system needs to run multi-region hot as well, and then and then and then? I've got Slack open all the time on both my (work) phone and my (work) laptop as do the majority of my coworkers, which means their webservers have heavier requirements compared to Lyft, which I use for a few minutes whenever I take a ride.

Slack usage will hit a lull outside of business hours, so you'd want it to scale resources that serve that - I'll bet a non-insignificant portion of the $4M/month probably goes to resources that are only used during the business day - so in some sense, Slack is paying AWS a premium to not pay them for unneeded resources at 3:30 AM.

Slack's optimized their app for development cost (much to my laptop's sadness), it doesn't seem that far fetched that slack has also done some optimization of server side costs. future money isn't worth as much as money today is, and this fact is reflected in AWS RI offerings.

>so in some sense, Slack is paying AWS a premium to not pay them for unneeded resources at 3:30 AM.

If you're running a server for 1/3 of the day (8 hours), you're probably better off using dedicated instance (60% discount with 3 year reservation) than trying to optimize around on-demand instances (66% discount with perfect allocation, ignoring the engineering cost). The economics are even worse if you consider imperfect allocation, or consider self-hosting (probably cheaper if you're as big as slack).

You say "chat app" like that means it's easy.

How is running a chat app any easier than, say, running Facebook?

My pet peeve with HN. People here boil everything down to a trivial engineering problem. That Slack is "just a chat app" is grossly underselling all the other parts of the business - sales, marketing, design, product - that makes it tick.

The app itself is non-trivial, too. The scale is astounding.

You are comparing to Facebook. Obviously Facebook has been trying to get into this market as well with their corporate offerings (which they've been surprisingly quiet about lately, suggesting that effort went nowhere). Maybe more appropriate for comparison would be their whatsapp team given that it is notoriously quite small given their enormous user base.

Slack is indeed just a chat app. There are many like it. Most of which look and feel very similar at this point. I administer a slack setup for our company and it's fine but it's nothing special. However, for what it does and what it cost, I'm not in a mood to replace it with something else. The hassle would cost us more and we'd not save a lot of money or gain any functionality that we need or indeed solve a problem we have.

We switched to Slack a few years ago from hipchat which at the time was very similar in scope, feature set, and cost. The reason we switched was that we wanted to get rid of bitbucket and some other Atlassian stuff (in favor of Gitlab, and later Github). I've also used stuff like IRC and even NNTP in the past, neither of which is appropriate for non techie teams. Lately, I've been considering switching to keybase which has a nice and easy to set up team component (I've actually set this up already). I'd probably go with that for new teams though it is still a bit rough in some respects.

Slack has awesome brand recognition but ultimately it doesn't have that many unique selling points beyond that. They've clearly grown by converting investor cash into customer acquisition. It's a common pattern with VC funded SAAS companies: compensate for a lack of unique selling points or technical edge with stupendous amounts of marketing and sales. If you think their hosting is expensive, their marketing and sales are likely way more expensive. It never was a proper tech company where things like algorithms, their awesome infrastructure, or patented stuff are the key things. It always was just another chat app done well.

Their hosting cost is quite high and suggests that they tend to throw money at problems instead of engineering talent. That's both fine and common for VC funded startups but it also suggests they will go through some lengthy rounds to re-architect internally and optimize their cost structure in the next few years after they IPO when shareholders are going to be obsessing about shareholder value.

From a technology point of view, they should indeed be able to run at a fraction of the cost but right now that's not a priority for them as they are very well funded and have a need to grow as fast as they can. Cutting cost through lengthy and complicated re-engineering projects is probably very low on their todo list and would be likely to just slow them down.

They are actually surprisingly middle of the road in terms of what they do. They do it well but when you look at their feature set there's nothing really that remarkable or unique. Their UI is alright but generic electron/react (?) which is notoriously not that fast but gets the job done. There are a lot of electron based chat apps out there and whatever your point of view on those is, slack is nothing special in that sense. Sure their UX is awesome and they clearly have some design hipsters running the show and obsessing over things like color schemes, logos, smileys, etc. But in the end it's just a generic chat app. E.g. Telegram, Signal, Facebook, Skype, Whatsapp, FB Messenger, (and Google's many attempts to compete with the Cartesian product of those) etc. each have very similar client side architectures and feature sets as well.

Sever-side they probably use Elasticsearch (which I'm well familiar with) and they seem to have a lot of centralized infrastructure and plumbing. From having used it, their search engine isn't actually that sophisticated or impressive. Clearly search ranking is not a huge attention area for them. Obviously a complicating factor is that they are running their stuff in multiple data centers across the globe. Adding to their complexity is enterprise needs for backups, auditing, security, compliance, etc.

Given their age and hipness, they probably bought into micro-services in a big way. That just means they run a lot of stuff that they scale by throwing more hardware at it. Over-provisioning is a great way to hide any performance issues. If you have dozens of micro services running in multiple data centers, things add up quickly. Add hosted data bases, search engines, queues, analytics, monitoring, devops, etc. to the mix and you are looking at some hefty hosting bills at the scale they are running it. Also many of their bigger customers probably insist on dedicated setups for them. When you grow rapidly, a lot of that stuff is just a side effect of Conway's law where you end up with a lot of moving parts because you have a lot of different teams.

> You say "chat app" like that means it's easy.

You're right, it takes a mind-boggling amount of wasted effort and negligence to turn a simple thing like corporate chat into something as bloated and broken as Slack.

Making something simple and easy is harder than just letting entropy destroy your product.

Every team needs a dev/test environment. You know how you've always wanted slick metrics collection to make your job easier? They have that, at scale. Fraud detection and bot throttling? Running at scale with machine learning. It all adds up fast.

That’s nothing for a company making that much revenue, they have to keep all the websocket connections open for notifications, index all the messages for search, store files, host video chats / phone calls, etc... it’s not trivial.

There is a lot of behind the scenes processing for Search, Analytics, Security, Enterprise enablement, internal tooling etc. It may not seem a lot, but the processing/storage needs are Mammoth.

Much of this goes into geo redundancy too. These 10M people are not in one place. So, you need redundant highly availably deployments in many regions. This does add lots of infrastructure duplication but is also super speedy for end users. This adds to the cost big time! For example, I was working with a gaming company and they had 10+ regions around the world, all using this type of setup, just to keep latency to an absolute minimum. I'm sure slack is doing the same.

There's a big difference, though; they're not all connected. Each team is its own separate entity. A team with 10 people might pay Slack $100/mo, and all be in the UK. Those people and that Slack team's database doesn't need to interact with anyone else in the system. There should be no big scaling constraints here, unlike your gaming company, where everyone needs to be connected from anywhere in the world, at the lowest possible latency.

My company is not particularly big but just in my team of a dozen or so we have members in Boston, Australia, Phoenix, and Seattle, and regularly deal with those in London, Tokyo, etc. It's not that unusual; in fact it's part of the reason Slack (and Hangouts) are so important.

Hm, I may lack the proper knowledge. Why do I need redundant infrastructure? Why can’t I have instances in the cheapest region (300 ms delay is not going to kill anyone in a chat app), and if an instance fails, bring up a new instance, and if the region fails, bring up instances in another region. I don’t see why there should be redundant, idle instances running. Maybe duplicate the database / make it highly available.

I also don’t understand how duplicated infrastructure makes it super speedy for end users when they are from around the world. Yes, they could connect to regional instances, but then the regional instances must synchronize with the other regional instances on the other side of the planet, which gains nothing.

> which gains nothing.

It gains tens or hundreds of milliseconds, especially for channels/chats between people in the same region. You may not feel a "chat app" requires this level of performance, but the improvements there.

Some of this infrastructure duplication ought to go down by that scale, as there are likely a good number of users at any given location.

Cannot this be a method to take money out from company? I.e. Slack as a company pays $50M/year and Amazon pays back 20% of this as a "reward"?

At such scale it should be easier to have its own infrastructure rather than pay Amazon's overpriced bills.

Theoretically any payment can be. That’s why we have corporate auditors, money laundering and financial investigators, etc.

I doubt Jeff Bezos is running some slush fund laundering scheme.

I'm sure a big amount of this is data costs, especially as they store more analytics, natural language processing, and ML training on the data.

Knowing how famously inefficient the Slack application is with end user resources, I wouldn’t be surprised if their backend has been poorly optimized.

I serve more than 1000 users on a $3.50/mo VPS with a not-particularly-efficient runtime just fine.

Cool, 10000 more of those boxes and you can rebuild slack "in a weekend for $35k/month".

Don't mind the lawsuits when you lose your customer data and forgot to pay for backups for "cost optimization" reasons.

Don't mind the complaints when your uptime is barely one-nine.

Don't mind the customer cancellations when your 1000-user VPS doesn't actually scale to 20k concurrents.

And don't mind the HN snark when you release your slack competitor without voice/video chat support, webhooks, apps, zero debugging capabilities when things go wrong, etc, etc.

I don't even like Slack and I think their bill is too high but please don't be delusional, it's a tired HN trope.

I think you're being overly negative. I think you can do a lot with a little.

Does a chat app need to be fully searchable? I don't think so. Does it need backups? I don't think so. These are features users could opt-in for if it was that important to them. Could be something simple as sending encrypted nightly diffs to an email address.

The whole world doesn't need to be over engineered to have a useful product.

> Does a chat app need to be fully searchable? I don't think so. Does it need backups? I don't think so. These are features users could opt-in for if it was that important to them.

They do, that's why people pay for it.

> Does a chat app need to be fully searchable? I don't think so.

Having had a meeting this afternoon where the critical information required for me to pick up a project was only available in Slack messages, yeah, I think it does.

(Personally I would be roasting the two people involved for not doing that discussion over email or at least not writing the damn things down afterwards but hey ho, I'm not in charge.)

It's not an unfair point, given how big MVP culture is here.

Unfortunately, "sending encrypted nightly diffs to an email address" comes off very much the same way as the infamous dropbox comment: https://news.ycombinator.com/item?id=9224

Having a search feature, and doing useful backups isn't over engineering, they're features that users are opt-ing in to paying for, to the tune of $400 million/yr.

>Does a chat app need to be fully searchable?

This is the main reason people pay for Slack instead of sticking with the free tier, so I'm guessing that for a lot of people, it does.

> Does it need backups? I don't think so.

When all the communications of you and your coworkers suddenly aren't there the next morning, you might think so.

> Does a chat app need to be fully searchable?

Absolutely, yes. There is a ton of tribal knowledge contained in chat history.

Scaling and cost is not linear, my friend.

thats still only half as much as Lyfts $100M/year: https://news.ycombinator.com/item?id=19282624

And Snap spends $400mm a year with Google Cloud, not to mention another $50mm on AWS.

Lyft is arguably solving a much harder problem than essentially IRC

Slack is way more than IRC. Literally dozens of nontrivial features more.

You could also say "Slack is arguably solving a much harder problem than essentially a taxi company"

Both are solving really tough problems involving a lot of users and a lot of data.

Slack to IRC is what a library is to a bulletin board.

How is that possible since even instagram spent around 10k per month for few million users? Am I missing something?

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