I struggle to see where Slack is spending all of that money. It's a chat application with a few million active users at any given time. Even with absurd AWS bills, they should still be raking in profits.
Typically in a SaaS business you would avoid profitability until the last possible minute and plow back every bit of cash into customer acquisition (sales and marketing) until you reach a point of market saturation.
So long as retention is good, and your unit economics are profitable, it is like running those dollars into a money-printing press by buying an annuity that will pay out for years.
The issue is that slack has passed the point of market saturation. There are lots of competitors now as well as a shift towards decentralised options. I think slack should have entered that next stage already if they ever want to have a chance at getting back enough money.
The definition for saturation isn't "is there are lots of strong competitors and other options?" or even "a given percentage of the market is our customer."
Instead, the rule is more like: is CaC sufficiently lower than Customer Lifetime Value so that each customer is profitable. This ratio tells you if your money-printing machine is working. As the low-hanging leads dry up, CaC gets higher.
Your argument might be rephrased as "their customer lifetime may be shorter than they think." Possible. There's some amount of switching cost (lost history, webhooks and integrations) there, though.
I disagree. Market saturation is absolutely determined partly by competition, and partly by how much consumers are , well, able to consume.
In terms of competition, we've seen plenty of alternative pop up recently such as Mattermost and MS Teams, both of which have gained popularity.
In terms of consumption, it is only feasible to really have a single chat application at a time, maybe two if one is being tested. Having more than 1 defeats the purpose of having an org wide chat. Maybe individual teams will choose their own in large companies, but the general assumption is you try and sell your chat solution to the company, not to the individuals. And so we have a situation where the presence of strong competition directly effects the consumption of the product (Slack's offering).
My opinion is that Slack was previously somewhat synonymous with company chat, but that is no longer the case. They peaked, and now that Discord, MS Teams, Mattermost, etc. are viable alternatives, their market saturation is on the decline. They let their grasp slip away, and they will pay for it.
> In terms of consumption, it is only feasible to really have a single chat application at a time, maybe two if one is being tested. Having more than 1 defeats the purpose of having an org wide chat...
I know you're talking about within an organization, but this made me realize how long it's been since I've used a client like Pidgin/Adium/bitlbee that could handle multiple chat protocols all from one client.
I'm pretty sure the majority of the protocols I used to use in these apps aren't even around anymore (other than irc and xmpp).
> In terms of competition, we've seen plenty of alternative pop up recently such as Mattermost and MS Teams, both of which have gained popularity.
Slack has still had a net gain in users in the time that those competitors have gained users as well though, right? If everyone is gaining users, that seems like a reasonable argument against the market being saturated.
Ding Ding. This is exactly it. Mostly people don't understand the economic model of fast growth SaaS companies, even when working for one. Thanks for explaining it so clearly.
This comment comes up for basically every company. It's very surprising that virtually every successful B2B startup in Silicon Valley is 10x overstaffed and the VCs and investors aren't bothered by that!
I just checked, and in 2019, they had $401MM in revenue with 1664 employees. That's ~$240,000 in revenue per employee.
Pinterest looks to have earned about $1.1 billion in revenue during the same time with roughly the same number of employees. Fastly is at $250MM in revenue with just 630 employees.
So it looks like Slack is at least twice as large as it should be for its given revenue. But why? Are they supporting too many platforms/devices? Or are chat applications just not that valuable to companies?
What do they do? I am curious on the breakdown of engineering versus everybody else. I am always reminded of Craigslist, which operates with a skeleton crew. In 2017, it was reported they had 50 people on revenue of almost $700 million.
According to their 10-Q for this latest quarter, their operating expenses are 42% sales and marketing, 37% research & development, and 21% administrative.
Lately, they've been spending that money on legal fees suing Microsoft over Teams, because they are unable to compete. This was after they took out a huge New York Times ad encouraging the competition.
Before that, they spent a significant amount of time and resources on the new WYSIWYG editor that was extremely unpopular and caused them to do a public 180 after saying they wouldn't go back.
In short, it's being wasted on sour grapes and untested ideas.
In big companies I just don’t see the point of Slack over MS Teams as they are quite similar and Teams is very low friction as it integrates with the rest of Office 365. Slack has better API and that’s great but what would be other serious competitive advantages? It almost seems to me that if you want to target big companies you need a competitor for the Office 365 platform and not “only” a competitor to one of its apps.
This is what Slack really screwed up. We use 12 different meeting tools, it's absurd I know, and if Slack worked it would be great.
You start a chat and you can't add someone to the chat once it's started. So you create a new chat and add a member to it. Now you decide to hop on a call and you need to invite someone else, and that wasn't an option. But today, you can add another team member to the call. You figure out it's a vendor issue but you can't get your vendor on the call because they don't have a Slack account, and there isn't a link to share for just that one screenshare/conference.
So you are left with inviting your vendor into your Slack space which you don't want to do or move to another solution.
Teams is utterly devoid of charm. If your goal is to "send this string to Jim Bob" then Teams works just as well as Slack but if you want an application that's enjoyable to use for multiple hours per day, Teams is not the droid you're looking for.
I don't care about charm in my chat application. It is supposed to deliver text and media to one or more recipients in real-time. I don't need stickers, emojis, reactions gifs, or memes. A chat is not my main application, not even in my top 10.
If it doesn't work as expected, I will try the next. There is literally 0 loyalty involved in my company.
My core problem with this comes down to UX. I don't think that falls under 'charm' but Teams feels horrible to use in comparison to Slack.
As an example, when switching to Teams to reply to a message why does it focus the search bar instead of the chat window? How often do users search (as their first focussed action) in comparison to using the chat window?
Teams seems to be full of these minor UX annoyances that all add up to make Teams a chore to use. Slack has done a much better job on UX (in my opinion).
We use it as a business tool. Charm is not a consideration.
Teams works for us. Chat works, charming or not. And say suddenly you need to share your desktop while chatting to show some issue, well no problem. Need to invite a couple of folks from support to get some of their input? No problem, just invite them. Poof you got an ad-hoc meeting going and you get an issue solved in 5-10 minutes and customer is happy.
It's not like I want to marry it, but for the most part it works quite well and doesn't get in my way. And so it's a decent enough tool.
Teams is functional and user friendly. Bosses approve of functionality over ejoyment and admin probably spends less on an extension to microsoft office.
How much of the office 365 platform is truly needed for work? Developers have been avoiding it for years, it is an old bloated piece of software, that many companies stick with because it is the status quo.
Companies stick with it because of Exchange. Office 365 means Microsoft gets to manage email problems in return for money.
Everything else comes along for the ride.
We spend probably 20 hours every month on the phone with them managing various issues. My CEO has asked if we could run our own email server and I have refused every single time for the simple reason that we would now spend 40 hours per month on the same email issues since both source and destination of the complaint would be company internal.
AND we would be fighting getting our email delivered because Google and Microsoft basically dump your email in the trash for not coming from Microsoft or Google.
No thanks. Pay Microsoft. They're the least bad in the space.
If you’re ok with the apps, then it provides a ton of value for a fraction of the price others do.
I mean, Slack itself is almost as expensive as O365 which offers Office (online and offline) and a ton of other apps and features in addition to Teams.
There are more workers than software developers. Specialised version of Word and Excel are literally provided in the CPA exam. The general concept of having an integrated "suite" of office software compatible with eachother, G-suite or o365, is also very appealing.
What is obvious is no single person requires all of it, and everyone uses a different subset of features so its nice to have everything in one package. The integration with their admin cloud service allows easy management of the software in terms of deployment, compliance and everything else. I agree it is bloated and there is significant vendor lock-in from MS, but there is nothing comparable IMHO. I think it would easily cost $100 mil to duplicate all the features.
I think Microsoft is basically giving teams away because it’s such a piece of Shiite. Our school district is using it and everyone hates it. Hard to compete with free though
School districts will almost certainly hate everything they were forced to start using over the last few months because their entire workflow has changed dramatically. From top to bottom and they’re having to invent new things on the fly. They will almost certainly get stuff wrong.
Normally, such a radical change would have involved months if not years of planning, followed by months of trials, before even being deployed in 1 class for 1 subject.
Slack was free before Teams was free. They thought they had won the war before the first battle took place. Slack could have been Zoom, but instead it was just a pretty web client to IRC
Slack is a though sell for a enterprise organisation with a large suite of Microsoft tools.
Of course Slack is better than Teams the person making the decision doesn't care. Also Teams is good enough.
The idea that Teams is not very good is BS. Is it not as good as Slsck. I disagree. I find it better than slack for my usage. However, there are enough people I know who use both that have said it’s not as good as Slack.
But that does not mean Teams itself is not excellent software. It just means Slack is slightly more excellent.
And once you throw in how rapidly Teams has been improving, I think it’s a matter of months before Teams surpasses slack in almost every way.
This headline (as in the original on the site) seems unnecessarily editorial. From the article:
> CFO Shim said Slack expects "to be free cash flow breakeven for the year" and raised revenue guidance to a range of $870m to $876m, a jump of 38 per cent at the midpoint. The next quarter is expected to grow 32 per cent at the midpoint of a range of $222m to $225m.
It's true, they can't turn a profit, but this still sounds like a development in that direction. I'd say check back next year and see.
I didn't watch the show in depth but I recall a character on Silicon Valley confessing that she chose not to invest in Slack as proof that she wasn't a perfect VC (or something to that effect). Maybe she was.
