Slack: Is it worth $20 billion?
Bernardo Montes de Oca
June 30, 2020

Slack: Is it worth $20 billion?

Bernardo Montes de Oca
June 30, 2020
Company Forensics - Learn from the mistakes of VC-funded startups | Product Hunt

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Remote work is here to stay, and chances are you or your team has been on Slack. 

No, we’re not saying you’re a slacker. Rather, we’re talking about the communication software called Slack, which has become one of the preferred tools for organizations, big and small, to communicate between teams and individually. 

As more people turn to remote work, Slack has seen a considerable increase in paid memberships and simultaneous users connected. But just as the software is successful, it’s also divisive. Some love it, others, not so much. 

With so many productivity tools out there, Slack seems to stand out. So, is there a secret to their success? We’ll tell you in this episode of Company Forensics. 

Born out of failure 

Slack’s origins are filled with interesting lessons that predate the software itself. It starts with Stewart Butterfield; he created Flickr a while back, which he sold to Yahoo just one year after the launch. 

Then he created Glitch, in 2011, under the company Tiny Speck. Glitch was a massively multiplayer online game which, initially, attracted enough interest to garner $17.2 million in investment. 

But, after its launch, it was evident Glitch was going nowhere. It failed to gain traction and Butterfield ditched the idea before the game sucked all his funds dry. In 2012, Glitch was no more.  

And, at the time, Butterfield didn’t have a plan B. But, it turns out, investors believed in him so, at least, he still had plenty of funds. 

Then came his eureka moment which, ironically, traced back to his failed game; as part of Glitch, Tiny Speck had created a versatile chat system with a lot of potential. 

The idea centered around user-friendliness. As users connected to Glitch at different times, the chat system would store messages for users to catch up when they logged in. 

And the idea had worked because, well, Tiny Speck had used it as part of its internal communications. In fact, it became an entirely new project. 

"We have developed some unique messaging technology with applications outside of the gaming world and a smaller core team will be working to develop new products," Butterfield said

But, Slack would not only have messaging. It would include file transfer, daily tasks, and calendars. The idea gained enough momentum for Butterfield to ask several companies to try it; this paid off big for Slack’s future. Through feedback, they found that the more data in Slack, the more users interacted through it. 

Feedback was such that they went back to the drawing board several times, fine tuning the product until it was time for a release. 

A PR marvel

Butterfield had a vision: Slack could replace email as the primary method of communication because, to him, email restricted communications:  

Switching to Slack from email for internal communication gives you a lot more transparency. No matter who you are in an organization that is entirely email-based, you only get a tiny slice of all of the communication that's happening. It doesn't matter if you're the CEO, the VP of engineering, or an intern on their first day, you only get this narrow little bit.

But Slack’s idea didn’t center around micromanaging everything, which is impossible in a large organization. Rather, while keeping a record of all communications, it allowed the search for that one thing you were interested in. 

It seemed to be the entire package: it included agenda management, file transfer, the ability to act as a company’s intranet communication, and connectivity with external services such as Dropbox, Twitter, Helpscout, and others

So, after much fine tuning, Slack launched as a test platform in August 2013, and companies loved the idea; just one day after the announcement, 8000 companies had already signed up for it. This success, Butterfield has stated, is the direct consequence of listening to their customers’ requirements

When it comes to the launch, there’s a particular detail. Slack didn’t call this a Beta launch, (though it practically was) because it would sound as though the platform was rigged with flaws. Instead, the marketing team presented as an invitation for companies to use the new product

But the invitations weren’t random. In fact, they were sent in controlled, progressively larger groups. Each “batch” was accompanied by a relentless back-and-forth between Slack and users to find out what was good, and bad, about the platform.

And the market wanted more Slack. Companies using the platform went from 8000 to 15000 in two weeks. 

With such interested and continuous feedback, the company optimized its product for an official launch in 2014. Which was, you guessed it, a hit. By April 2014, the company had raised another $42.6 million, with 60 000 daily users and 15 000 paid members. 

It didn’t stop there. Months later, Slack raised $120 million and reached a valuation of $1.2 billion in October 2014, making it one of the fastest ever to reach this mark. And by then, it had 73 000 paid subscriptions

It seems that their growth was exponential as, just one year later, by October 2015, the platform had 1 million simultaneously connected users. And most importantly, of those, 407 000 paid monthly subscriptions

Tales of success

If you are waiting for a point in this episode in which we talk about the downfall, well, there isn’t one, at least at the moment. Those 1 million simultaneously connected users in 2015 have ballooned to upwards of 12 million as of today. 

But, why is it so successful? Well, it’s not only the feedback but rather the essence of Slack. And for that, we need to talk about Metalab. 

You might not have heard of them, but this is the company that made Slack fun. Andrew Wilkinson, Metalab’s founder, explains that, in order for any software to be great, users need satisfying interaction.

And Slack didn’t have that. In fact, initially, Wilkinson dreaded the idea of working with yet another productivity tool, and the product they saw…well, here’s what Wilkinson has to say. 

When he pulled back the curtain and shared their early prototype on day one, it looked like a hacked together version of IRC in the browser. Barebones and stark. 

IRC, by the way, is Internet Relay Chat, a protocol that communicates via text. It’s as interesting as it sounds. Then, there was time: Wilkinson had just six weeks to improve it. 

But here’s another factor to Slack’s rise to the top. Through feedback, Butterfield knew his product wasn’t up to par, and he relied on others to get it into shape. 

Both teams took the challenged head-on and, in retrospect, Wilkinson summarizes the revamped platform as successful because it was visually attractive, interactive, and playful. So, it’s pretty much a videogame, right? 

But, Slack isn’t the only productivity tool out there. Yet it manages to stand out while others have failed. Critics say that its success isn’t due to the design, or marketing, or feedback, or even luck. No, it’s all of them

Feedback: let’s do something with it. Design: let’s improve it. Launch: let’s make it interesting. Luck, well, let’s take it

Slack in detail

Like any successful software, critics have taken their time to dissect Slack and many have found that its user experience is key. Slack invites non-techies to use it, but also, it’s easy for administrators and I.T. departments. It’s all online

Then there’s the genius business model, which works for Slack, but other companies can take as reference. 

Slack is based on the idea that you are not online all the time, so you might need to go back and check on what’s been happening. But it’s not limitless, of course. Through that research, Slack set the limit at 10 000 messages, in which you can visualize, search, etc., for free. 

If you go over, you have to pay not to lose your info or sacrifice productivity. Now, 10 000 messages might seem like a lot, but take a team of 50 people, sending 50 messages per day. You go through them fast. 

And Slack charges per user, per month. It’s genius

Companies didn’t mind paying for this because of how good the software is, and revenue has steadily climbed

So has investment; In 2017, tech giant Softbank, and others, invested $250 million, which valuated the company at $5.1 billion. Then in 2019, private investment had valuated the company at over $7 billion. Not bad at all! But it hasn’t been a perfect ride

The good comes with the bad

We have to address the first, big elephant in the room: the hacking in 2015, which caused a dent in the software’s reputation as its security was deemed as not up to par. Not only that, but the user’s data was compromised, such as emails, passwords, Skype IDs, etc. 

In response, Slack developed the 2-factor authentication and tools for administrators, which did improve security. But reputation, that’s hard to recover, and this was just one of the aspects users have criticized. 

Another criticism: productivity. Many believe that Slack is ruining the way we work, because of its ease of use. People turn to Slack for everything, even for things that don’t require it, and if used incorrectly, the software can create communication overflow.

With so many things happening, messages—a key element in Slack—can become untraceable and users focus more on following the conversation rather than the objective of the conversation itself. So, yes, Slack lowered the dependence on email, but people now spent countless hours on Slack

But, the platform is so easy to use, that even with these flaws, it’s addicting! This leads to another key aspect: the quality of communication dilutes into a pointless back-and-forth over urgent matters, making it easy to prioritize incorrectly. So, in order to deal with this, companies have resorted to establishing limits and protocols for using Slack

This raises an interesting topic: if you are going to use Slack or want to improve on it, then check out what some companies have done. There are some very good tips around

Some people even suggest using other tools

Even updates have befallen to criticism: One update allowed administrators to export all data, including private messages, without notifying users. Which isn’t cool, but it did follow the new General Data Protection Regulation or GDPR and, in Slack’s defense, it wouldn’t be the only software doing this

But, this topic led to probably its biggest criticism. Slack stores all data exclusively on cloud servers that are, logically, under Slack’s control. So, users have their hands tied, and in response, many open software developers have sought to create better versions

Would you be ok with this?

Boom in use

Regardless of the highs and lows, Slack is booming right now. Like Zoom (check out our video on it), Slack’s use has increased dramatically in these isolated times. 

Remember how we said that simultaneous users went from 1 million in October 2015 to 10 million in March 2020. But it jumped from 10 to 12.5 in less than a month

Revenue has accompanied growth, and as more people rush to digital platforms, Slack doesn’t seem to slow down anytime soon. But, let it be known, that the competition out there is rough. So, Slack might not be home safe. 

In fact, in the past months, the company has released newer versions in all operating systems.

But the main thing Slack has proved is that you can create new things from something as old as instant messaging. And yes, productivity tools are abundant, but if done right, you can still stand out.  

Just make sure that, if you are going to badmouth your boss in private, don’t do it through Slack.