Would you be a Slack shareholder for the long run?
A newsletter by me, Kiko, CEO of Qulture.Rocks (YC W18)
|Francisco Souza Homem de Mello||Jun 24, 2019||8|
This week saw the listing of Slack. Not sure how to call such a listing with no offering… So let's just settle on “IPO.” If you don't know what went on, read this article that explains how Spotify did the same last year.
Anyway, the whole discussion about IPO vs. “IPO” is pretty boring to me. What I do like is to think about the long term competitive prospects of Slack.
Slack is a messaging app. Basically ICQ for companies, with a shiny UI layer and some cool integrations. It used to compete with a product called Hipchat, from Atlassian, but the now-public company ended up absorbing the aussie product in an acquisition. Most recently, Microsoft launched Teams, an offering that's really similar in most senses to Slack's. Here's the ad (i.e., open letter) Slack published on the New York Times sometime after Teams’ launch:
Anyway, it must have felt really scary to be Slack back then. And it must feel really scary to be Slack nowadays.
It's not the first time Microsoft copies a cool app.
It has done the same thing many times before, for example, with Software Arts’ VisiCalc, Lotus’ 1 2 3, on the spreadsheet side (Excel), and MicroPro's WordStar, on the word processing side (Word). And it basically crushed them all.
Sales x product: what matters most?
Elad Gil's interview with Marc Andreessen on High Growth Handbook touches on how, contrary to what's usually held as true, sales, and not product, is the killer function to nail after product market fit (sorry for the screenshot, but the Kindle doesn't easily allow for copying and pasting):
Anyway, if we look at Slack's revenues, there's a huge concentration on its top 600 customers, who pay more than $ 100k a year. These are enterprises, who, guess what, are huge Microsoft customers.
Selling to the enterprise is a pretty specific muscle, that's hard to train.
Microsoft has nailed it by cultivating a direct sales force and a huge channel partner ecosystem that sells and implements their products worldwide. Slack, which until only months ago boasted not having any salespeople, is still a toddler on that front.
Slack is still a company hoping to be a long term success with a killer product; Microsoft has already gotten the fact that it is the distribution channel that matters in the end.
Slack and the race to build the “enterprise superapp”
This is not only a fight for chat, or for killing email, but for building an “enterprise super app” of sorts, like what WeChat is for Chinese consumers.
Slack is trying to be it. Teams is trying to be it. This week, Dropbox has joined the fight and is officially also trying to be it:
Who's in for the win?
The point is: Microsoft and its Teams product is an incredibly strong contender on this fight. It has a huge share of wallet on basically all relevant enterprises globally. So a very relevant question would be how much better is Slack vs. Teams so that a CIO (and this is a CIO type of purchase) will buy in instead of just plugging Teams in its stack? Alas, Teams has much better Office integrations, which are still a huge part of “where work happens”  on the enterprise.
The Microsoft threat is so big that I wouldn't be willing to hold Slack stock on the long run. I wouldn't buy it if I were Warren Buffet anyway.
I also wouldn't be sure to bet on Slack vs. Dropbox on the “enterprise superapp” race. Here's why: Dropbox has already innovated, or at least tried to, by aggressively changing its branding, and launching their new product vision this week. Slack, on the other hand, hasn't done much other than building marginal features to the product I've been using for almost five years.
But there's another interesting catch: a company called Mattermost (which just raised a Series B from YC), which builds an open-sourceish Slack alternative for customers in regulated industries or that want to heavily customize their apps or that want to run chat on their services, and is growing like crazy.
Anyway, I mean it's far from an obvious bet, at least in my humble opinion.
Some noteworthy podcast episodes
Here are my favorite podcast episodes of all time:
They are all worth your time :)
This week's suggested reads
A profile of Slack's founder, Stewart Butterfield
Stratechery's post on Dropbox
A very cool book for software bums like me, From Airline Reservations to Sonic the Hedgehog: a History of the Software Industry
That’s it for this Sunday night. I hope this helps you unlock your potential 🙂
Thanks for such amazing feedback every week!
Have a good one,
 Pun intended: “Where work happens” is a Slack trademark, widely used on its ads. And, I'm happy to announce we just got our “Where growth happens” trademark issued by the USPTO :)