You know my fetish — I happen to believe that mobile app installations are a very good (and open to public) metric to judge the popularity of a service by. Yes, I am the idiot who actually wasted my time calling Jive Software and Tibbr bullshit, when a tech publication would run a story, how they signed up another 1.5 million users, while their Android app installs were at around 10,000. I would actually try to explain to journos that ‘selling’ large contract to a company CEO or CIO isn’t important — usage was. Anyway, I am older and smarter now. I still watch app install stats, but I no longer try to persuade journalists to do the same.
So, let’s take a look at Microsoft Teams Google Play stats, shall we?
So, Slack should celebrate, right? After all, Teams were out for a couple of month, with generally positive reviews and adoption is very low. Not so fast. I personally think it’s a very, very bad news for Slack too. Here’s why.
1. ESN Déjà vu
Remember year 2012, when everyone was talking about enterprise social networking and Yammer? I do, that’s how I know names like Jive and Tibbr and IBM Connections and SAP Jam and… Let me tell you how it all ended. Microsoft bought Yammer out (and actually discontinued it). What happened to Yammer competitors that came before it, like Jive Software? Well, nothing. I am amazed Jive is still alive and not in bankruptcy courts. IBM is now all about Watson. I can’t recall a single important Connections update during the past 3 years.
Now, ask yourself another question — what happened to all those Yammer clones that appeared after its success? Exactly. You can’t even name them.
#Slacklash has arrived and nobody in their right mind can claim that chat transforms work in a life changing way it was advertised. You’d get laughed at if you repeated any of Yammer’s earlier slogans and selling points about enterprise social networking. That’s where chat is at right now. Slack decided not to kill email, after all. Their new slogan is ‘Where work happens’, and it clearly addresses a common complaint that it’s nothing more than a GIF delivery mechanism that can get very distractive fast.
I think that at this point we all know what email, chat and ESN can do. They all have their place and after being oversold as miracle cures once, you can’t pull the same stunt again. In plain English, Slack or Hipchat or Microsoft Teams or whatever, have a very limited growth potential because their advantages, disadvantages and LIMITS are all clear by now. I’ve made my prediction for Slack for 2017 — their 2016 to 2017growth will be halved again to no more than 65%, but most importantly there will be 0% growth for the month of Dec 17 when compared to previous month with churn considered. Make sure you call me on that prediction next December.
2. The asymmetry of money.
While Hipchat is the name that comes up most frequently as the closest competitor to Slack (as a product), we all understand that Google and Microsoft are the real targets. Google still might buy Slack out. I am very surprised that in all discussions around Slacks competition, the subject of money is entirely omitted — people talk about features and products and why Google Hangouts sucks.
According to the latest stats, Slack has 1.25 million paying seats which puts their ARR at a tad over $100 million. It’s almost certain that they’ve made less than $100 million in 2016. The company has 700 employees according to Wikipedia (650 according to TechCrunch). If you divide 100 million by 700, you get $142K in revenue per employee. Stewart has stated that Slack will break even in 2016. If you look at current vacancies, you’ll see that they are mostly in engineering and sales. Those ain’t cheap. So Slack is operating on razor thin margins or is still bleeding money.
Suppose you pay for Slack. You are probably paying to Google and Microsoft as well. You are paying to Google when you use Android, use their search engine or Gmail or whatever. I should have said ‘making money’ for Google, because you may not be paying directly. It’s the same way with Microsoft. Windows, Xbox, Azure, Skype, Office 365 — there’s lots of ways this may be happening. If Slack beats Microsoft and Google at chat — they are still hugely profitable companies. If, however, Microsoft or Google or Facebook have even a minimal impact on Slack — they have no other revenue to fall back on. That’s why comparing Slack with Hangout or MS Teams or Facebook At Work is somewhat stupid. It’s not a competition between products, it’s a competition between COMPANIES.
As I stated before, my personal view is that Slack, as a company, was designed as a VC play to be flipped quickly. VC and the management are waiting for someone to blink first — Microsoft, Google, IBM, Amazon, Facebook — someone with deep pockets. But post Yammer fiasco that might not be happening and independent Slack may become what Evernote is now. A one trick pony past its glory days.
3. Welcome to IT ghetto, bitch.
Slack’s biggest problem is that it can not get outside IT ghetto. At first, this was Slacks biggest advantage — leading to viral growth (more on that later) and a natural community of developers. But it’s quickly becoming a problem. Microsoft, Facebook, Google, Salesforce, have a large developer community around them that can PROFIT from the relationship. It’s not the case with Slack. We’ve talked last year to bot developer that was advertised as among top 10. They’ve had less than 100 paying customers at $25/mo. You can’t live on that. That’s why Slack is subsidizing developers via it’s Slack fund, whereas Atlassian doesn’t need to do that. Bot revolution never happened but it’s the only monetization model available to developers with Slack. It’s not a CRM system where you can make money on deployment, customization, renewals, upgrades, training and consulting. Enthusiasm can take you only so far. Given that Slack isn’t able to break into enterprise segment, the prospects for the community (for making money) are rather grim. With a global user base of only a few million users, many of whom are tech savvy, how does one make money as a platform partner?
Even worse, because Slack is of limited value to non-IT businesses, it can’t branch out into other segments. WhatsApp, Facebook, Viber, Telegram, Skype and others work better for the non-IT crowd. And many vendors, be they CRM or project management, are starting to add internal chat to their solutions, rendering Slack unnecessary. Without breaking the IT-technophile barrier, it has nowhere to go, because everyone in that community already has Slack or Hipchat.
4. Viral is not good. Viral is bad.
One of my favorite companies is Zoho. They are old, as in real old. They were founded 2 years before Bitrix, in 1996 and had to ‘pivot’ later on. For years Zoho excelled at releasing crappy products and providing terrible support. They never took on any VC money. If you try to find Zoho coverage by TechCrunch or other western tech media, you can see that they remember about Zoho once every three years or so.
Zoho is now Salesforce biggest competitor with an extremely powerful and well polished product. They have over 30 tools. Their revenue is believed to be over $500 million a year. They have 3000 developers.
Let me repeat my old mantra — for a company NOT TO DIE is more important than to grow fast. Perhaps it’s the microbiologist inside me talking. Once you learn biology, your worldview changes.
The only reason why Slack captured everyone’s imagination was the incredible growth rate and wads of VC money. That is not to say that it’s a bad product — no, it’s an excellent product, but is it really all that much better than HipChat?
Think about Pokemon Go mania. That didn’t last long. I keep seeing parallels between Slack and Yammer. What happens when Slack stops growing? Will everyone stop caring and simply move on? Is media going to be less forgiving and stop covering features that other messengers had for years before Slack? Are they going to start making fun of VCs that invested hundreds of millions in the company at absurd valuations? What if the valuation was the actual story? How are Slack employees going to feel about that? Is top brass going to jump the ship?
For the full three years that Slack was on everyone’s radar the one thing that surprises me that the management never went beyond ‘look at the incredible growth in valuation and users’ story. There doesn’t seem to be plan B or a strategy to speak of. Chat would have been a perfect instrument to get your foot in the door and do what Atlassian has done or what Zoho has been doing for years. But it’s clear that Slack isn’t going down that path.
If viral was the story and the strategy, then both are over, once the growth stops.
5. If you want to see the future of chat, look at the past of email.
There is no law that states that what happened to email should happen to chat (talking about vendors here). But it’s a useful analogy to me. The early superstars, like Hotmail or Yahoo!Mail aren’t anywhere close to Gmail, which was founded in 2004 (vs 1996 and 1997). It doesn’t matter where Slack is now at, it matters where it’ll be in a few years AND where the competition will be. My outlook for Slack may be too gloomy for some. I haven’t factored in any black swans, like merger with Dropbox and Asana to form another alternative to GSuite or Office 365. It is my belief, however, that time is playing against Slack and not for the company and you have to be extremely skillful and lucky beat an opponent that tough.
The usual disclaimer
1. Slack is an excellent product
2. I am extremely envious of Slack’s incredible growth rate. It’s more than twice ours.
3. We are Slack’s direct competitor (and an example that you can can be more successful than Slack in select markets, like Eastern Europe)
4. I am not a Slack hater, but I want to share my critical thoughts in public before it becomes fashionable and ‘officially permitted’ once the news reaches Silicon Valley shores.
5. Yes, I realize that Microsoft Teams didn’t really flop and that unlike Slack it’s only available as a part of paid O365 subscription, but if Slack overreacted and took out a stupid ad, why can’t I to the same? I bet you Microsoft Teams team is really disappointed with these early results anyway.
6. Wanna see an app that’s getting at least played with despite of being ‘beta’, ‘limited release’, ‘rolling release’ etc (got a few messages about that with regards to MS Teams status). Check out Workplace by FB — https://play.google.com/store/apps/details?id=com.facebook.work&hl=en
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