Chart: Slack https://slack.com/blog/news/slack-has-10-million-daily-active-users
This section is designed to provide an overview of the current position and financial shape of Slack. While previous sections have focused more on analyzing the educational aspects of Slack, the Market Snapshot commentary will feature research that focuses on Slack's financial value and business model.
Chart: Four Week MBA: https://fourweekmba.com/slack-business-model/
Market Analysis:
Public Value of Slack
Current financial position
Market Barriers for Slack
Business Model
Slack advertises that it is completely free to use. So how does it make money?
Percentage of Paid vs Free Users
- Even though Slack adopts a freemium business model, it primarily makes money by selling subscriptions to large organizations. With over 10 million daily active users, it leads the market for enterprise communication software. Slack’s chat interface plays a key role for forming the basis of Slack's digital services and apps used for revenue growth. More than 65 companies (Johnson 2021) in the Fortune 100 are paying for their workers to use Slack. (Delventhal 2019)
Public Value of Slack
- Slack went public on June 20, 2019 with a reference price of $15.7 USD billion valuation. According to Crunchbase, it has raised $1.4 billion in 10 funding rounds from investors that include a majority of the top VC firms and angels. In June 2017, Bloomberg reported that Amazon.com Inc. (AMZN) previously expressed interest in a potential takeover with a price tag of $9 billion. In short, Slack remains valuable to investors and even though it faces intense competition, it's unlikely that it will exit the market anytime soon.
Current financial position
- According to its S-1 filing, the firm's revenue in 2019 was $400.6 million which translates to an 82% increase. However net losses continue to occur as it experienced a loss of $138.9 million in FY 2019. On a positive note, this is a drop from the reported $140.1 million loss in FY 2018 and $146.9 million in FY 2017. According to the S&P 500, Salesforce's acquisition also brought in positive results as Slack's stock prices rose by 88% in 2020 and ended on a particularly strong note. (Kalogeropoulos 2021). It's also crucial to note that Slack's revenue jumped to $652 million from $448 million through the first three quarters of FY 2021. Income wise, it's encouraging to see Slack's business model working in their favour while gradually closing the gap between operating losses and revenue. (Kalogeropoulos 2021)
Market Barriers for Slack
- Most Slack users aren't paying for the service as a majority of its users prefer to use the free version. Reports have shown that despite a large number of enterprises signing up for its paid plans, most of them are small to medium sized companies which are at risk for closing down due to the pandemic. (Stock 2020). Furthermore, there's the burning question of what Slack intends to do with its freemium users and whether it'll face a similar situation to Dropbox and LinkedIn's premium offerings.
Business Model
Slack advertises that it is completely free to use. So how does it make money?
- One of Slack’s main revenue streams comes from a percentage of organizations willing to pay premiums for additional features. This include access to an unlimited communication history, unlimited app integration, additional cloud storage, screen sharing, statistics, and more. As Slack has no apparent plans to run ads in the near future, it relies on a traditional subscription based business model, charging monthly fees of $6.67 per user for the standard subscription and $12.50 per user for the plus subscription. It has also launched Enterprise Grid for larger organizations that have tens of thousands of users. (Deventhal 2019)
Percentage of Paid vs Free Users
- As of April 30, 2019, Slack had more than 95,000 organization on a paid subscription plan. The company calls these "paid customers" and they make up about 16% of the total user base. The company says 575 of these paid customers accounted for approximately 40% of its revenue in FY 2019. Organizations located overseas/outside of the US accounted for 36% of its total revenue in the same period. Slack also offers credits to customers when its uptime is below 99.99%. (Slack 2021)