Last month Slack puffed its chest and announced the submission of a draft registration statement for a proposed public listing.
In the collaboration software market, Slack's 2013 debut offered slight variations to competitors, with a couple exceptions that set it up to become the leading innovator in the market.
"Slack is waiting for the right time in the market to file for IPO," Carrie Basham Marshall, principal and CEO of Talk Social to Me, told CIO Dive. "We're experiencing the third wave of enterprise collaboration wars since 2008, and Slack is lying in wait, [to] understand what kind of adoption metrics its competitors are going to showcase."
Slack's IPO is a good indicator for the communication market as a whole, serving as a validation for the health of the market, its ideas, and possibly signaling future acquisitions.
Entering public domain
Slack will join Microsoft, its largest collaboration competitor, in the publicly traded realm.
Microsoft declared Teams it's fastest growing application in company history, after debuting in 2017. "In my inquiries with clients it has now come down to a two way horse race between Microsoft Teams and Slack," Art Schoeller, VP, principal analyst for Forrester, told CIO Dive.
Schoeller used to have a list of 35 vendors, but the number has dwindled by companies going out of business, throwing in the towel like IBM and Atlassian, or getting acquired.
Slack has been coy of the details, though it's been reported that Slack will take a play from Spotify's book and pursue a direct public offering.
"Nobody in the startup world wants to work for the company whose IPO didn't pan out."
Carrie Basham Marshall
Principal and CEO of Talk Social to Me
A direct public offering (DPO), in contrast to a more traditional initial public offering (IPO), removes the backing of a bank. It also means a DPO company's employees transition their ownership to stock, list it on the stock exchange, and the public is free to purchase shares, which eliminates the potential of "dilut[ing] the value of shares in the market," according to TD Ameritrade.
Direct listings do not offer as much transparency, in this case, it doesn't necessarily mean Slack is hiding something.
"I think that a hot, growing, private technology company that has played by its own rules wants to continue on this path," said Basham Marshall. Though there are risks, like unmet share price expectations, "there's a bit of unicorn-hubris in this decision," meaning the company is relying on historically successful outcomes to help make its case.
Slack's IPO comes during Silicon Valley's current "millionaire boom," with eyes also on Uber, Lyft, Crowdstrike and Airbnb, which will contribute to an "ego-driven competition," said Basham Marshall. "Nobody in the startup world wants to work for the company whose IPO didn't pan out."
A brief history of collaboration software
Before the communication platform market, there was phone and email.
When a catastrophic event occurred, like an earthquake, phone systems "would go into hibernation mode," but online MSN Messenger was still able to function, said Jonathan Christensen, chief experience officer at Symphony, in an interview with CIO Dive.
Christensen also worked at Microsoft and in the early to mid-2000s, "you were just buried under email" and email management was a fulltime job in and of itself, he said. Employees would write their instant messages in the subject line of their emails followed by "[EOM]," or end of message, to indicate its brevity and the practice was widespread at Microsoft.
This was also around the time employees were starting to use MSN Messenger inside Microsoft. Once a widespread chat tool was deployed around 2005, conversations could transition from email to chat.
The problems of compliance, redundancies, and risk evolved, not only for Microsoft, but for all companies dabbling in new modes of communication.
Companies and IT teams had to ask how many employees were using AOL or MSN or what employees could benefit from a collaboration tool but didn't use one. There became a marketplace for compliance solutions because people were bringing their own communication tools to work.
The collaboration software road was not paved by Slack, whose concept was nearly a mirror image of personal instant messaging platforms like AOL and MSN.
"Some of what makes Slack and Microsoft Teams have more traction now is that users have been conditioned to message by their consumer experience in Facebook, Twitter," said Schoeller. Slack's IPO puts emphasis on the importance of Teams, Workplace and Google's Chat/Hangouts. But the test among competitors will in be its ability to withstand growth quarter over quarter.
Slack came "out of the gate very, very fast and they created a category and that category was, until that point, only reserved for people whose IT departments had bothered to deploy this infrastructure."
Jonathan Christensen
Chief experience officer at Symphony
And yet Microsoft, a company decades older than Slack, was late to the game. "I thought the space was pretty cooked" by the time Slack entered the market, said Christensen. It wasn't until about 2015 that the collaboration market started drawing more participants.
Microsoft already had Skype for Business but around this time, the Redmond Monster realized it needed another product, said Schoeller. Teams was meant to accommodate the Skype for Business customer while appealing to new ones.
Facebook's entrance in the market, on the other hand, came with a learning curve.
Workplace by Facebook meant the company had to sell to enterprises, not just the consumers and advertisers the social site was built on, according to Schoeller.
Make way for Slack
When Slack hit the market, it spoke to a greater industry need.
Slack came "out of the gate very, very fast and they created a category and that category was, until that point, only reserved for people whose IT departments had bothered to deploy this infrastructure," said Christensen.
There were subtleties that were missed by everyone but Slack. During his time at Skype, Christensen said the company used its tool for internal collaboration and meetings, but the Skype product was not sold that way. In other words, Skype had the potential to be a market force but a misrepresentation hindered its prospects.
Skype was a globally recognized and well-liked brand but was also burdened by several acquisitions, a revolving door of presidents and CEOs, and therefore a lack of sustainability in the form of focus and direction in the enterprise market.
The communication platforms before Slack helped make its way to market dominance, but the company had a "closing of the circle," said Christensen. That secret ingredient was NAT traversal, or network address translator, that allowed endpoint connections despite things like firewalls interfering.
What also separated Slack from other companies vying for dominance in the communication platform space was the sign-up process, according to Christensen.
When Slack came into the market, it catered to small teams and created a sign-up process that took between 10 and 20 seconds with the ability to extend an invite via email. "That was really the x-factor," said Christensen.
And it was free, whereas Microsoft's solutions at the time came with a price tag and a heavy lift for infrastructure integration.
Slack's IPO comes at a time where it is "making good headway monetizing their solution versus only having 'freemium' subscribers," said Schoeller.
What keeps a dominant player dominant
What Slack made mainstream was the notion of persistent chat room capability and a one-stop application for most workloads. The tool is meant to serve as a knowledge base for an entire company, enabling other applications' functions without leaving Slack.
But "while Slack's allure may be its integrations, and while Workplace's allure is in its ability to connect everyone at a company, neither is more revolutionary than the other," said Basham Marshall.
Longevity in the market is in providing choices to customers and outliving competitors. Microsoft, in particular, has proven Teams is in it for the long haul with a suite of integratable products, loyal customers and a cloud to enable all of it.
Microsoft poses as a "formidable challenge for all us," said Christensen, which means every competitor needs to pick its specialty.
Slack's IPO comes at a time where it is "making good headway monetizing their solution versus only having 'freemium' subscribers."
Art Schoeller
VP, principal analyst for Forrester
Communication company Symphony is "Silicon Valley meets Wall Street" and is vertically focused in financial services. Customers include Bank of America and Morgan Stanley, and it is more sensitive to the data control and encryption the financial industry. Different industries demand features that broadly marketed tools, like Slack and Teams, can't always accommodate.
Other collaboration platforms might have to find a way to cater to niche customers or verticals to stay afloat. But the financial services industry "is the marquis marketplace for enterprise," said Christensen, which introduces trusted tools to the rest of the industry, legal participants and other customers in the financial services ecosystem.
It's not promised that other specialized tools can enjoy that type of fan out effect that occurs in financial services.
The fragmentation in the marketplace means there won't necessarily be a "winner takes all effect," according to Christensen. Instead, it will be more of "best of breed" and he expects more consolidation, like Slack's acquisition of HipChat and Stride's intellectual property.
At this time, Slack has to prove itself to investors that may not understand the ins and outs of the collaboration software market, including its other competitors.
When "Slack is happy with its performance against top competitors, and the public messaging that makes its product and value accessible to the average investor, I think it will proceed with the direct listing," said Basham Marshall.
